[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                THE PRESIDENT'S FISCAL YEAR 2009 BUDGET 

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2008

                               __________

                           Serial No. 110-67

                               __________

         Printed for the use of the Committee on Ways and Means

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

49-982 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 















                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

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















                            C O N T E N T S

                               __________

                                                                   Page

Advisory of January 31, 2008 announcing the hearing..............     2

                                WITNESS

The Honorable Henry Paulson, Secretary of the Treasury, United 
  States Department of the Treasury..............................     5

                       SUBMISSION FOR THE RECORD

Joseph E. Powell, statement......................................    42


                THE PRESIDENT'S FISCAL YEAR 2009 BUDGET

                              ----------                              


                       THURSDAY, FEBRUARY 7, 2008

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 9:35 a.m., in 
room 1100, Longworth House Office Building, Hon. Charles B. 
Rangel (Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
January 31, 2008
FC-18

               Chairman Rangel Announces a Hearing on the

                President's Fiscal Year 2009 Budget with

                    U.S. Department of the Treasury

                        Secretary Henry Paulson

    House Ways and Means Committee Chairman Charles B. Rangel today 
announced the Committee will hold a hearing on President Bush's budget 
proposals for fiscal year 2009. The hearing will take place on 
Thursday, February 7, 2008, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 9:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be limited to the invited witness, the 
Honorable Henry M. Paulson, Jr., Secretary of the Treasury. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    On February 4, 2008, President George W. Bush will submit his 
fiscal year 2009 budget to Congress. The budget will detail his tax 
proposals for the coming year, as well as the budget for the Treasury 
Department and other activities of the Federal Government. The Treasury 
plays a key role in many areas of the Committee's jurisdiction, 
including taxes and customs.
      
    In announcing the hearing, Chairman Rangel said, ``I have enjoyed 
working with Secretary Paulson during his tenure as Treasury Secretary 
and look forward to hearing from him before the Committee as he 
presents the President's budget. This year's budget will be released at 
a time of growing concern about the economy. It will be very helpful 
for us to hear from the Administration's top economic policy official 
as we seek further ways for Democrats and Republicans to work together 
to find solutions to the issues facing American families.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Committee Hearings'' 
(http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the 
hearing for which you would like to submit, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, email and ATTACH your 
submission as a Word or WordPerfect document to the email address 
provided, in compliance with the formatting requirements listed below, 
by close of business Thursday, February 21, 2008. Finally, please note 
that due to the change in House mail policy, the U.S. Capitol Police 
will refuse sealed-package deliveries to all House Office Buildings. 
For questions, or if you encounter technical problems, please call 
(202) 225-1721.

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman RANGEL. The Committee will come to order. We ask 
our guests to please take their seats. Of course, we welcome 
our distinguished Secretary of Treasury, Hank Paulson. First, 
we have had meetings where we all have agreed that you have 
made an outstanding contribution to attempting to bring a sense 
of bipartisanship between at least the House and the 
Administration--the President, that is--and we assume that you 
have done the same with the other body, but we will wait until 
we see how their votes come on this package before we 
overextend our congratulations to your efforts.
    We are a little disappointed--at least the majority side--
that this budget has come to us without some type of an attempt 
to see what we could have worked out in the last year of this 
Administration, as opposed to a budget that really politically 
does not make any sense. Most all of the revenue saving 
provisions, especially as it relates to health provisions, have 
been rejected by the Congress.
    The idea that we would have in this budget an extension of 
the President's tax cuts of 2001 and 2003, and the 
underfunding--at least the reporting of the underfunding--of 
the war provisions not being there, as though the war is going 
to stop, the whole idea that for 7 years we have not discussed 
tax reform at all--even though, in my projected tax bill, which 
is merely a talking point for the Administration--we bent over 
backward to bring corporate relief, because we know that any 
loophole closings we have, without bipartisan support, they are 
going to be listed as tax raises.
    Of course, what is most befuddling to me is how you handle 
the alternative minimum tax. You know, that is not the 
Congress's fault. That is our government's fault, that 23 
million, 24 million people will have this burden moved off 
every year, temporarily, and continued additional expenses of 
billions of dollars, without just getting rid of the darn 
thing, especially after 8 years, that you include the revenues 
in the future in the budget, as though you never intend to get 
rid of it, and yet the rhetoric is that it's just unfair for it 
to be here.
    So, I don't mean to be offensive, but I kind of think this 
budget is a political statement, and that Congress has got to 
work and try desperately hard to see how we raise money to pay 
for provisions that neither Republicans or Democrats are 
prepared to accept, as relates to the cuts in programs that we 
think are essential to our constituents, and therefore, the 
country.
    I suspect that the die is cast, and that there is very 
little wiggle room for us to move away from your so-called 
balanced budget. But I'd like to believe that, to the best that 
we can in this election year, that we continue to enjoy your 
cooperation, and attempt to avoid confrontation where it does 
not help us as a Congress, it does not help this Committee.
    Quite frankly, I don't think it helps our candidates, 
Republicans or Democrats, for President when this is the 
President's last year. I know the dedication that you have 
given to the Administration, and what you have given up as a 
sacrifice, that we do hope that, after we get past this, that 
we can find some way to get back on track with the outstanding 
working relationship that we have enjoyed with you.
    I would like to yield to Mr. McCrery, who, without his 
support, I could not have enjoyed this working relationship 
with your office. Mr. McCrery?
    Mr. MCCRERY. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. It's nice to have you with us today. I look forward 
to your remarks. I particularly look forward to hearing your 
comments on the state of the economy, and how Congress can 
respond, in the short term, to the real challenges facing our 
economy.
    Tuesday's sharp drop in the Institute for Supply Management 
Index suggests real challenges in the months to come.
    Thank you, Mr. Secretary, for your work with Speaker Pelosi 
and Leader Boehner on crafting a stimulus package that we hope 
Congress will act on quickly. I believe the incentives to 
business to increase their purchases through bonus appreciation 
will be a real shot in the arm for our weakening economy, and 
the other provisions, I believe, will also be helpful.
    Our short-term economic challenges shouldn't completely 
obscure the need, though, to pursue pro-growth policies that 
will pay dividends for our economy in the future. I, therefore, 
applaud you and the President for your long-term focus on 
economic growth and job creation, and your recognition that 
preventing a looming tax increase is critical to that effort.
    If we learned anything in 2007, it was that the majority's 
allegiance to PayGo, as it's currently constructed, 
demonstrated in their budget proposals, and in the Chairman's 
own tax reform proposal, and in the December debate over the 
AMT patch has, unfortunately, set the cruise control for a $3.6 
trillion tax increase over the next decade.
    Unless we tap the brakes and shirk the yoke of this 
particular PayGo, the issue for Congress next year won't be 
whether revenues as a share of GDP will climb. The issue will 
be whether the revenues will come from higher marginal rates, a 
return of the marriage penalty, higher taxes on capital gains 
and dividends, smaller child tax credits, or whether the 
Congress will find some other taxes to raise, instead.
    It is true that we could avoid those tax increases by 
passing spending cuts. I would encourage my colleagues on this 
Committee to begin thinking seriously about using our 
jurisdiction to start the ball rolling on meaningful 
entitlement reform, which will create savings. To that point, I 
applaud the President for highlighting the fact that our 
entitlement system is in desperate need for reform. Only an 
ostrich with the longest neck could continue to ignore the fact 
that Medicare, Medicaid, and Social Security, if left 
unchecked, will impose massive costs on future generations of 
Americans.
    Congress must make some difficult choices on entitlement 
programs. This budget asks us to begin to meet those 
challenges. I hope the Congress takes the gravity of this 
situation to heart.
    Mr. Chairman, I thank you for your continued cooperation 
and working with me and the Members of the minority on this 
Committee to develop issues before our Committee's 
jurisdiction. I am hopeful that we will have another fruitful 
year.
    Chairman RANGEL. Well, I am certain the Secretary will be 
doing the best that he can to see that we do the best that we 
can.
    We recognize that you have a time limitation, so I will ask 
the Members to keep the record open for any opening statement 
that they would want to have included. That would give you the 
maximum time after the Secretary's statement to inquire.
    Mr. Secretary, welcome once again to our Committee.

  STATEMENT OF THE HONORABLE HENRY PAULSON, SECRETARY OF THE 
       TREASURY, UNITED STATES DEPARTMENT OF THE TREASURY

    Secretary PAULSON. Mr. Chairman, Congressman McCrery, 
Members of the Committee, I will also keep my remarks quite 
brief. I am pleased to be here this morning to discuss the 
President's budget for fiscal year 2009.
    My highest priority is a strong U.S. economy that will 
benefit our workers, our families, and our businesses through a 
measured approach that balances our Nation's needs with our 
Nation's resources. The President's budget supports that 
priority.
    This is especially important now, as after years of 
unsustainable home price appreciation, the U.S. economy 
undergoes a significant and necessary housing correction. This 
correction, combined with high energy prices and capital market 
turmoil, caused economic growth to slow rather markedly at the 
end of 2007.
    The U.S. economy is diverse and resilient, and our long-
term fundamentals are healthy. I believe that our economy will 
continue to grow, although at a lesser pace than we have seen 
in recent years. Yet the risks are clearly to the downside, and 
President Bush knows that economic security is of the utmost 
importance to the American people.
    In recent weeks, the potential benefits of quick action to 
support our economy became clear, and the potential costs of 
doing nothing too great. So, we are gratified that Congress is 
advancing a growth package to support our economy as we weather 
the housing correction. We believe that a growth package must 
be enacted quickly, it must be robust, temporary, and broad-
based, and it must get money into our economy quickly.
    The House has passed legislation that meets these 
principles. If we keep moving along a fast track, and Congress 
sends the President a bill that meets our shared principles, 
rebate payments can start in May and be completed this summer. 
Together, the payments to individuals and investment incentives 
for businesses will help create more than a half-million jobs 
by the end of this year.
    In addition to an economic growth plan to help us weather 
this housing correction, the Administration will continue to 
focus on aggressive action to try to provide alternative 
options to foreclosures. This includes encouraging the HOPE NOW 
alliance's outreach to struggling homeowners. Congress can do 
its part by finalizing the FHA modernization and GSE regulatory 
reform bills, and by passing legislation that will allow states 
to issue tax-exempt bonds for innovative refinancing programs.
    We continue to monitor capital markets closely, and to 
advocate strong market discipline and robust risk management. 
Working through the current stress is our first concern. 
Through the President's Working Group on Financial Markets, we 
are also reviewing underlying policy issues because it is just 
as important to get the long-term policy response right.
    While we are in a difficult transition period as markets 
reassess and re-price risk, I have great confidence in our 
markets. They have recovered from similar stressful periods in 
the past, and they will do so again.
    The Administration will also continue to press for long-
term economic policies that are in our Nation's best interest: 
a pro-growth tax system; entitlement reform; and a balanced 
budget. To that end, the President's budget makes the 2001 and 
2003 tax relief permanent, and keeps the Federal budget on 
track for a surplus in 2012.
    In the future, as in the past, our long-term economic 
growth will also be enhanced by supporting international trade, 
by opening world markets to U.S. goods and services, and by 
keeping our markets open. Congress can help create jobs and 
economic opportunities by passing the pending free-trade 
agreements with Colombia, Panama, and South Korea.
    I appreciate the cooperative and bipartisan spirit that has 
brought the Congress and the Administration together to support 
our economy, and I look forward to that spirit continuing as we 
work through this period. Mr. Chairman, thank you very much.
    [The prepared statement of Mr. Paulson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Chairman RANGEL. Thank you, Mr. Secretary. I think the 
record should be made perfectly clear that, as relates to 
Panama, the problem doesn't exist in this Committee or in this 
House.
    I also have been under the impression that the 
Administration is trying to improve the agreement with Korea. 
So, those issues are not in front of us, legislatively or 
politically, at this time, even though Colombia does represent 
a problem.
    Since you are not a politician, maybe you can tell 
politicians how we can explain some of the President's 
positions. I refer specifically to the extension of the 
President's 2001, 2003 tax cuts. Politically, we do recognize 
that if they're not extended in whole or in part, they could 
legitimately be perceived as a tax increase. It should be made 
clear it wasn't the intention of the Congress to have them 
expire, but the President had them to expire.
    Yet, while we talk about extending this, there is no talk 
about removing the alternative minimum tax. There is no talk 
about tax reform. It seems to me, as a businessperson, this is 
totally inconsistent, especially when, originally, the 
Administration would put the expiration of these 2010 
provisions into a stimulus bill, which economists say has to be 
timely, targeted, and temporary.
    Having said that, it seems to me that when we talk about 
the stimulus program, that once again we are talking about 
helping business. Because no one talks about the compassion of 
the hundreds of millions of people that can't afford to put 
food on the table, clothes on their kids' back, or get them an 
education or pay the rent. We are talking about finding 
hundreds of millions of Americans, most of whom work hard every 
darn day, some under the poverty line. But, at the end of the 
day, we have designated them--Republicans and Democrats--as 
people that are in dire need. If you give them some money, 
they're going to spend it.
    I don't know whether it's in the budget, Mr. Secretary, but 
it seems to me that there is something bad with that picture, 
to believe that the only time we can find some equity in the 
tax system or equity in the support system is when we need 
these poor people out there to spend money to buy goods and 
services and to spur the economy.
    I am not asking for a do-good statement, because it is too 
late for compassion. We have to get something out fast. But I 
do hope that you can point out some place in your budget where 
you're saying, ``As soon as we get this economy back on its 
feet--and we will--that we will never be put into a position 
that we go into a recession, not because we're not productive 
and competitive, but because our American, hardworking people 
can't afford to buy.''
    I think that whether you are Republican or Democrat, that 
should be a painful experience that we are going through. So, 
if you can find any compassion along the line in response to 
anyone's question, it would help us a great deal to be able to 
say why this document is before us, which deals with tax cuts 
and raises taxes on the people trying to get health care the 
most.
    So, I am not here to embarrass you, but I do ask for your 
help in trying to explain to me and others the questions that I 
have raised, and I do hope there is flexibility to see what we 
can do, before the year ends, to work some of these major 
differences out. I yield to Mr. McCrery for questions.
    Mr. MCCRERY. Well, Mr. Chairman, you raised a number of 
questions. You lost me on the raising taxes on people trying to 
get health care. I didn't follow that one, because the only 
thing----
    Chairman RANGEL. If you look at some of the Medicare 
provisions, you will see them.
    Mr. MCCRERY. Well, but the President's--if you are talking 
about health insurance, the President's budget proposes that we 
reallocate the tax expenditures from spending it on the 
wealthy, people like you and me, to people who don't have 
insurance through their place of employment, and we will give 
them a tax expenditure for going out in the marketplace and 
purchasing insurance, which they can't get today.
    So, I think that is compassionate. I think it is forward-
looking. I think it is a very vital part of meaningful health 
care reform in this country, if you want to make the 
government's expenditures more rational and more compassionate. 
So, I would hope you would look at that part of the budget, as 
well, and----
    Chairman RANGEL. Well----
    Mr. MCCRERY [continuing]. Commend the President for 
bringing forward some progressive reform in the area of health 
care.
    Chairman RANGEL. If the gentlemen will yield----
    Mr. MCCRERY. Sure.
    Chairman RANGEL [continuing]. It is my understanding--and 
the Secretary could correct it--that employee-provided 
insurance would not be given the deduction in tax benefits. So, 
I thought that would kind of hurt the beneficiary, if the 
incentives for employers to provide health care was taken away.
    Mr. MCCRERY. Well, as I said, Mr. Chairman, those tax 
expenditures, through health insurance provided in the 
workplace, go to people who are relatively well off.
    Chairman RANGEL. Okay.
    Mr. MCCRERY. The President's proposal more evenly 
distributes those tax expenditures throughout the income 
brackets, and gives it to people who don't get insurance 
through their place of employment. It gives them a chance to go 
out in the marketplace and get some health care or health 
insurance for their families. It is a very progressive reform.
    I would prefer tax credits, frankly. But you--I would think 
the majority, and in their sense of compassion for people who 
need help, would be supporting a reallocation of those tax 
expenditures from the way they are today, which is very tipped 
toward upper-income, higher-income people.
    Chairman RANGEL. I hope these people aren't eligible for a 
rebate, too, you know?
    Mr. MCCRERY. Mr. Chairman, in the House compromises, you 
know they are not. We are not eligible, with our incomes, and 
higher-income people are not. So, I think it was a good 
compromise that your staff worked on, and my staff worked on, 
and the speaker's staff and Leader Boehner's staff, and 
Secretary Paulson and his staff.
    So, I think the House compromise is pretty good, along 
those lines. You all got a lot of what you wanted, and we got 
some of what we wanted. So, that's what this is all about. I 
was very pleased with the bipartisan cooperation that led to 
that agreement, and the very quick passage of the stimulus bill 
here in the House. We, of course, are waiting to see what the 
Senate does with that.
    But I think our package was very good, and represented a 
high mark in the cooperation between the majority and the 
minority in this house.
    Mr. Chairman, I am having copies made of a chart, a graph, 
and having it distributed, because I think it is instructive on 
the issue of tax reform, tax revenues, PayGo. So, I hope the 
Members will take a look at this graph, as it rather 
demonstrably shows the ills of the PayGo system that is in 
place currently.
    I don't know if we can put it on the screen, did we ever 
get capability to put it on the screen? No? Okay.
    Well, if you just take a look at your graph, the top dotted 
line is the line that represents the percent of GDP of revenues 
to the Federal Government under the PayGo system. As you can 
see, the line rather quickly gets up to right at 20 percent of 
GDP for revenues.
    Mr. Chairman, it doesn't matter how you get there, whether 
you let the 2001 and 2003 tax cuts expire, whether you continue 
to let the AMT kick in, whether you raise taxes on upper income 
people, or whatever else. The fact is, under your PayGo rules, 
you're going to get us to over 20 percent of GDP and revenues. 
That's a tax increase. No matter how you construct it, it's a 
tax increase, compared to where we are today.
    The redline is basically what is in the President's budget. 
Now, it is true that, in the President's budget, he doesn't 
describe what he would do to reform the Tax Code. Eventually, 
some president is going to have to work with the Members of 
this Committee, I think, to reform the Tax Code.
    But what the President does--I think wisely--in his budget, 
by saying, ``Let's extend the 2001 and 2003 tax cuts, but count 
the revenues from the AMT in the out-years''--or at least 
passed this year--you get the red line, which keeps revenues--
they spike in the first year up to 19 percent of GDP, but then 
it comes back down and levels off. In every year for the next 
10 years, it's above the historical average of revenues to the 
Federal Government.
    The dotted line with a dash and dotted line represents the 
historical average, which is about 18.3 percent of GDP and 
revenues. So, you can see in the President's budget, with his 
construct, he keeps revenues, as a percent of GDP, above the 
historical average.
    Then, you can see the green line and block graph represents 
current law. So, if we just extended current law--which is to 
say, Mr. Chairman, if we extended all the tax cuts that are in 
place from 2001 and 2003, if we extended all the expiring 
provisions, and if we kept the patch on the AMT, you would get 
that line.
    Yes, Mr. Chairman, I think that line may be too low, in 
terms of producing revenues to the Federal Government. So, does 
the President, evidently, because he keeps revenues above the 
historic average.
    So, I just thought the Members ought to see this very clear 
representation of the various views on revenues to the Federal 
Government and the PayGo rules would produce, Mr. Chairman. 
Frankly, your bill would produce that dotted line that is way, 
way up above everything else, and certainly way above the 
historic average.
    So, I just thought I would lay that groundwork before we 
get into listening to the Secretary. Thank you.
    Chairman RANGEL. Mr. Secretary, do you have any response to 
our positions here?
    Secretary PAULSON. Okay, you covered a lot of ground. In 
the interest of time, I will just go over some of the points 
you made quickly.
    First of all, I know AMT is on everyone's mind here. I 
would just make the point that I think the budget is quite 
transparent. This year we would patch it. I think we are all in 
agreement--at least I sure hope we are--that we do not need to 
raise taxes, we should not raise taxes this year, and we should 
not subject so many Americans to added uncertainty. Let's not 
wait any longer than we need to. Let's patch it.
    Now, in the out-years, you are right. Those revenues are in 
the budget. What I think needs to be done--and I think 
Congressman McCrery really got to the point--is that it is 
going to need to be addressed in the context of several 
questions.
    First of all, we need to look at it, in the context of what 
we do with the major budget issues this country is facing over 
the intermediate term, which are entitlements. Second, it is 
going to need to be addressed in the context of what percentage 
of our economy do we want to be taken up by taxes. The tax----
    Chairman RANGEL. When do we address this, the next 
Administration? I mean, it has been 8 years that we've been 
pushing it off and including it in the budget revenue.
    Secretary PAULSON. Mr. Chairman, I appreciate your 
frustration. I had a little frustration myself, and I just have 
to recognize what is doable. I started off really hoping that 
we could get people on both sides of the aisle to come to the 
table on a bipartisan basis with no preconditions, really look 
at the question of our entitlements, and look at all of these 
things. It did not work out.
    I understand the frustration. I feel the same. This is 
going to have to be worked out at some time. But, again, I will 
just say the budget is transparent. We have these revenues in 
the budget, we recognize that this has to be addressed. We feel 
strongly it should be patched this year.
    Now, just quickly on the other topics that you all talked 
about, I reacted very much the same way that Congressman 
McCrery did to the proposal on the standard deduction for 
health insurance.
    And here is the way I thought about it. When I looked at 
the Tax Code, and looked at tax preferences, the biggest tax 
preference is $3.3 billion, over a 10-year period, for 
employees of companies that provided health insurance.
    And so, this privileged group receives this big preference. 
It does not go to all of the people that do not have health 
insurance, those who work for companies without this benefit--
waitresses, and construction workers. And then, even in the 
companies that provide insurance benefits are at the high end 
who received gold-plated insurance plans receive the greatest 
amount of the tax benefits.
    Now, when we put this idea out here, it wasn't that this 
was the be-all or the end-all, or that this was the solution to 
all of the health care problems, or the solution to getting 
more insurance to those that are uninsured. But it was a step 
in the right direction.
    I was hopeful that people on both sides of the aisle would 
say, this is something we can work with, this is a benefit that 
is really quite regressive, this is unfair in many ways, and it 
could make a difference if we work together toward getting more 
insurance to more people who need it.
    It did not work that way, but I just make the point that 
this year and in the years ahead, when you grapple with this 
issue, there is a significant pot of money there that is being 
allocated in a way, that I think is not optimal. I think it is 
being misallocated, and we look at the revenues, this is 
something to work with.
    On your last point on stimulus, let me just say something 
there, because I too think the bipartisan agreement with the 
House was a very important step, and I think it does a lot for 
individuals and consumers. And I also need to say, making the 
tax cuts permanent, as important as that is to this President, 
our Administration, and all of us, was never part of a proposal 
on a stimulus package. From the day I first had conversations 
with the President, that was never in the package. That was on 
a separate track.
    But the starting point was what you did in 2001: was to 
make payments, the rebates, and have theme go to those who pay 
Federal income taxes. This was quickly broadened, and I think 
wisely so. But it was broadened to apply to working families, 
and with a big component of it going to children, through the 
child credit.
    And now, the Senate has been talking about extending it to 
low-income seniors and disabled veterans, and our approach has 
been to say that we could work something out on that. So all of 
this is stimulus. It's broad-based.
    And when you say, where is the compassion, I will tell you 
that for a working family that has $3,000 of earned income and 
several children, and that is going to be getting a check for 
at least $1,200. There is some stimulus, and I think there is 
real compassion. I think it is something that you all on this 
Committee can be proud of.
    Now, whenever you're doing something on a bipartisan basis. 
And where there is compromises, there are going to be people on 
each side that aren't entirely happy. Mr. Chairman, let me end 
on that note. Thank you.
    Chairman RANGEL. Mr. Levin?
    Mr. LEVIN. Thank you, Mr. Chairman. You are welcome, Mr. 
Secretary. We very much enjoyed working with you. You are here 
today, though, as spokesman, spokesperson, for the 
Administration, not as an individual. So, let me just say a few 
things that relate to the budget, and discuss a few issues.
    By the way, I think we should be careful in saying that 
those who have employer health coverage are privileged. They 
worked hard to get that coverage. If there hadn't been a 
deduction, an exemption, there wouldn't be health insurance 
today as extensive as it is. So, I don't think they are 
privileged, and these policies aren't gold-plated, in most 
cases.
    I am glad I read your testimony, that you don't use the 
words that were in the State of the Union, that the ``economic 
picture is uncertain.'' That term was used by the President, 
``uncertain.'' Because I think there are certain things that 
are very certain. There are problems that are real.
    Also, I won't ask you about some of the budget cuts, 
because they're not really in your domain. Cutting out the 
manufacturing extension program, I don't know how that fits 
into economic growth. Eliminating the COPS grants, cutting CDBG 
by over 30 percent, cutting the water--the state water 
revolving fund by 20 percent, safe and drug-free schools by 
two-thirds, I think those are essentially dissembling, and in 
some cases, disgraceful.
    But let me just--you are not here really to discuss that, 
the deficit--I don't know of any economist who thinks that the 
President's budget is going to lead to a surplus in the year 
2012. But let me ask you about an item that is very much within 
your jurisdiction, or mention we have talked about China.
    I have read the latest report from the Treasury Department, 
and it says that the appreciation on a trade-weighted basis, 
the yuan has been 5.68 percent, trade-weighted, which I think 
is the accurate way to look at it. So, there is a long, long 
ways to go. I think you should expect this Committee to 
continue working on this, and working on this this year.
    Let me spend a couple of minutes, because you said in your 
testimony that the rebates can be--start in May and be 
completed this summer. If unemployment comp is extended, the 
payments would go out in February or March. You said before the 
Senate Finance Committee, I think, that there hasn't been an 
extension when unemployment has been lower than 5 percent.
    Mr. Secretary, the number of people who have exhausted 
their benefits is twice what it was in the first month of the 
last recession. I read this, ``The exhaustion rate for regular 
unemployment benefits today is higher than at the beginning of 
the last five recessions, going back to 1973.''
    So, I don't know how you defend, simply by saying the 
unemployment rate is only 5 percent, when you have a basically 
historic level of exhaustion of benefits. A million and a half, 
or a million four hundred thousand people, it's projected that 
another million four or five hundred thousand will exhaust 
their benefits in these 6 months.
    So, how, as a spokesperson for the Administration, defend 
your adamant resistance to extending unemployment compensation 
benefits, when the exhaustion rate is at a historic high? At 
least in the last decades, with the last five recessions. I 
mean, speak as a spokesperson for the Administration. I don't 
want to ask you how you feel, personally. A lot of us have come 
to know you, and I want to resist that, because you're not here 
in that capacity. But how do you defend it? How do you defend 
that?
    Can you go to any state where a fifth or a quarter, a third 
of the people unemployed have exhausted their benefits and say, 
``We are not going to extend your benefits?'' What would you 
say to them?
    Secretary PAULSON. Okay. Well, first of all, thank you 
Congressman. I guess you wanted me to comment on two things, 
you wanted me to comment on China and currency, and 
unemployment insurance?
    Mr. LEVIN. We can talk--yes, if there is time. The red 
light--we will talk more about the China currency.
    Secretary PAULSON. Oh, okay.
    Mr. LEVIN. I wanted just to point that out.
    Secretary PAULSON. Okay. On the unemployment insurance, I 
take your point. That there is a structural issue, and that 
there are more people that have been unemployed for an extended 
period of time. I understand that point.
    But, again, it is very simple. When you look at the current 
situation, not 5 percent, but 4.9 percent unemployment, we have 
a situation where unemployment in this country is low by any 
historical standard. I looked at 5.7 percent, that's the lowest 
unemployment rate that it's ever been when we have extended the 
benefits.
    Mr. LEVIN. Okay. Well, what do you say to this million-and-
a-half people now and a million-and-a-half people who have 
exhausted their benefits? What do you say to them when you 
strongly oppose the extension of--you say to them, ``The 
national rate is 5 percent?'' What do you say to them?
    Secretary PAULSON. I understand there are different levels 
of unemployment in different states. We have a system in our 
country where there are people who have various programs aimed 
at dealing with their specific situation.
    I just think the signal we sending the wrong to the whole 
world, by extending unemployment benefits with the unemployment 
rate, at 4.9 percent.
    Mr. LEVIN. To the world?
    Secretary PAULSON. It is rather unusual, it is not to have 
unemployment of 4.9 percent?
    I am talking to a fair number of economists, who are giving 
me a hard time and saying, how is it we are moving too quickly 
with a stimulus package to throw money into the economy, and 
support the economy, at a time when it is not at all clear that 
we are going into a recession?
    They also say, Mr. Secretary, you have said you think the 
economy is going to continue to grow. So, my answer is that we 
are on this, we are going to have an aggressive stimulus plan 
that is going to give money to a lot of people who it will 
help. Again, in terms of the stimulus, I think rather than a 
few dollars a week, we are talking about giving people big 
checks, and giving it to them----
    Mr. LEVIN. The unemployment check--my time is up--the 
unemployment check, in most states, would be considerably 
larger, and in many states, per month. So, you can't say to the 
unemployed person who has exhausted their benefits, ``We are 
going to give you $300, and that's it.''
    Secretary PAULSON. The unemployed person is--it will be 
$300, unless that person has kids, in which case, he or she 
will receive more.
    Mr. LEVIN. Okay.
    Secretary PAULSON. The other thing I will say to you is 
that when this package was crafted, it did not have things that 
people on both sides wanted, but it came together with 
something that worked and would be stimulus.
    Mr. LEVIN. But we want an unemployment----
    Secretary PAULSON. I am saying here that if the situation 
continues to deteriorate, as I hope it will not--and I do not 
expect the economy to get much worse--but if it does, then this 
will be a matter that you will be discussing right here, and we 
will be discussing it with you.
    Chairman RANGEL. Mr. Burger? Mr. Herger, sorry.
    Mr. HERGER. Thank you, Mr. Chairman. Secretary Paulson, I 
want to thank you for appearing here today. I want to also 
thank you for your strong advocacy of free trade.
    As you know, we are the world's number one trading nation. 
Some 4 out of 10 American employees, Americans, are affected or 
involved in trade, some 42 percent. Again, I thank you for your 
work in this area.
    With our current economic situation, I would like to ask 
you the--your opinion on some proposals that are before 
Congress. Last week, the Fed stated that our financial markets 
remain under considerable stress. Credit is tight, and 
inflation has been rising. Would it be in the U.S. interest to 
further upset the apple cart by applying anti-dumping, or 
counter-veiling duty laws to industrial, agricultural, or 
consumer goods to China to address any of our undervaluation of 
Chinese currency?
    We are all aware that the RMB needs to appreciate. But, 
given our economic uncertainty, would piling on additional 
economic shocks by raising tariffs on imports through dumping 
and countervailing duty laws by helpful or harmful to our 
economic interests?
    Secretary PAULSON. Congressman, I think a simple answer is 
it will be harmful, but it is more than a simple answer. 
Because, obviously, Congressman Levin has said--we all are 
focused on this. We all realize that we would like the Chinese 
to move quicker in appreciating their currency. We have been 
working hard to that end.
    They have recently begun to appreciate it much more quickly 
over the last year. In the last 3 months, it's appreciated 4 
percent. So, there is movement there, and important movement. 
Again, I think that although our objective is the same, the 
idea of putting tariffs on to deal with another country's 
currency, as sovereign nations, would not be a wise thing to 
do, given what's going on in the markets. I just think it is a 
dangerous course.
    Mr. HERGER. You have raised concerns about the unintended 
consequences of legislation that proposes significant changes 
to our trade remedy laws, particularly to address currency 
concerns. As you pointed out, such bills could lead to WTO 
problems and retaliations by our trading partners against U.S. 
exports.
    I am also concerned about copy-cat legislation that targets 
the recent weakness in the U.S. dollar. Given that our 
continued and strong export growth is crucially important to 
our economic growth, what kind of threat does retaliation and 
copy-cat legislation pose to our exports?
    Secretary PAULSON. Congressman, today, of course, we are 
more reliant on exports than I can remember at any time in the 
recent past. It is very important to us to keep markets open. 
So, I am a big proponent for trade. Again, when we look at how 
to deal with trade differences, I would say one route is 
negotiation, and we pursue that aggressively. Another is the 
dispute resolution procedures that the WTO has, and we pursue 
that very aggressively.
    I think it would be counterproductive for one nation to try 
to legislate another's macro-economic policies, or currency 
policies. We are making progress, though. I would just simply 
say that in the IMF right now is much more active. I think the 
G-7 has also come together, and has taken a strong position on 
China's currency.
    So, I think there will be more productive ways of moving 
ahead. But I just about everybody shares a common objective. 
So, going back to what we are just talking about, I would agree 
with you, that legislation is dangerous, and I think it could 
be counter-productive course.
    Mr. HERGER. Thank you very much, Mr. Chairman.
    Chairman RANGEL. McDermott is recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Paulson, it's 
good to have you here. As I sit out there looking at you, I 
couldn't help thinking of Colin Powell, going up to the general 
assembly, trying to sell the justification for the Iraq War.
    This budget, I look at it, and I try and figure out where 
is the war in all this. I see very little. So, I went back and 
did a little historical research. You look on the monitors, and 
you will see what revenue did during the Civil War. It went up 
to almost 14 percent of gross domestic product. You look at the 
first world war, and the revenue went up to almost 24 percent 
of gross domestic product. Then, in the second world war, we 
went up to almost 45 percent of gross domestic product.
    So, we were--in wars, we taxed. But then, if you look at 
the line for Iraq, all you see is it's going down. I don't 
understand how you could come up here with a budget--I mean, I 
try to imagine if you were Goldman Sachs and a company came in 
with their budget, and they left out a huge element of their 
operation, how you would--how you could evaluate them, when you 
leave out the war in the budget here.
    What is the reason? I mean, give us the explanation for the 
thinking that is going on in the White House that says, ``We 
can leave the budget out of the war, just do that on the 
side,'' and not have the revenue. I--explain that to me.
    Secretary PAULSON. I will give you a couple of 
explanations. First of all, to those who say there is no 
transparency, I disagree, because the number you see in 2009, 
the $70 billion, is a placeholder. That is all it is. We have 
been very transparent, by saying that that number is yet to be 
determined, and we are going to wait to hear what General 
Petraeus says, what the other advisors are going to recommend. 
Everyone knows that number is going to be substantially bigger.
    I read where Secretary Gates gave a very, very rough 
estimate yesterday in his testimony, so I would----
    Mr. MCDERMOTT. But the Republican candidate leading for 
President says we're going to be in Iraq for 100 years.
    Secretary PAULSON. Okay.
    Mr. MCDERMOTT. So, you're telling me about 1 year, there is 
a placeholder for 2009. What about the long-term layout of 
that?
    Secretary PAULSON. Well, I think that is something we all 
have to expect that there will be a number there for a while. 
That is an uncertainty. But that is--there is no mystery. I 
mean, there is no hiding the ball. It's just a number that 
hasn't been determined yet.
    So, again, here is how I think about the budget question. 
The one thing we can all take some comfort in is that, despite 
the cost of this war and despite some of the other unforseen 
costs like hurricanes and so on, people on both sides of the 
aisle--all of us--have been surprised on the upside with the 
rate at which revenues have been coming in.
    Even last year, when I thought maybe for the first time it 
would not beat our estimate, revenues came in quicker. So, the 
short-term deficit, the deficit we closed the year with, was, 
as a percentage of GDP, a very small number. It was 1.2 
percent.
    So, the questions we are dealing with are really--the 
longer-term questions, or the entitlement questions, which are 
very serious questions--and I appreciate your frustration at 
not being able to pin down the cost of the war, but you know 
what it is this year----
    Mr. MCDERMOTT. I just want to--let me just--my time is 
escaping here.
    Secretary PAULSON. Right.
    Mr. MCDERMOTT. I want to say one other thing. What I don't 
understand about Republican fiscal policy is I arrived in 
Congress at 1988, at the end of the glory years of Reagan. I 
sat through the mess of the Banking Committee of the savings 
and loan crisis.
    Now, 20 years later, we've got the great Bush 
Administration practically out the door with the housing 
crisis. If you can believe these business magazines, this is 
``Business Week,'' and it says there is a meltdown, worse to 
come, a 25 percent drop in housing prices. What is it about a 
Republican ability to manage the economy, that they always 
leave a problem on the doorstep when they leave? What is that?
    Secretary PAULSON. I don't know if that's a rhetorical 
question. If you want an answer, I----
    Mr. MCDERMOTT. I would like an answer.
    Secretary PAULSON. I would essentially say that what we see 
going on here, in my judgment, has been building for a long 
time. For years we have seen housing prices appreciate at 
levels that are unsustainable. So, you are getting a necessary 
correction.
    Now, I read very carefully. I got that magazine, I read it, 
read the article. There are all kinds of projections, in terms 
of what may or may not happen. But there is no doubt that this 
housing correction is the biggest risk to our economy right 
now, and it is something we are very much focused on.
    Mr. MCDERMOTT. Thank you.
    Chairman RANGEL. Mr. Camp?
    Mr. CAMP. Thank you, Mr. Chairman. I want to thank you, Mr. 
Secretary, for being here to talk about the revenue proposals 
and the President's budget, and I just wanted to get back to 
that for a minute.
    As one who supported the stimulus bill, I want to commend 
you for working with us in the House in a bipartisan way. This 
bill received the support of virtually everyone on this 
Committee--nearly everyone--but I think it will quickly deliver 
relief to American families and job providers, and I just want 
to wish you good luck with the Senate on that.
    As one who supported the stimulus, I worry, though, that if 
we only focus on the next quarter, and risk ignoring economic 
trends for the next decade, how we continue to get the U.S. 
economy to grow and to be competitive and create jobs, I think 
we need to examine the Tax Code's fundamental flaws.
    In 1960, America was home to 20 of the largest corporations 
in the world; 30 years later, we were only home to 8 of those 
companies. I think the reason being partly that virtually every 
industrialized nation has reduced tax rates, leaving the United 
States with the second highest corporate rate in the world.
    I commend the President for calling on Congress to make 
permanent the 2001 and 2003 tax cuts. Those reduced rates 
provided marriage penalty relief, relieved us of the death tax, 
lowered taxes on savings and investment. Revenue to the 
treasury flowed, and the economy grew.
    But in addition to those permanent reductions, I think we 
need to reduce the corporate tax rate, say to the average of 
the OECD, at 31 percent. Then the U.S. can really compete for 
jobs. With that increased investment, we would see job growth.
    Since it has been 20 years since Congress really looked at 
comprehensive tax reform, really a comprehensive plan to lower 
taxes and streamline the Code and lower the tax burden, I wish 
that I had seen the Administration take a chance to really push 
for fundamental reform.
    But I have two questions for you. One, what are the 
Administration's views for achieving long-term economic growth? 
Two, using the power of the Tax Code to increase the number of 
people with health insurance is critically important. I think 
those ideas are essential, that--not just for those that 
already have employer-provided insurance.
    So, under the President's plan, how many more Americans do 
you estimate would have insurance?
    Secretary PAULSON. Congressman, we estimated 8 million 
Americans would have insurance under the President's plan. I 
would also say, going back to what Congressman Levin said about 
all of those who have health insurance, who are working for 
corporations, that they are not just privileged, and that they 
have earned this, and I could not agree more. I am all for 
employer health insurance plans. I think they're good things, 
and they're important.
    I am just saying that this is a big pot of revenues we have 
to work with, and we think about doing things more equitably 
and getting some of the things that we would all like to 
achieve. Yes, you are right, this would, we think, add at least 
8 million people who are uninsured to the insured rolls.
    Mr. CAMP. Then, what do you think about economic growth in 
the long term? I appreciate the short-term work on the 
stimulus, and----
    Secretary PAULSON. The long-term is what is important, and 
I am going to just build off what you said, because we at the 
Treasury Department have done, and are doing, a lot of work to 
document something, which I think this Committee has to 
increasingly be focused on, and that is economic growth and 
corporate taxation.
    Of course, we need taxes, you need tax dollars, everybody 
knows we need revenues. So, the questions with taxes are really 
what percentage, how big should taxes be, as a percent of our 
overall economy, and then what form of taxes will give us the 
most growth, will give us the most jobs?
    The corporate taxes, I believe, are among the most 
expensive revenues we raise, in terms of what they do to jobs 
and growth, and to inhibit them. What we're finding is that 
other countries are reducing their rates below ours. We are 
becoming a relatively high taxer.
    But even more important to me is that their form of 
taxation is changing in ways in which it is more conducive to 
growth, while ours is antiquated. And, the trend is going in 
the way those countries that are continuing to reduce their 
taxes.
    So, how do we think about this? Although I do believe that 
reducing the headline rate for corporates will make a 
difference, I do not believe it is as simple as just reducing 
it by a few percentage points. I think we need to take a really 
fundamental look at all of this.
    Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman.
    Chairman RANGEL. The chair recognizes Mr. John Lewis, of 
Georgia.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Mr. Secretary, thank you for being here today, and thank you 
for your service.
    You said in your testimony that working through the current 
stress on the economy is your top concern. I don't think it 
takes much for us to know and realize that the economy is 
tanking. It is not good.
    The American people are scared. They are worried. They are 
hurting. They are losing their jobs, their health care. They 
cannot afford to send their young people to college. I want to 
know, do you think that this budget, with the same, old, worn-
out ideas is the best medicine right now? Is this the best 
prescription for our economy? Will extending the 2001 and the 
2003 tax cut help the thousands of our citizens in a city like 
Atlanta that are losing jobs?
    Just a few days ago, a company opened a store in Atlanta 
for 400 jobs. More than 7,500 people showed up. Another major 
company headquartered in Atlanta laid off 500 individuals out 
of its headquarters.
    Where do we go? I do not see the sense of urgency.
    Secretary PAULSON. Congressman----
    Mr. LEWIS OF GEORGIA. Another thing, Mr. Secretary. You 
know, the budget should be a reflection of our values. I just 
don't see it. I don't feel it here. I would like for you to 
sort of----
    Secretary PAULSON. Okay.
    Mr. LEWIS OF GEORGIA [continuing]. Give me some sense that 
I can feel a little bit better.
    Secretary PAULSON. Okay. Well. First of all, Congressman, 
let me say that you are right, the economy is slowing. I 
would----
    Mr. LEWIS OF GEORGIA. Are we in a recession right now?
    Secretary PAULSON. I don't believe we are, no sir. I think 
we are slowing, and I hoped you would have sensed a sense of 
urgency with the stimulus plan.
    Mr. LEWIS OF GEORGIA. But some people saying that the 
stimulus package is good.
    Secretary PAULSON. Right.
    Mr. LEWIS OF GEORGIA. But it's a little too little too 
late.
    Secretary PAULSON. Well. Again, I appreciate your view on 
that. I would say there are plenty of people on the other side 
that say boy, this is almost unprecedented, getting here as 
soon as it slows down, while we are still growing. It is 
unprecedented to move quickly with that.
    Then, I would say, in terms of the budget, these are 
complex, comprehensive issues, and there are many tradeoffs. 
There are programs in the budget that I am sure you like, there 
are others you would like to be bigger.
    Even on the tax issues, because there has been a lot of 
conversation about the Tax Code and making the tax relief 
permanent, as I look at it--and, again, I was not here to 
participate in that--I think those were great actions.
    But as you look at this, as you look at lower-income 
people, I see a family of four making up to $42,000 and not 
paying Federal income taxes. I look at what has happened with 
the child credit and earned income tax credit.
    So, in terms of tax relief at the low end, I see that as 
being very meaningful. Five or six million people who are not 
paying Federal income taxes right now as a result of what has 
been done, which I think is something that we can all be 
pleased about, and be proud of.
    Mr. LEWIS OF GEORGIA. But, Mr. Secretary, something went 
wrong. The previous Administration created more than 23 million 
new jobs. People were doing very well. Now people are losing 
their jobs, people are not doing very well. People are owning 
and buying homes, especially minorities--Spanish, African 
Americans, and others. Something went wrong with this 
Administration, and with the previous budget and this budget 
that you're proposing now.
    Again, I ask you, is this good medicine? Is this a good 
prescription for our economy?
    Secretary PAULSON. I think the best thing we can do for our 
economy is everything we can to keep it growing, because for 
those people who are struggling, and struggling to make ends 
meet, their situation becomes worse if our economy is not 
growing and we are not creating jobs.
    We have created jobs for 52 straight months. Last month, 
for the first time, we had a slight decrease in jobs. Who knows 
whether that will be restated or not; December's numbers were 
restated up. Overall we are increasing jobs. We need to keep 
the economy growing, and I think that is very important to the 
economy.
    Again, I am hoping that the stimulus package will help. I 
am working very hard on this to prevent avoidable foreclosures, 
and working very hard with our HOPE NOW alliance to help all 
those homeowners, many of them in inner cities who were put 
into mortgages that were not explained properly, and who were 
in danger of not being able to keep their mortgage if their 
rates move up. I think we have a program that is going to be 
more effective than many people believe in dealing with that, 
in fast-tracking those mortgages into modifications that will 
often result in interest rate freezes.
    So, we are doing what we can to deal with the problems that 
you see out there.
    Mr. LEWIS OF GEORGIA. Well, thank you, Mr. Secretary. My 
time has expired. Thank you.
    Chairman RANGEL. Mr. Johnson from Texas.
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate it. I 
appreciate you being here, Mr. Secretary. I would like to talk 
to you about a problem in the Tax Code that has come to my 
attention, and see if it is something that you agree we ought 
to try to fix.
    Back in 1989, a section of the law was written to require 
cell phones to be used more than 50 percent for business 
purposes. If you remember, in 1989 cell phones had a battery 
the size of a car battery, and the phone itself was about as 
big as this thing here. Air time was expensive.
    Clearly, time and technology have marched on, and companies 
have given employees cell phones and Blackberries with 
unlimited minutes, and these communication devices are really 
just an extension of the business day and place to anywhere, 
anytime. Because air time minutes are often unlimited and are 
free after certain hours--and free, sometimes, during the day--
employers generally have no interest in keeping track of 
employees' cell phone or Blackberry use.
    Yet, the IRS is at it again. They're after us. The dadgum 
auditors are questioning employers' normal and ordinary 
business deductions for cell phones and Blackberries, because 
employers have not been keeping records on employee cell phone 
or Blackberry use. The IRS wants employers to track employees, 
or be forced to give up the normal deduction.
    Right now, the law does not require employers to track use 
of the phone at an employee's desk, or the use of e-mail or 
computers for personal purposes. I think the law needs to be 
changed to bring it up to date, with the fact that their 
office, cell, and Blackberry is just an extension of their desk 
phone and computer.
    Secretary Paulson, don't you think it's time to modernize 
our tax laws, so that employers are not required, for tax 
purposes, to track personal cell phone use of their employees 
when there isn't any charge involved anyway, generally 
speaking? I will be introducing a bill on this point in the 
next couple of days, and I would appreciate help from you guys 
on the Committee, if you want to join with me. Would you 
comment on that, please?
    Secretary PAULSON. Congressman Johnson, it sounds like the 
right idea to me, and I appreciate your leadership on that.
    Mr. JOHNSON. Well, you know, we've been after the IRS for 
as long as I have been up here. They keep harassing people. 
That's their only job, it seems like, and we need to stop them 
if we can.
    I would like to ask you also, we saw an increase in Federal 
receipts, a 6.9 increase, to a total of $2.5 trillion, and this 
is on top of fiscal year 2006, 11.7 increase. Over that 2-year 
span, spending grew by 5.2 percent per year.
    I would like to know if we can continue rapid spending 
increases, given the future demands represented by the aging of 
the Baby Boomers, and to Social Security/Medicare eligibility, 
and still expect our revenues to cover our costs.
    Secretary PAULSON. The answer to that, as you know, is of 
course not. We have been surprised for some time at the rate at 
which revenues have been growing. That is a very good thing.
    But when you look at what we have staring us in the face, 
there is a huge issue coming. It is one that I know every 
Member of this Committee understands, and I know the Chairman 
and the Ranking Member would like to do something about it. 
And, I hope at some time in the not-too-distant future, it will 
get worked out.
    Mr. JOHNSON. Yes. I can tell you for sure the Chairman is 
interested in fixing Medicare, Medicaid, and Social Security. 
Thank you so much. I yield back.
    Chairman RANGEL. I would like to recognize Mr. Richard 
Neal. If he hears anything at all from the White House of how 
we can reform the corporate tax legislation, you let me know.
    Mr. NEAL. Thank you.
    Chairman RANGEL. Mr. Neal.
    Mr. NEAL. Thank you very much, Mr. Chairman. Mr. Secretary, 
I've listened to Secretary O'Neill, and Secretary Snow, and 
Secretary Paulson tell this Committee, and tell the American 
people, what a serious problem alternative minimum tax is, and 
how we have to deal with it. We always get the same answer, as 
the clock runs down. ``Let's borrow the money.'' How much have 
we borrowed now to patch AMT since 2001?
    Secretary PAULSON. I do not have the numbers here, in front 
of me, but I know the cost this year is roughly $60 billion, 
and----
    Mr. NEAL. What was it last year?
    Secretary PAULSON. It was much the same, I think it was $56 
billion.
    Mr. NEAL. Okay. What is the interest on that, over a 10-
year period? Does $29 billion sound as though it might be in 
the ballpark?
    Secretary PAULSON. You would have to tell me if it is in 
the ballpark. I can get the number for you.
    Mr. NEAL. We rely upon you to give us that sort of an 
answer, Mr. Secretary.
    Secretary PAULSON. I think we have been pretty clear with 
you in saying----
    Mr. NEAL. You've been clear about the fact there is a 
problem, you haven't been clear about the fact that we need to 
get an answer.
    Secretary PAULSON. We have been clear about the answer. The 
answer was, patch it quickly, don't raise taxes. You ultimately 
did it. It took throughout the year to do it, but it got done. 
There was a lot of uncertainty that was inflicted on the 
American people. I think this year we should all get together 
and agree we are going to patch it quickly, and then deal with 
the bigger issue.
    I really do think the bigger issue is one you would agree 
with. This needs to be looked at in the context of the bigger 
question of entitlements.
    Mr. NEAL. If I might interpret what you've said, then 
you're suggesting that we all ought to get together early on 
and borrow the money.
    Secretary PAULSON. It is in the budget, right.
    Mr. NEAL. Well, I just want to get that part of it correct. 
We should get together and borrow the money to fix AMT.
    Secretary PAULSON. I wouldn't say it exactly that way. You 
can----
    Mr. NEAL. Well, is there another way to say it?
    Secretary PAULSON. I would say that the AMT is an 
unintended tax. It is unexpected by many taxpayers. There would 
be a lot of Americans who would have been hit hard, and would 
have been surprised by that tax had it not been patched. So, I 
think we have been pretty transparent, and Congress and the 
Administration together have passed a patch one year at a time.
    Mr. NEAL. Mr. Secretary, I have great personal regard for 
you.
    Secretary PAULSON. Thank you.
    Mr. NEAL. There are only two options here. One, to pay for 
it, or two, to borrow the money. Which one are you suggesting.
    Secretary PAULSON. I do not think it is that simple, to 
pick one area out of the budget. But there is no doubt, though, 
that we do not want to raise taxes to pay for it this year, and 
we want to be very clear on that.
    Mr. NEAL. Well, you will forgive me for suggesting that I 
don't think you were very clear on it.
    Secretary PAULSON. Well----
    Mr. NEAL. Now, let me ask you another question.
    Secretary PAULSON. You do not think it is clearly in the 
budget, that----
    Mr. NEAL. I think it's clearly in the budget, but you're 
suggesting we borrow the money, Mr. Secretary.
    Secretary PAULSON. We borrow the money to pay for a whole 
range of things, and we have revenues coming in.
    Mr. NEAL. All I need you to say is you're suggesting we 
borrow the money.
    Secretary PAULSON. I am suggesting that we are going to 
have a deficit this coming year, and that the deficit will be 
larger than the cost of AMT.
    Mr. NEAL. Well, my sense is that when you were running a 
major company in the boardroom, you were much more direct than 
you've been today.
    Now, let me ask you this, Mr. Secretary. As a percentage of 
the $410 billion projected deficit this year, could you inform 
the Members of this Committee what percentage of those deficits 
are due to the Bush tax cuts?
    Secretary PAULSON. I think that would be a very difficult 
thing to do, and I will tell you why, that----
    Mr. NEAL. Well, one third. Does that sound good?
    Secretary PAULSON. No. I will tell you why I think it would 
be difficult, because I think all of us have been surprised at 
the rate at which revenues have been coming into the economy.
    And so, I do not think static economic analysis paints the 
whole picture. I would never argue to you that the tax cuts 
entire pay for themselves. But I would say to you that 
economists struggle to understand why the revenue growth has 
been so significant, leaving us with a deficit of only 1.2 
percent of GDP at the end of this last year.
    Mr. NEAL. Mr. Secretary, Mr. McCain's chief economic 
advisor, who was well regarded in this Congress for his clarity 
and for his integrity, has suggested that tax cuts don't pay 
for themselves. Are you in agreement with that?
    Secretary PAULSON. I would say that they don't pay for 
themselves entirely, that's right.
    Chairman RANGEL. Thank you, Mr. Secretary. Mr. Secretary, 
former Chairman Greenspan said the only reason he supported the 
tax cuts is because he assumed--and that's what he said--that 
we would cut programs by the same amount.
    Do you agree with that statement that he had in his recent 
book?
    Secretary PAULSON. I have no idea what he was assuming, and 
what he supported or did not support. I would just simply say 
to you that when I was in the private sector, I watched the 
economy respond to the tax relief. I watched the economy 
respond, I watched the markets respond.
    All I can say to you is that revenues have poured in faster 
than CBO projected, faster than Democrats or Republicans 
projected they would have come in, and it is remarkable. It is 
remarkable that we could be paying for the cost of the war, 
funding the recovery from the hurricanes, and have the deficit 
at only 1.2 percent of GDP at the end of----
    Mr. NEAL. Mr. Chairman?
    Chairman RANGEL. Yes?
    Mr. NEAL. Would you yield?
    Chairman RANGEL. Yes.
    Mr. NEAL. Are we paying for the cost of the war, or are we 
borrowing the money for the cost of the war?
    Secretary PAULSON. I would say to you that the cost----
    Mr. NEAL. Mr. Secretary, are we going to be asked again to 
borrow money before the year is out for the war in Iraq?
    Secretary PAULSON. We are going to be asked to borrow 
money, and I would say----
    Mr. NEAL. That's my point, Mr. Chairman.
    Secretary PAULSON. But are you surprised that the deficit 
is 1.2 percent of GDP?
    Mr. NEAL. If you consider how the American economy has 
grown for the last 20 years, no, I am not. What I am arguing is 
that the theology that is frequently purported to be fact 
doesn't square with the numbers when we project a $410 billion 
deficit for next year.
    When the Administration came to authority in 2001, we were 
projecting trillions of dollars of surplus. Granted, the events 
of 9/11 set us back, but the failure to acknowledge the role 
that the tax cuts have played with those deficits doesn't stand 
up under the magnifying glass, Mr. Secretary, that's my point.
    To say that--to say here that we're paying for the war, 
when the truth is we're not paying for the war, we're borrowing 
the money to pay for the war.
    Secretary PAULSON. Well, I think you understood my point, 
that despite that cost, the deficit, as a percentage of GDP, is 
relatively low.
    Now, I think the thing that you are in agreement with, and 
everyone on this Committee is in agreement with, is that we 
have a serious budget issue staring us in the face, and I am 
not making light of that. I think it is a very significant one, 
and I think it is one that has to be dealt with, and that's 
entitlements.
    Mr. MCCRERY. Mr. Chairman?
    Chairman RANGEL. Mr. McCrery?
    Mr. MCCRERY. Will you yield?
    Chairman RANGEL. Yes.
    Mr. MCCRERY. Thank you. In response to Mr. Neal's question 
about how much the tax cuts represent, as a share of the 
deficit this year, I have a fact that is very interesting. It 
doesn't necessarily answer your question completely, but it is 
relevant.
    Back in the year 2000, in January of 2000--this is before 
George W. Bush was President, before the tax cuts--CBO, in 
their estimates, said that in the year 2007, revenues would be 
$2.572 trillion. That was their projection before the tax cuts. 
The actual revenues for 2007, last year, came in at $2.568 
trillion. That is a difference of $4 billion.
    So, if you just look at the revenues that were projected, 
and the revenues that actually came in, only $4 billion of last 
year's deficit was due to the tax cuts. It's a fact. I mean, 
those are facts.
    Mr. NEAL. Would the gentleman yield?
    Mr. MCCRERY. Sure. It's not my time, but I'm sure the 
Chairman would.
    Chairman RANGEL. It's Mr. Weller's time.
    Mr. WELLER. May I claim my time?
    [Laughter.]
    Mr. MCCRERY. We will talk.
    Chairman RANGEL. Mr. English is recognized for 5 minutes.
    Mr. ENGLISH. Thank you, Mr. Secretary. Mr. Secretary, thank 
you so much for coming forward. We appreciate the 
Administration has put together a difficult budget. It's one 
where I disagree with some of the particulars. But I recognize 
that you have been attempting to deal with broad parameters, 
including dealing with a broader fiscal situation, tackling our 
deficit, and, at the same time, providing the right fiscal mix 
to deal with our current economic circumstances.
    Now, Mr. Secretary, you were instrumental in the 
development of a stimulus bill which has come through. The 
premise of that stimulus bill, which most of the House 
supported, was that right now we need a fiscal stimulus to 
provide a tonic against a potential recession.
    Now, one of the main features of your budget, I think, is a 
natural follow-on of that stimulus policy, which is to say you 
have made an effort to extend, from the immediate future, a 
massive tax increase that was accepted for the future, as part 
of the budget that passed the House last year.
    We have heard, on the Joint Economic Committee, testimony 
to the effect that this looming, large tax increase has played 
a significant role in creating the environment where, clearly, 
there is a falling off of growth, and a legitimate concern 
about a recession. The looming tax increase has contributed to 
the environment that may be creating a recession.
    You are a long-time observer of the economy and of Wall 
Street. Can you comment on the importance of making it a 
priority in the budget to push into the future tax increases 
that were incorporated into the last budget, as a consistent 
policy to provide confidence that we're not going to do the 
wrong thing, and allow the last decade's tax rates to be 
imposed on an economy that may be softening? Your comment, Mr. 
Secretary?
    Secretary PAULSON. Yes. Congressman, clearly I believe that 
certainty is something that is valuable. And certainty helps 
businesses plan, it helps them make the decisions they need to 
make. I clearly believe that when you look at the intermediate 
term and the longer term, the most important thing is our long-
term tax policy, making that relief permanent.
    But we were able to separate that track, because that is on 
a different track from the stimulus, which we are very much 
focused on this year.
    Mr. ENGLISH. I understand that also, as part of your 
budget, the Administration has made a concerted effort to 
identify programs that no longer represent the priorities or 
the function that they were originally designed for, that the 
Administration has done something unusual in Washington, and 
that is, try to weed out programs that may still have political 
constituencies, but no longer represent the spending priorities 
that Congress originally embraced.
    Would you care to comment on that, and the importance of 
prioritizing and cutting spending, as part of our overall 
budget strategy?
    Secretary PAULSON. I think that is a very, very important 
point. There are two sides of any budget. There is the revenue 
side, and there is the outlay side. They are equally important, 
and it is, I think, very important to focus on outlays, and 
focus on spending.
    Again, there is discretionary spending and non-
discretionary. One thing that hits any observer who looks at 
the budget for the first time is the increasingly smaller 
portion of the budget that is discretionary, and how much of it 
is mandatory. This again brings you to the need to deal with 
some of the entitlement outlays that are baked into our fiscal 
picture.
    Mr. ENGLISH. Mr. Secretary, I am running out of time, but, 
again, I want to thank you for the effort that you have made to 
bring a blueprint to the House that can form at least the basis 
of our kick-off of deliberations on what I think could be 
perhaps the most important budget in a decade. Thank you, Mr. 
Chairman.
    Chairman RANGEL. Thank you. The chair would like to 
recognize Mr. Becerra, from California.
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Secretary, good 
to have you with us. Let me focus on these--on the tax side of 
things here a bit. We all have to make our choices, delineate 
our priorities.
    I know the President, in his budget, calls for the 
permanent extension of his 2001 and 2003 tax cuts. My 
understanding is that if you were to calculate those into a 10-
year budget window, we are looking at about $2.2 trillion for 
the cost of those tax cuts. When you add in the debt service--
in other words, the interest that you would have to pay because 
we would have to borrow the money to do those tax cuts that go 
mostly to wealthy folks, it would be about $2.6 trillion over 
the next 10 years, if we did nothing to the AMT.
    So, in other words, if we allow 20-some-odd million 
Americans to get hit by the alternative minimum tax, those 
would be the costs of the Bush tax cuts to be extended.
    Now, I think most of us believe--and you just had a 
conversation with Congressmen Neal about the President's 
proposal to provide a patch, a safe harbor for tens of millions 
of Americans from being hit by the alternative minimum tax.
    So, that, if we were to continue to do that over the next 
10 years, the cost of the Bush tax cuts that go principally to 
wealthy folks would actually go beyond the $2.2 trillion, or 
the $2.6 trillion over 10 years, to actually over $3.5 trillion 
in cost to the treasury to extend the Bush tax cuts that are 
principally geared toward wealthy folks over the next 10 years.
    My question to you is in the President's budget, which you 
are defending, it seems you have made a choice. You provide for 
a permanent extension of the President's tax cuts that are 
aimed principally toward wealthy folks. More than a third of 
those tax cuts, for example, will go to just the top 1 percent 
of America's wealthy people.
    Whereas, in the President's budget, the President, over 
this next 5 or 10 years, doesn't call for a permanent fix to 
alternative minimum tax that hits middle-income families, it 
calls for just a 1-year patch.
    So, a decision was made in the President's budget--I 
suspect with his advisors all talking about priorities--and a 
priority, I guess, was made. It was more important to provide 
tax relief to the wealthiest Americans at the cost of $2.5 
trillion to $3.5 trillion, depending on how you calculate it, 
as opposed to providing tax relief to the tens of millions of 
Americans in the middle, who will get hit by the alternative 
minimum tax, so that relief for them would be provided for only 
1 year, but relief for our wealthiest citizens would be 
provided permanently. Did I misstate that?
    Secretary PAULSON. Yes, sir. I think you did. So, let me--
--
    Mr. BECERRA. As quickly as you can, because I want to go on 
to something else.
    Secretary PAULSON. Okay. I will then say pretty clearly 
that I think when you look at the tax relief that we would like 
to make permanent is and at the Tax Code right now, I don't 
think the Tax Code has ever been more progressive.
    Mr. BECERRA. Okay, Mr. Secretary, let me stop you. Tell 
me--let me just--because I know we could have a philosophical 
disagreement, but let me ask this. The budget, the President's 
budget, does call for the extension of the 2001 and 2003 Bush 
tax cuts.
    Secretary PAULSON. You bet it does.
    Mr. BECERRA. Okay.
    Secretary PAULSON. And----
    Mr. BECERRA. The President's budget only calls for a 1-year 
patch to the alternative minimum tax.
    Secretary PAULSON. Yes. What the President's budget says is 
let us fix the AMT this year----
    Mr. BECERRA. Okay. But let me----
    Secretary PAULSON. Okay.
    Mr. BECERRA. Rather than we get into philosophical----
    Secretary PAULSON. Okay.
    Mr. BECERRA [continuing]. Let's just talk facts.
    Secretary PAULSON. Okay.
    Mr. BECERRA. So, the President's budget provides for a 
permanent extension of the Bush tax cuts. I won't categorize 
them as for the wealthy. Just facts.
    Secretary PAULSON. Yes. Okay.
    Mr. BECERRA. The Bush tax cuts of 2001 and 2003 would be 
permanently extended.
    Secretary PAULSON. Right.
    Mr. BECERRA. The relief for middle-class families that are 
going to get hit by the alternative minimum tax would be 
provided--extended for 1 year, the relief, in the President's 
budget.
    Secretary PAULSON. It is for 1 year----
    Mr. BECERRA. Okay.
    Secretary PAULSON [continuing]. The AMT patch, and then 
we----
    Mr. BECERRA. Okay. So, those facts are correct.
    Secretary PAULSON. But we----
    Mr. BECERRA. Now, how you characterize them could be 
differently portrayed by the two of us. So, rather than get 
into that with you, we can let others, then, decide what that 
means----
    Secretary PAULSON. Okay.
    Mr. BECERRA [continuing]. In terms of extending the Bush 
tax cuts, versus extending, permanent relief under AMT.
    Let me go to another issue. Do you--I know that this isn't 
within your sphere, as a Secretary in Treasury, but do you 
believe that, by the end of this year, that the President will 
have removed all of our troops from Iraq?
    Secretary PAULSON. I am not going to speculate how many 
troops will be in Iraq----
    Mr. BECERRA. Okay. Well----
    Secretary PAULSON [continuing]. But I think the President 
has been pretty clear, and I think all knowledgeable observers 
are pretty clear that we are going to need a presence in Iraq 
for some time.
    Mr. BECERRA. Well, since my time has expired, I won't ask 
the question, but just make the final point. We are spending 
about $10 billion a month right now in Iraq, Afghanistan. The 
President clearly says he's not going to try to remove the 
troops any time soon.
    Your budget calls--or the President's budget--provides $70 
billion--that's 7 months of spending--for Iraq, total, for all 
of fiscal 2009, and does nothing over the 5 or 10 years to 
account for any cost for Iraq, Afghanistan, or anything else.
    So, I was going to ask, but I will just make the point it 
seems to me that not only did you low-ball the estimates, but 
you're playing hide and seek with the American public on this. 
Because to not account for the cost of a war which the 
President doesn't seem to want to end is to mask the out-year 
cost to the American people of the President's proposal.
    So, there is no way you balance your budget in 2012, if you 
don't even account for the cost of the war in Iraq, 
Afghanistan, and anywhere else we may go in. So, again, rather 
than try to characterize politically and otherwise, I thank you 
for your time. Mr. Chairman, I thank you for yielding me the 
time.
    Chairman RANGEL. I thought you would want to have a chance 
to respond.
    Secretary PAULSON. I will say what I said the last time the 
war came up, which is, again, I do not think there is a lack of 
transparency. We know that the number next year is going to be 
greater than $70 billion.
    Mr. BECERRA. So, why isn't it in the budget?
    Secretary PAULSON. That is because we don't know what the 
number is. And----
    Mr. BECERRA. But you know it's going to be----
    Secretary PAULSON. It will be greater. So it is pretty 
clear, that is a challenge. The number will be greater than $70 
billion, and it will get filled in this spring.
    Mr. BECERRA. Mr. Secretary, I have never seen a family have 
to budget the way that the President is budgeting for America.
    Chairman RANGEL. It's my understanding, Mr. Secretary, that 
the views expressed by you are not necessarily your views, but 
those of the Administration.
    I would like to recognize Mr. Weller. We got to get back 
together in New York next year, you know.
    Mr. WELLER. Thank you, Mr. Chairman. Mr. Secretary, 
welcome. It's good to have you before the Committee again. I 
have a couple of questions I want to ask you.
    But before I ask my questions, I do want to make a comment, 
and I want to begin by commending you and the President and 
others in the Administration for your leadership on moving 
forward the Colombian free trade agreement, our agreement 
with--between the United States and Colombia.
    You know, in Latin America, President Uribe is perceived to 
be the United States's most reliable and strongest partner. He 
is the most popular political figure in Latin America. I think 
any president that has approval ratings of 60 to 70 percent, 
continuously, demonstrates that the people appreciate the 
progress he has made on reducing violence and extending the 
presence of a democratically-elected government to every 
municipality in the country.
    You have led congressional delegations, you have done a 
tremendous amount of work, and I want to commend you for that. 
I also want to note that that agreement is good for Illinois 
manufacturers, good for Illinois workers, good for Illinois 
farmers. I believe that we should ratify that agreement. So, I 
want to urge you to continue your efforts.
    All Latin America is watching how this Congress handles the 
Colombia and U.S. free trade agreement. I, for one, believe the 
consequences of failure to ratify this agreement will be a very 
long-term consequence, because of the perception and role that 
President Uribe plays in relationship to the United States. So, 
I want to urge you to continue that effort.
    My question here, Mr. Secretary--and my friend, Mr. Levin, 
talked about unemployment levels. You noted that our economy 
today is not in a recession, it's in a--you know, the economic 
growth is slowing. You noted that unemployment this past month 
was 4.9 percent, which is less than the average rate of 
unemployment during the Clinton Administration, which I believe 
was, like, 5.2 percent. You noted that Congress had never 
created an unemployment benefits program when the unemployment 
rate was this low. In fact, in 2002 it was 5.7 percent.
    My question for you, Mr. Secretary, do you believe that the 
existing extended benefits program that we have in place, which 
is triggered according to the unemployment situation in each 
state which has a trigger, which provides more benefits, do you 
believe that that's more adequate, if there is a slow-down in 
certain parts of this country that would cause unemployment to 
rise in certain parts of the country?
    Secretary PAULSON. I believe it is adequate today. I think 
that, as I have said earlier, if the situation worsens to the 
point which we are not projecting or expecting it to, it is 
something we should discuss and take up at that time.
    Mr. WELLER. But do you believe that the existing program is 
adequate? Do you think that we should look at the existing 
extended benefits program, and see what we can do to fine-tune 
the existing extended benefits program, rather than creating an 
additional extended benefit program on top of the one we 
already have?
    Secretary PAULSON. Yes. I would say if there were to be 
some action, that would be the way to go at this time.
    Mr. WELLER. Okay. I wouldn't--you know, with the role I 
play on the Subcommittee with jurisdiction over unemployment 
insurance, I would welcome the ideas from the Administration 
that you--and I realize you're not the Secretary of Labor----
    Secretary PAULSON. Right.
    Mr. WELLER. But your compatriots within the Administration, 
if they can share ideas of how we can fine-tune the existing 
program to make it work better when there is an economic slow-
down--again, today's unemployment rate is 4.9 percent, and 
during the glorious years of the 1990s, it was, on average, 5.2 
percent--so I would welcome those initiatives, and hope that 
you would share them. Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you. Mr. Lloyd Doggett, of Texas.
    Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for your testimony. Though I disagree with many 
aspects of the policy, I do believe that this budget is an 
excellent reflection of the Administration's true priorities.
    When it comes to energy policy, while the President did 
discover that America was addicted to oil, I think that this 
budget speaks much louder than any of his words. The budget 
embraces every single tax subsidy, tax preference, tax benefit 
for fossil fuels currently in our Tax Code, but it totally 
rejects even a 1-year extension of the tax credits for wind 
energy, or for biodiesel, or for solar energy.
    Of course, all of those would be in place and in law today, 
had it not been for the fact that, with the determined 
opposition of the Administration, you were able to hold us to 
59 votes in the Senate, 1 vote short of the super-majority 
necessary to move America in the direction of a sound, new, 
renewable energy policy, and rejected all of the work of this 
Committee in that area.
    I want to ask you, first, in contrast, the position that 
you have taken on the initiative that Mr. McCrery applauded 
that you and I had a bit of a disagreement on last year when 
you testified, and that is your health insurance tax proposal.
    If I understand that proposal--and I disagree with it on 
its merits--but one thing that I do applaud you on, as proposed 
in this budget, just as last year, is that it is a revenue-
neutral proposal. It does not add anything to the national 
debt, does it, if we adopted your proposal in full? Is that 
correct?
    Secretary PAULSON. I think it sure is intended to----
    Mr. DOGGETT. Right.
    Secretary PAULSON [continuing]. To be revenue-neutral.
    Mr. DOGGETT. The way you achieve that revenue neutrality--
and this is what you and I got in a debate on last year, and 
you finally conceded the point--that in order to do what you 
think is a benefit, a positive step for 80 percent of the 
people that have these health insurance policies, and maintain 
revenue neutrality, you, as you said in your testimony, 20 
percent of the people, about 30 million or 38 million 
Americans, ``will have the opportunity to restructure their 
insurance''--and these are your words--``or they will pay more 
taxes.''
    So, in order to get this health insurance program that Mr. 
McCrery and you applaud, and the Administration has endorsed, 
now 2 years in a row, you raise taxes on 30 million or 38 
million people in order to maintain revenue neutrality. You 
tell them that their tax bill will be higher if they--or they 
can restructure their policy. They cannot follow that conduct.
    My question to you is, is there any offset that the 
Administration will accept for renewable energy, so we can 
comply with our PayGo rules and get renewable energy tax 
incentives? I understand you don't want to do anything to the 
fossil fuel industry. Or, is the only renewable energy tax 
incentive policy that you will support, as an Administration, 
one that requires us to go out and borrow more money and incur 
more national debt?
    Secretary PAULSON. Congressman, first of all, thank you for 
your comments. There is no doubt that energy security is as big 
an issue as we have in this country. It ranks right up there 
with the entitlements issues we were talking about. So, that's 
number one.
    Number two, I felt--and I think a lot of people did--that 
the energy bill that was done last year was a big step forward. 
So, you know----
    Mr. DOGGETT. Well, we just couldn't get your votes for it, 
though.
    Secretary PAULSON. Well, I have to tell you----
    Mr. DOGGETT. I think the President applauds the objectives, 
he just doesn't want to pay the cost of getting them.
    Secretary PAULSON. The other thing I would say to you is it 
is quite natural that people look to the Tax Code as a way to 
achieve certain objectives. But that runs counter to some of 
the things we would like to do to keep it simple.
    Mr. DOGGETT. I understand that.
    Secretary PAULSON. So----
    Mr. DOGGETT. Just given that--of course, my 5 minutes is 
about to expire--let me rephrase the question again.
    Is there any way that this Administration will embrace 
these renewable energy tax credits, extending them without 
requiring us to go out and borrow the money to do it?
    Secretary PAULSON. I do not think what we should be doing 
right now is looking to raise taxes. So, I----
    Mr. DOGGETT. So, you think the--so the answer is, in fact, 
that the only renewable energy tax credits this Administration 
will support--unlike your health insurance program, where you 
pay for it--the only ones you will support is if we borrow the 
money to provide those tax credits.
    Secretary PAULSON. I would say in health insurance we are 
going to be paying for it----
    Mr. DOGGETT. But you don't want to pay--you comply with 
PayGo on your health care, health insurance.
    Secretary PAULSON. Well----
    Mr. DOGGETT. But you refuse to do it here.
    Secretary PAULSON. Well, let me say----
    Mr. DOGGETT. If I might, Mr. Chairman, ask him one other 
very important point, because you have embraced the general 
approach in your legislation of what Secretary Paulson has 
done, in what I think was a remarkable conference about 
corporate tax changes.
    You said, in your background paper that you came and 
briefed our Committee on, that the resources, in terms of 
revenue foregone, spent providing narrowly tax provisions could 
be used instead, to provide sector-wide incentives for economic 
growth.
    It is unfortunate that this budget that you have to defend 
today totally forgot and rejected your approach. In fact, they 
not only rejected it and ignored it, they did just the 
opposite, because they proposed to extend at least one of the 
tax credits, permanently, that you said you would rely on to 
lower corporate tax rates.
    You were in favor of responsible PayGo--pay as you go--but 
this Administration has rejected it, not only for energy tax 
incentives, but for anything else. The only kind of tax relief 
it will support is relief done on borrowed money. I suppose 
there is no limit to how much money this Administration is 
willing to borrow and get the nation in hock for. Thank you 
very much.
    Chairman RANGEL. Mr. Brady is recognized for 5 minutes.
    Mr. BRADY. Thank you, Mr. Chairman. Good to see you, Mr. 
Secretary.
    I am not so sure that we should be jumping on this 
Administration about the alternative minimum tax. I know 
serving here in 1999, a Republican Congress repealed the 
alternative minimum tax. Unfortunately, President Clinton 
vetoed that bill, saying it was tax relief for the wealthy. As 
we all know, it's a real tax burden on more and more middle-
class Americans. We would not be in this mess today, but for 
that veto.
    I also don't think we ought to be jumping you about the war 
costs.
    Chairman RANGEL [continuing]. Impeachment----
    Mr. BRADY. If I recall, this new Congress came in--do I 
need to yield to you, Chairman?
    If I recall, this new Congress came into office, promising 
to pay for the war. Yet, last year, I think we did $80 billion 
or more to support our troops, and not a dime was paid for. My 
guess is this year we will do the same. So, we ought to 
probably be looking in the mirror on both of those issues, and 
dealing with it together, both parties in this Congress, rather 
than blaming you.
    Here is my question. What if I told you there was a sector 
of the American economy that's growing so fast that last year 
it represented one quarter of all our growth? This year it 
continues to grow so quickly that it will be almost 40 percent 
of our economic growth here, in America.
    This sector is growing across the country. It accounts for 
one of every three acres that we grow. It accounts for one of 
every manufacturing job we have in America, two out of every 
five technology jobs. What would you guess that sector of the 
economy is?
    Secretary PAULSON. Trade.
    Mr. BRADY. It is. It is exports. Mr. Secretary, given the 
growing consensus that it's not enough to just buy American, we 
have to sell American products and services all throughout the 
world, and that when we have free trade agreements, our sales 
to those countries are twice as fast and twice as large as they 
are for countries we don't have agreements with, given the 
economy we have today, and the fact that that is a sector that 
continues to create jobs and opportunity here in America, how 
important is it for Congress to pass, this year, the free trade 
agreements that are pending with Colombia, South Korea--which 
is a huge market--and Panama?
    Secretary PAULSON. Very important. And I agree with the 
Chairman. We have more work to do to get Korea in shape. But 
Colombia we could get done right away. Of course, Korea is 
very, very important, in terms of the economic impact. Colombia 
is very important, in terms of the economic impact and the 
geopolitical impact.
    So, again, it has been one of my frustrations, not just in 
Congress, but looking at the perception that the American 
people have, that we need to understand how important trade is 
to our economic well-being, now and in the future.
    Mr. BRADY. Well, we are not the only ones out there doing 
trade agreements. Obviously, our competitors are, as well. We 
find that when U.S. companies go out to compete around the 
world, that almost three times as much of the world is tilted 
against us----
    Secretary PAULSON. Yes.
    Mr. BRADY [continuing]. As give us a level playing field. 
So, don't these free trade agreements not only create two-way 
trade to these countries, they give our U.S. companies and our 
states an equal chance to sell our products, which is all we're 
asking to do?
    Secretary PAULSON. Absolutely. You've got it.
    Mr. BRADY. Thank you, Chairman. I yield back.
    Chairman RANGEL. Ms. Tubbs Jones, from Ohio?
    Ms. JONES. Mr. Chairman, thank you for the opportunity. 
Good morning, Mr. Secretary.
    Secretary PAULSON. Good morning.
    Ms. JONES. How are you? I recall prior Secretary Snow 
coming before this Committee, having a discussion about the 
budget. Early on, nowhere in the budget was there any money 
included for the war. I asked him why there was no money in the 
budget for the war, and his statement to me was that the 
President didn't want to go to war, and so, therefore, there 
was no money in the budget. Yet, he couldn't explain the number 
of tankers that were out there in the ocean, the soldiers that 
were on the tankers, the cost of the military expenditures, 
such as clothing, et cetera, et cetera.
    Tell me, how long have you been the Secretary now, Sir?
    Secretary PAULSON. About a year-and-a-half.
    Ms. JONES. About a year-and-a-half? In that year-and-a-
half, we have been doing supplementals on the war. Is that 
correct?
    Secretary PAULSON. That is correct.
    Ms. JONES. So, when you look at a budget, a supplemental is 
not included in the budget. So, therefore, there is no pay-for 
for the cost of the war, when it's not in the budget. Is that 
correct, Sir?
    Secretary PAULSON. You are right, we have been using a 
supplemental, which, again, I think is right there for everyone 
to see.
    Ms. JONES. Well, that's not my question. I said there is no 
pay-for required on a supplemental. Is that correct?
    Secretary PAULSON. I am--in terms of the way----
    Ms. JONES. You are the Secretary of--excuse me? Is there a 
pay-for required on a supplemental?
    Secretary PAULSON. In terms of your rules, and how you 
apply them, clearly, everything that is done is going to be 
ultimately paid for by the American people.
    Ms. JONES. Mr. Secretary?
    Secretary PAULSON. Yes?
    Ms. JONES. Don't play words with me.
    Secretary PAULSON. Right.
    Ms. JONES. With regard to a supplemental, there is no 
required pay-for, is there, Sir?
    Secretary PAULSON. Under your rules, you're correct.
    Ms. JONES. So, how much money is there not required to be 
paid for that has been expended on the war since you have been 
Secretary?
    Secretary PAULSON. I do not have that number for you.
    Ms. JONES. Could you get it for me?
    Secretary PAULSON. I can get it for you, yes.
    Ms. JONES. Can you get it quickly, so the American people 
know what that number is?
    Secretary PAULSON. We will----
    Ms. JONES. It's not about--you are trying to play words 
with me about transparency. My question is, if it's 
supplemental, it's not in the budget. So, therefore, it's not 
required to be paid for. There is a deficit operating out here 
on this war. Correct?
    Secretary PAULSON. I----
    Ms. JONES. Yes or no, Sir.
    Secretary PAULSON. Those are your words, Madam.
    Ms. JONES. No, I'm asking the question. They should be my 
words. What is your answer?
    Secretary PAULSON. I will get you your answer.
    Ms. JONES. Thank you. Now, before you became Secretary, in 
fact, there was some amount of money that was spent on the war 
as a supplemental, that was not included in the budget. Is that 
correct, Sir?
    Secretary PAULSON. Apparently.
    Ms. JONES. Yes or no, Mr. Secretary.
    Secretary PAULSON. I will tell you, I will say everything 
that has been spent on the war to date has been in a budget or 
supplemental request.
    Ms. JONES. It's not been in the budget, it's been spent as 
a supplemental, not required for a pay-for.
    Secretary PAULSON. Okay, it's----
    Ms. JONES. Is that correct?
    Secretary PAULSON. It has been spent through a regular 
appropriation or through a supplemental. The----
    Ms. JONES. So, therefore, it's not required to be paid for, 
like in a family budget, where if you spend $10, and you have 
$10, it's accounted for. But under--the way we do it, with a 
supplemental, it is not accounted for. Is that correct?
    Secretary PAULSON. Well, I would say this. To me, whether 
it is a supplemental, whether it is in the budget, whether it 
is a pay-for or not, Madam, it's all in the budget, and it's 
ultimately all paid for.
    Ms. JONES. It's not all in the budget, Mr. Secretary. Would 
you run a business like you're running the government, with a 
supplemental that is not paid for?
    Secretary PAULSON. I have to tell you I would not run a 
business like we are running the government. I mean, the budget 
is a budget in business. You have got all kinds of rules and 
pay-fors. But I would say to you that----
    Ms. JONES. When you say ``you've got all kinds of rules,'' 
you mean the President has all kinds of rules, and has the 
ability to have a supplemental. I don't have that ability, do 
I, Mr. Secretary?
    Secretary PAULSON. The pay-for rules are congressional 
rules.
    Ms. JONES. Which makes sense, don't they? They should be 
paid for. What we spend should be paid for.
    Secretary PAULSON. Everything we do spend is paid for, 
Madam.
    Ms. JONES. Oh, you know what, Mr. Secretary? Let's go on to 
something else, because I don't want to play words with you. 
You actually recognize the problem we face, as the United 
States of America, is the fact that the war is not paid for, 
and you continue to have it offline, and that creates some of 
the dilemma we're facing right now, yes?
    Secretary PAULSON. They're your words.
    Ms. JONES. Boy, oh boy, Mr. Secretary, I thought you would 
be straight with me, instead of playing games. But let me go on 
to something else, seeing how I know the answer to those 
questions.
    Let's go to the housing problem that we're facing right 
now, Mr. Secretary. In the budget, there are several things 
that you or the President has put forth with regard to the 
housing problem. They're really not going to fix the problem 
that generation after generation--you know, in minority 
families and working families, a house is usually the greatest 
asset we pass from one generation to the next.
    So, in fact, the housing problem that we face right now is 
not only going to affect this generation, it's going to affect 
generations moving forward, correct?
    Secretary PAULSON. Housing is one of the most important 
assets that any family owns. So, it is very, very important.
    Ms. JONES. So, the problem is not only going to affect this 
generation, it's going to affect generations moving forward.
    Secretary PAULSON. It will certainly have a long-term 
impact. As we go through this housing correction and are very 
focused on this. This is a serious issue, and it is one----
    Ms. JONES. But your focus is only on a certain year with a 
certain group of families, not all of them, correct?
    Secretary PAULSON. We need to deal with this year, and this 
group of families. We are dealing with the problems where we 
are finding them. And----
    Ms. JONES. Thank you, Mr. Secretary, for not answering my 
question.
    Chairman RANGEL. Mr. Thompson of California?
    Mr. THOMPSON. Mr. Secretary, thank you for--down here.
    Secretary PAULSON. Oh, sorry.
    Mr. THOMPSON. Kind of hidden on the end. Thank you for 
being here.
    Secretary Paulson, how much money does the budget contain 
to fund the wars in Iraq and Afghanistan?
    Secretary PAULSON. How much does the budget contain? There 
is, obviously, another $108 billion supplemental this year that 
hasn't----
    Mr. THOMPSON. Well, no, that's supplemental. In the budget.
    Secretary PAULSON. Oh, in the budget?
    Mr. THOMPSON. I understand there is $70 billion?
    Secretary PAULSON. $70 billion, which is----
    Mr. THOMPSON. $70 billion.
    Secretary PAULSON. Right.
    Mr. THOMPSON. Does that mean that the President thinks that 
that's what it's going to cost, $70 billion, to conclude our 
operation in Iraq, and to bring our troops home?
    Secretary PAULSON. I think everyone has been pretty clear 
that is not what he thinks that is going to include. That is a 
placeholder, and that number will be filled in later this year, 
when we have a more precise estimate.
    Mr. THOMPSON. It's a placeholder. Tell me why it is that 
the budget just came out, and there is $70 billion in it, yet 
the Secretary of the Army is saying that we're going to need 
approximately $170 billion to conduct our operations in Iraq 
and Afghanistan?
    Secretary PAULSON. Well, I read in the paper this morning 
that the Secretary of Defense Gates had put that out as a very 
rough estimate, and said that it would become more precise as 
he had more information.
    Mr. THOMPSON. Well, if--everybody recognizes it's going to 
cost more than $70 billion--even you say it's a placeholder. 
The Secretary of Defense said his best guesstimate would be 
$170 billion. With that kind of disparity, how is it that the 
American people can believe that there is any credibility in 
this budget at all? Just on that point, alone.
    Secretary PAULSON. That was a question, or a statement?
    Mr. THOMPSON. It's a question. How do you expect the 
American people to believe that this is a credible document?
    Secretary PAULSON. As I said, this is a complex document. I 
think it is just as credible to put out a number as a 
placeholder and say it's going to be above that, and as soon as 
we get the number----
    Mr. THOMPSON. Well, I guess that----
    Secretary PAULSON [continuing]. We will fill it in.
    Mr. THOMPSON. I guess that it is even less credibility when 
there is a statement by the Administration that this budget is 
expected to be balanced, I think, by 2012 or something, 
whatever that date was, when there is not even an accurate 
number for the war funding.
    I find it very troubling that this same document--and this 
document is not just a fiscal document, but this is the 
priorities, as--for this country, and the people of this 
country, as seen by the President of the United States, and by 
his Administration.
    To add insult to injury on the war funding issue, you're 
asking in this document to come back to veterans, veterans who 
have sacrificed, veterans who have put their life on the line, 
veterans who have been injured in this war, and asking them to 
pay more for the medical services that they are going to 
receive. I find that very, very troubling. There is a 
substantial increase on the cost that veterans will pay for 
their medical benefits in your document.
    Let me ask also, shifting gears, there is no mention of 
extending the renewable energy incentives, or the qualified 
tuition deduction in this document. Does that mean that the 
President's position on extending these provisions is that he 
does not support that, he wants to see these taxes increased?
    Secretary PAULSON. It does not necessarily mean that. Some 
of them are clearly extended, and others we are quite prepared 
to talk about. And----
    Mr. THOMPSON. But it's not in the document.
    Secretary PAULSON. It is not in the document, you are 
right.
    Mr. THOMPSON. So, is extending these provisions built into 
the baseline?
    Secretary PAULSON. It is not built into the baseline.
    Mr. THOMPSON. I couldn't hear you.
    Secretary PAULSON. If they're not extended, they're not 
built into the baseline.
    Mr. THOMPSON. Okay. The other thing I wanted to ask, you 
also are a Medicare trustee, and I would like to just quickly 
get your comment on how the 45 percent number was selected, in 
regard to the revenue limit for the trigger. Do you know?
    Secretary PAULSON. I do not know the history of that, as to 
how it was selected, but it is clearly something we are focused 
on.
    Mr. THOMPSON. Mr. Secretary, I just have a little bit of 
time left, but you have been very helpful--or you've shown a 
willingness to work with me regarding some American viticulture 
issues, and it's really damaging to the U.S. wine industry. I 
appreciate your help.
    But this thing has been dragging on forever. TTB has not 
concluded their work. It's a major threat to the industry, not 
only in my district, but in wine growing regions across the 
country. I have had a lot of trouble getting answers to 
specific questions. I have some questions here that I would 
like to submit to you, and ask you to answer me in writing, and 
ask that you do it within the next couple of weeks, because 
this has been dragging on, and it's hurting a pretty important 
industry in our country.
    Secretary PAULSON. Yes. You and I have talked about it 
several times. We will keep working with you. As you know, we 
are still getting comments on these regulations.
    Mr. THOMPSON. Right.
    Secretary PAULSON. I appreciate how much you care about 
this.
    Mr. THOMPSON. So, Mr. Chairman, could I submit this for the 
record, and ask that the Secretary respond in the next couple 
of weeks? Thank you.
    [The information follows:]
    [The information was not received by the time of 
publication.]
    Chairman RANGEL. We have four votes on, and the Secretary 
has to leave at 12:30. Suppose we have the remaining Members 
take 2 minutes and ask their questions, and then see whether or 
not the Secretary can give some broad response?
    We will start with Rahm Emanuel, Mr. Blumenauer, Mr. Kind, 
Mr. Pascrell, Ms. Berkley, Mr. Crowley----
    Mr. EMANUEL. Mr. Chairman, although you called me first, 
why don't you let Mr. Larson go first, and then I will go after 
him?
    Chairman RANGEL. Sure.
    Mr. LARSON. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for your great cooperation with the Chairman and our 
leadership, with respect to putting this very important fiscal 
package for relief that we needed in a very timely and targeted 
fashion.
    Just a couple of--three quick questions for you. One of 
them has to deal with what this Committee has taken up, as it 
relates to alternative energy, and----
    Chairman RANGEL. Yes.
    Mr. LARSON. I noticed that nowhere in the Bush budget are 
there provisions for alternative energy tax credits.
    In light of--my question, my first one is, in light of the 
incredible profits by Exxon and Mobil, and the fact that this 
Committee last year suggested that we pay for the alternative 
energy tax credits by ending tax subsidies for oil and gas, do 
you think that that's the right way to proceed? If so, why 
wasn't it included in the Bush budget?
    Second one has to deal with getting the stimulus package 
out, a number of--I visited the volunteer income tax assistance 
clinic in Hartford, in my district. These clinics are crucial 
to the outreach program, to make sure that the money gets into 
the hands of these hardworking people that, of course, will 
impact the stimulus. Yet, the Administration proposes cutting 
funding for taxpayer assistance centers.
    Is this consistent with the IRS' goal for earned income tax 
credit outreach? What would you suggest here, in terms of 
making sure that they get their--we expedite this process, so 
that we can, in fact, provide the stimulus that we're seeking 
to do within the process?
    Secretary PAULSON. Let me start with the last question 
first, because I do think that this has got to be a very high 
priority. I have done a number of events, I did one recently, 
and I know many of you do similar events. The earned income tax 
credit is hugely important. I think we are doing a better job, 
but there is still maybe up to a quarter of the people that 
qualify for the earned income tax credit, who do not know about 
it, do not get it.
    So, there is a big outreach effort that is necessary, and I 
will pledge to you that I am just going to keep the IRS focused 
on that. That is very important.
    In terms of your question about the different renewable 
energy tax credits, and again, I would like to come back to 
something I tried to say earlier to Congressman Doggett, that 
there is a natural tendency to want to do some things through 
the Tax Code. I understand that. That tends to make the Tax 
Code more complex. I think, often, we are better off just doing 
it through other measures, other than the Tax Code.
    One of the disadvantages that we have in doing these things 
through the Tax Code is the IRS and the Treasury Department are 
not energy experts, as opposed to the Department of Energy as 
we administer some of these things. So, again, I would just 
make that general comment.
    Chairman RANGEL. This is not going to work, so let's cut it 
down to a minute.
    Secretary PAULSON. Okay.
    Chairman RANGEL. We can--what you can't cover, you can send 
a response for.
    Secretary PAULSON. I will get it.
    Chairman RANGEL. Mr. Emanuel.
    Mr. EMANUEL. Thank you, Mr. Chairman. You know, there is--I 
do have--I will try to be really quick, and run through this. 
Given that you referred to the war, the $70 billion, as a 
placeholder, Mr. Secretary, somehow Secretary Gates, the 
Defense Secretary, knew it cost $170 billion, but somehow you 
and Chairman Nussle did not know it was $170 billion.
    In all due respect, since the budget was just out this 
week, and Secretary Gates testified $170 billion, you're off by 
$100 billion, because you're playing--either one concludes 
you're playing fast and loose with the numbers, A, or B, the 
right hand and the left hand are not talking around the cabinet 
table when you draft budgets. I have been around the cabinet 
table drafting a budget. Somehow the Defense Secretary knows a 
number that neither you nor the head of OMB know.
    I am not asking you to answer it, because it's not a 
pleasant answer.
    Second, you said that the 2001 and 2003 Tax Codes were 
unbelievably progressive. I would like to borrow your glasses, 
if I could. In 2001, 36 percent of the entire tax revenue went 
to people earning over $200,000. In 2003, over 60 percent--
close to 63 percent--of the tax revenues went to people earning 
over $200,000. There was no way, by any estimation, they could 
be called progressive.
    Then, lastly, the President, in the State of the Union, 
said the budget has to show constraint. You said don't use the 
Tax Code for support on energy. We are supporting Exxon, Mobil, 
and other companies, to the tune of $15 billion in tax 
subsidies, and yet not providing that to wind, solar, and 
power. We are tying ourselves in our Tax Code to the energy 
sources of the 20th century, and strangling those that are 
going to be the energy sources of the 21st century.
    I know enough about your record in the past, and your 
commitment in environmental policy and energy policy, that 
there is no way the Hank Paulson who was head of--Chairman of 
Goldman Sachs, who is involved in NRDC and other entities, 
would believe that the Tax Code should be supplying an energy 
source of the 20th century, and strangling those of the 21st 
century.
    I think that was done within a minute and 30 seconds, Mr. 
Chairman.
    Chairman RANGEL. Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. Mr. Secretary, in 
my 1 minute I will just frame something that I will forward to 
you in writing.
    One of the areas that I am deeply concerned about deals 
with the funding for infrastructure, the highway trust fund. 
For the first time in history, it's going into deficit.
    The Administration proposes not to deal with it, not to 
work with us to move it forward. Even the Chamber of Commerce 
agrees that we ought to raise the gas tax for the first time 
since 1993.
    I am concerned that, instead of borrowing from mass 
transit, which just shoves that into the red, that there ought 
to be some way to work together to figure out, as you're 
leaving office, to help lay the foundation so we can deal with 
long-term infrastructure needs of the country.
    With your permission, I will just submit something in 
writing, your direction.
    Secretary PAULSON. Good. I will also share that with Mary 
Peters.
    Mr. BLUMENAUER. Thank you very much. Appreciate it.
    Chairman RANGEL. Mr. Pascrell.
    Mr. PASCRELL. Mr. Secretary, just a couple of questions, 
and then you can respond. If you don't have time, please get 
back to us in writing. I would appreciate that.
    Do deficits matter, in your view?
    Secretary PAULSON. Of course they do.
    Mr. PASCRELL. You don't have to answer now. I would like to 
finish the questions. I want to get these on the record. But 
would you answer the first one? If you insist, go ahead.
    Secretary PAULSON. Of course they do.
    Mr. PASCRELL. Now, what are the long-term consequences for 
our economy, if we are to maintain deficits for the foreseeable 
future?
    Secretary PAULSON. It's unsustainable. That's why we need 
to solve the entitlements----
    Mr. PASCRELL. Third question is, what is the annual average 
income for people in the top 1 percent of the tax bracket?
    The 2001 and 2003 tax cuts plus the AMT relief are 
permanently extended. If that happens, the top 1 percent of 
households would receive more than $1.1 trillion in tax 
benefits over the next decade. Why should Congress provide $1.1 
trillion to the wealthiest 1 percent, instead of using this 
$1.1 trillion to pay down the national debt?
    Chairman RANGEL. Mr. Van Hollen.
    Mr. PASCRELL. Chairman, can the Secretary get back to us on 
the answers? Thank you.
    Mr. VAN HOLLEN. Thank you, Mr. Chairman. Mr. Secretary, 
thank you for your testimony. Obviously, we will be quick here.
    My understanding is, if you look at the 10-year cost of an 
extension of the President's tax cuts, you're talking about 
roughly $2.2 trillion over 10 years. An extension of the AMT, 
if you do not provide AMT relief for that period of time, we're 
talking roughly $800 billion. If you could, get back to me on 
whether or not, number one, those figures are consistent with 
yours, as well.
    I heard, in response to Mr. English's question, that you 
said this kind of predictability is important, this kind of 
certainty for the taxpayer and the Tax Code. The question is, 
doesn't that also apply to AMT taxpayers?
    My question is this. Given that you were trying to hit a 
certain--a balanced budget within a 5-year period, why didn't 
you take some of the revenue that's lost for--in extending the 
Bush tax cuts, just the portion that goes to the highest income 
earners, and use some of that money in your budget to provide 
AMT relief for more middle-income Americans? Why didn't you 
make that choice?
    Secretary PAULSON. Would you like me to answer that now?
    Mr. VAN HOLLEN. Yes.
    Secretary PAULSON. I----
    Chairman RANGEL. I want to thank you very much for staying 
here, and it's just a question of time for the votes, and I 
think we've got 2 minutes. So, Mr. Secretary, thank you. And--
--
    Mr. POMEROY. May I tee up an issue? I have yet to speak.
    Chairman RANGEL. What is it?
    Mr. POMEROY. I have yet to speak. In 1 minute, I would just 
like to put an issue before the Secretary.
    Chairman RANGEL. Yes. If you need it on the record, or do 
you want to stay here with the Secretary?
    Mr. POMEROY. Well, I would love to stay, but I hate to miss 
the vote. But I would just like to put an issue before the 
Secretary.
    Chairman RANGEL. Go ahead.
    Mr. POMEROY. Mr. Secretary, I am very concerned about--in 
this time of economic challenge--we are going to have pension 
plans being canceled. Mark-to-market accounting on long-term 
liabilities is going to be extremely punishing, relative to 
employers that want to keep their defined benefit pension plans 
in place.
    The plan assets will reflect the downturn in the market. 
The forward casting of assets matched to liabilities will 
reflect lower interest rates. So, fully funded plans last year 
are going to look underfunded this year, simply by a feature of 
this mark-to-market accounting.
    We need to enact smoothing legislation to ease the hit to 
employers on funding requirements, and I would just very much 
appreciate Treasury comment on that, going forward. Thank you.
    Chairman RANGEL. Adjourned, and we look forward to getting 
responses for Mr. Pomeroy's question. Thank you.[Whereupon, at 
11:44 a.m., the hearing was adjourned.]
    [Submission for the Record follows:]
                     Statement of Joseph E. Powell
    Let me start by writing that I appreciate the opportunity to submit 
this letter regarding the FY 2009 Executive Budget Proposal and be 
heard.
    However, and truthfully, I cannot believe what I have learned about 
it. To me, it does not seem at all rational to say the least. As we are 
staring into the teeth of a domestic recession, our Chief Executive 
Officer puts together a so-called budget that increases deficit 
spending and totals 3.1 trillion dollars. This is totally unbelievable. 
This should be stopped dead and a new rational budget be formulated.
    We are told that the Administration wants to make up the deficit 
spending by cutting domestic programs. Which to me (and many others 
like me) is not acceptable and also not the least bit rational.
    A temporary tax rebate measure made up of more borrowed money? 
Devaluing our own currency to the enjoyment of all of our competitors 
in the marketplace.
    Spending out of control in Iraq. Billions of dollars missing/
unaccounted for. No clue where it is. And the war dragging on for five 
(5) years.
    Just allow me a word on the war please. If this country is involved 
in a life or death ideological struggle of the age--then use the 
nuclear weapons in our arsenal and put an end to the struggle a 
positive winner--do not drag it out for generations/forever spending 
the priceless blood of our youth as if it were saltwater and 
bankrupting our country's treasury. The subprime mortgage debacle--
another great injustice allowed to happen by deregulation.
    Adding 1100 Diplomats to the Federal payroll. Just what we need--
more overhead.
    I should say this spending is anything but Conservative. It appears 
FAR RIGHT WING RADICAL EXTREME NEO-LIBERAL to me.
    Stop spending all of our money overseas attempting to build nations 
and markets for only those who are already rich beyond belief.
    Spend our money here at home. Our domestic programs need to be 
bolstered and made solvent. Social Security Solvency and Universal 
Health Care For All Citizens (Medicare For All) needs to happen NOW. 
Every other major country in the world has it and knows it is the right 
thing for a government to do for its general population. Our money buys 
$3.00 a gallon gasoline/expensive fossil fuels to heat our homes and 
enriches and provides cradle to grave domestic care for those we are 
purchasing from. That in itself is mad.
    The way I see it we should install Trade Regulations that level the 
field in the world market. Doing so will create incentive to produce 
more here at home. Domestic business will prosper. When the appropriate 
Trade Regulations take affect and we purchase fewer products from 
overseas, our overseas trading partners will lose market share and will 
increase the cost of their products to consumers within their borders 
to fund their corporations--further leveling the field. They will then 
borrow from us to keep their corporations in business.
    Stop selling out our country by making it more profitable for 
business (including manufacturing) to move out of country.
    People living in this country have a much higher cost of living 
than those people in 3rd world overseas economies. People cannot earn a 
living in this country being paid $1.00 to $3.00 per hour--they need a 
good job that pays a good wage and at least a living wage as opposed to 
a minimum wage.
    Here in Northeast Ohio the economy (especially my economy) is 
horrible. Last year was the worst year in business that I can remember. 
Fifty percent down from the year previous.
    It seems every measure taken by every segment of our government is 
another attempt (greater than the previous) to euthanize our private 
sector domestic economy.
    This needs to be fixed and it's going to take a government that is 
responsive to the people to fix it.
    This Administration and it's policies cannot end quickly enough to 
suit me.

                                  
