[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
              TREASURY DEPARTMENT FISCAL YEAR 2010 BUDGET

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, MARCH 5, 2009

                               __________

                            Serial No. 111-5

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
       http://www.gpoaccess.gov/congress/house/budget/index.html


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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania    PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio                     Ranking Minority Member
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon              MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas               MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida                  PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts     CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts          JOHN CAMPBELL, California
BOB ETHERIDGE, North Carolina        JIM JORDAN, Ohio
BETTY McCOLLUM, Minnesota            CYNTHIA M. LUMMIS, Wyoming
CHARLIE MELANCON, Louisiana          STEVE AUSTRIA, Ohio
JOHN A. YARMUTH, Kentucky            ROBERT B. ADERHOLT, Alabama
ROBERT E. ANDREWS, New Jersey        DEVIN NUNES, California
ROSA L. DeLAURO, Connecticut,        GREGG HARPER, Mississippi
CHET EDWARDS, Texas                  [Vacant]
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                 Austin Smythe, Minority Staff Director


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, March 5, 2009....................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     2
    Hon. Gerald E. Connolly, a Representative in Congress from 
      the State of Virginia:
        Prepared statement of....................................     4
        Questions for the record.................................    49
    Hon. Timothy F. Geithner, Secretary, U.S. Department of the 
      Treasury...................................................     5
        Prepared statement of....................................     8
        Responses to questions for the record from:
            Mr. Aderholt.........................................    46
            Mr. Blumenauer.......................................    47
            Mr. Connolly.........................................    49
            Mr. Langevin.........................................    50


                          TREASURY DEPARTMENT
                        FISCAL YEAR 2010 BUDGET

                              ----------                              


                        THURSDAY, MARCH 5, 2009

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:08 a.m. in room 
210, Cannon House Office Building, Hon. John Spratt [chairman 
of the committee] presiding.
    Present: Representatives Spratt, Schwartz, Kaptur, Becerra, 
Doggett, Berry, McGovern, Tsongas, Etheridge, McCollum, 
Yarmuth, Andrews, Edwards, Scott, Langevin, Larsen, Bishop, 
Schrader, Ryan, Hensarling, Diaz-Balart, Campbell, Jordan, 
Lummis, Austria, Nunes, and Harper.
    Chairman Spratt. We call the committee hearing to order. We 
convene the committee today to discuss the President's budget 
for 2010 and the Treasury's prominent role in that budget. For 
that purpose, we are pleased to have the Secretary of Treasury, 
Mr. Tim Geithner. Given the number of places you have to be 
these days, it is a miracle you could attend us, but this is an 
important part of the process and we very much appreciate your 
being here today to testify.
    As we all know, President Obama inherited an economy in 
crisis and a budget deficit, so deep in deficit that spending 
from the prior administration overtakes revenues by $1.3 
trillion during this fiscal year alone. The President has 
recognized that we have not one but two--really, several 
deficits. The first is an economy clicking on four of six 
cylinders, running at 6.8 percent below potential. And to put 
that economy back on its feet and to realize some of that 
potential, the President has signed into law a recovery package 
that will increase consumer demand, which is desperately short, 
and create 3 million new jobs by reinvesting in fiscal and 
human infrastructure.
    It is almost impossible to balance the budget when the 
economy is buckling like in the recession we are now 
experiencing. It is even more difficult to do that when we have 
to make--what we do to make the economy better oftentimes makes 
the deficit worse, at least in the short run.
    But here is the stark reality we are confronted with. The 
deficit that President Bush left behind was 9 percent of GDP, 
the highest since World War II. And here is President Obama's 
bold response. Over the next 4 years, he proposes a budget that 
will pare the deficit down from 12.3 percent of GDP to 3 
percent of GDP, an ambitious goal but a worthy goal and 
certainly a track we hope to adopt.
    The President's budget cuts the deficit by more than two-
thirds in 4 years, $533 billion 4 years from now in 2013. But 
it is not so consumed with or committed to deficit reduction 
that it overrides other compelling needs. It takes on topics, 
in fact, that other budgets have ducked, topics that others 
have thought too hot to handle: climate change, health care for 
all Americans, and particularly the 46 million who don't enjoy 
insurance. It slows down the increase in defense spending; it 
revises the alternative minimum tax, puts it in the code; and 
it seeks to lay the groundwork for bending the curve and making 
health care more affordable for all Americans.
    Now, there are going to be critics who single out instances 
where additional revenue is raised as in allowing certain 
concessions for upper-bracket taxpayers to expire. But look 
carefully, and look again, and you will see that the bigger 
picture will show that this budget leaves in place the middle 
income tax cuts that were adopted in 2001 and 2003, the 10 
percent bracket, the child tax credit and the marital penalty 
relief measures. It indexes the AMT to keep it from burdening 
middle-income taxpayers; it extends the State tax at the 2009 
levels; and it helps working families by renewing Make Work 
Pay.
    Most importantly, the President's budget extends $2.2 
trillion of tax cuts over 10 years to 95 percent of workers 
relative to current law; $2.2 trillion in net tax cuts. This is 
a pro-growth budget.
    The committee is eager to hear the Treasury's plan to 
address the crisis in the housing market, which is a source of 
the recession we are now experiencing. Sinking home values and 
homeowners who find themselves under water in mortgages are at 
the heart of this crisis that we are undergoing.
    The President's budget is a huge undertaking, but what he 
has sent us is just the beginning. But it is a bold beginning 
for the 2010 budget. We will want to add and see more detail 
before we can write a resolution, so this is not by any means 
the end of the process. But it is the beginning; it is a bold 
beginning. And we appreciate your coming here, Mr. Secretary, 
to testify on behalf of it and to answer questions.
    It is my understanding that you need to leave in order to 
get to the Health Care Summit, so you will need to leave here 
at 12:30.
    Let me then turn to Mr. Ryan for his opening statement. We 
will make a few housekeeping details and then we will get right 
underway with your testimony. Mr. Ryan.
    Mr. Ryan. Thank you, Chairman. Welcome again, Secretary. 
You have been a busy man. It is nice to see you over here on 
the Budget Committee from the other day's Ways and Means 
appearance.
    First I want to start by acknowledging the very serious 
challenge you face. Solving our banking crisis and stabilizing 
our financial markets is absolutely critical to our economy and 
our job growth, and we want you to achieve success in doing 
that. There is no perfect solution to this very grave problem 
we face. But while I have concerns about how the past and the 
current administration has handled the TARP, the best thing we 
can do for our economy is get the credit markets flowing again. 
And I genuinely appreciate your hard work and efforts on that 
front.
    That said, you won't be surprised to hear that I have 
profound disagreements with the President's budget. It is a 
historic expansion of the tax, borrow, and spend philosophy 
which concentrates resources and power in Washington and 
smothers the freedom and resources of the very entrepreneurs 
and small businesses that are needed to turn this economy 
around.
    Of particular relevance to you and of this hearing are the 
tax and debt increases called for in this budget. Let us begin 
with taxes. The budget proposes $1.4 trillion in net tax 
increases; in other words, a tax increase that totals roughly 
10 percent of the entire economy today. Now, what would be bad 
enough in itself would be just the raising of taxes, but there 
is no economist on the planet, whether a Keynesian supply-
sider, or somewhere in between, who would suggest proposing tax 
increases in the midst of one of the most painful recessions in 
the generation.
    Now, your colleague, Budget Director Peter Orszag, says 
reassuringly that these tax hikes won't start until 2011 when 
the economic recovery ought to be underway. We hope it is. But 
businesses are forward-looking and they make investment and 
hiring decisions today based on expectations of future after-
tax returns. And nothing affects a business' bottom-line more 
than taxes. If you are running a business right now, why would 
you start expanding or hiring the kinds of activities this 
economy desperately needs, with a threat of a huge tax increase 
in just a year and a half down the road.
    Now, let us take a look at some of these specific tax 
increases. You raise tax on what the President calls, quote, 
``the wealthiest of Americans,'' but many of these, quote, 
``wealthy'' people are small business owners, the people who 
create nearly 80 percent of the jobs in this country.
    Then there is the carbon cap and tax proposal, which will 
effectively impose an additional tax burden on more than $800 
billion--and that is a low-ball estimate--on everyone who uses 
gasoline, natural gas, home heating oil or electricity. I think 
we can argue that covers most Americans, not just wealthy 
people.
    You penalize people for buying houses, making charitable 
contributions and building up savings to leave to their 
families. You would also tax U.S.-based international 
companies, making it harder for them to compete with their 
foreign counterparts, directly contrary to what we should be 
trying to accomplish at this time.
    And then there are also the deficits and the debt that are 
resulting from this budget. The 2009 budget deficit swells to 
$1.8 trillion, more than triple the previous record. Obviously 
you inherited some of this, but you are raising it by another 
$540 billion, which is higher--the increase is higher than any 
budget deficit we have ever had. The budget would also double 
the national debt in the next 8 years. In addition to all these 
things is the budget's staggering failure to actually control 
spending. It even adds more than a trillion dollars to 
entitlement spending, worsening the most severe fiscal problems 
we have.
    As I said earlier, this is a challenging time and no 
economic or fiscal plan is ever going to be perfect. But the 
President's budget tries to spend, tax, and borrow our way into 
prosperity. It is an economic recipe that simply just doesn't 
work. Nevertheless, I do want to work with you to stabilize 
financial markets. We want to work with you to get our economy 
back on track in the short term and to address the challenges 
to our longer-term economic growth, and that is the looming 
entitlement crisis.
    With that, Chairman, I yield time and I look forward to 
your testimony.
    Chairman Spratt. Thank you, Mr. Ryan.
    I would ask unanimous consent at this point that all 
members be allowed to submit an opening statement for the 
record. It will be entered at this point in the proceeding.
    [The statement of Mr. Connolly follows:]

  Prepared Statement of Hon. Gerald E. Connolly, a Representative in 
                  Congress From the State of Virginia

    Mr. Chairman, I would like to thank you for holding this hearing 
and asking Secretary Geithner to appear before the House Budget 
Committee to testify with respect to the Fiscal Year 2010 budget. This 
Administration has my support in its efforts to clean up the 
unbelievable economic and fiscal mess left by the previous 
administration and I believe the President has taken a number of 
positive steps to that end. As we look to address the unprecedented 
fiscal crisis that we have inherited, I welcome the newfound concern 
from my colleagues across the aisle about the massive budget deficits. 
It was a concern that was heard from the other side of the aisle in the 
previous eight years, despite the fact that it left our nation with the 
largest budget deficit in history.
    I was pleased to support the American Recovery and Reinvestment Act 
and I will support the Helping Families Save Their Homes Act, in 
concert with the Administration's efforts to restore stability to our 
ailing economy. I welcome the bold vision and approach of the President 
and his team, not only to stop the economic hemorrhaging and build 
stability, but also to tackle our long term challenges such as health 
care, energy policy, education, the environment and entitlement reform.
    I continue to support the Administration's agenda and I look 
forward to continue helping our nation move forward. Having said that, 
I do have some concerns that I would like address.
    The public must see the concrete benefit of TARP--the Troubled 
Asset Relief Program--and our enormous investment in the financial 
industry. So far they haven't. We cannot repeat the mistakes of the 
previous administration, where the first installment of a financial 
services stability recovery package went to large institutions to right 
their balance sheets, while little of it went to homeowners in distress 
or small businesses seeking credit assistance to make purchases and 
meet payrolls. We need a plan to reassure the financial markets of our 
commitment to restoring stability and we must assure the public that 
this aid will get to them as well.
    We must also focus on the health of one of the largest drivers for 
employment and economic expansion, the municipal bond market. As a 
former local government official, I know full well the benefits that 
local governments offer to the economy when they construct needed 
capital improvements. From police stations to bus stops, from schools 
to parkways, local governments put people to work building and 
maintaining the critical infrastructure that we rely on daily. They 
accomplish this feat through the issuance of municipal bonds.
    As the credit crisis expanded, local governments found the capital 
markets dried up, and were unable to move forward with the necessary 
investment in our nation's infrastructure. This matter was compounded 
by the collapse of the private insurance industry which made it 
impossible for municipalities to improve the grade of their bonds on 
the market. I hope that the current administration will make helping 
local governments access credit a priority.
    I represent a district that is estimated to have one of the largest 
concentrations of federal employees of any district in the nation. The 
issue of pay parity between civilian federal employees and the military 
is an important one for my constituents. It comes up every year and I 
had hoped that President Obama's budget would take a different approach 
on the matter than past budgets, but it hasn't. Understanding that 
President Obama has only been in office six weeks, it is my hope that 
he will, upon further review, come to understand the importance of pay 
parity. Let me assure you it is a central concern for the tens of 
thousands of federal workers in my district and in many other districts 
in the Washington metropolitan areas and across the nation. It is my 
intent to address this disparity in the budget resolution this year.
    I was encouraged to see the Administration has included a permanent 
fix for the Alternative Minimum Tax, which this Congress addressed 
temporarily for only one year in the American Recovery and Reinvestment 
Act. The AMT was never designed to affect millions of middle income 
families and this fix will provide those working families the long-term 
guarantee to plan their future finances without threat of onerous tax 
increases.
    Finally, while we understand the importance of reexamining the tax 
cuts of the previous administration, which helped create the red ink we 
are all concerned about, I hope to have an opportunity to discuss the 
income thresholds and flexibility with respect to tax relief in the 
upcoming budget process.
    I look forward to Secretary Geithner's testimony and working with 
him as we fashion a budget in the months ahead.

    Mr. Secretary, as I have said before, your testimony will 
be made part of the record in its typewritten form. You may 
proceed as you wish in summarizing it, but you are the only 
witness today, so take your time. There are many questions to 
be asked and answered and we look forward to your testimony. 
Thank you again and the floor is yours.

         STATEMENT OF HON. TIMOTHY GEITHNER, SECRETARY,
                U.S. DEPARTMENT OF THE TREASURY

    Secretary Geithner. Thank you, Chairman Spratt. Thank you, 
Ranking Member Ryan. And thanks to all of you for giving me the 
chance to appear before you today.
    I want to outline the broad strategy presented in the 
President's budget, what it means for our economic future and 
the choices we are presenting for the Congress and the American 
people. As you both said, we start with a deepening recession, 
an intensifying housing crisis, a financial system still under 
stress. Since the recession began, 3.6 million Americans have 
lost their jobs. Millions more have lost and are at risk of 
losing their homes and are struggling to obtain loans for 
homes, for cars, to finance their kids' education. Many 
businesses across the country are finding it harder to obtain 
credit. This crisis and the policies that preceded it have 
helped cause a dramatic deterioration in our fiscal position.
    We start this Congress and this administration with a $1.3 
trillion deficit, the largest as a share of our economy the 
Nation has faced since the Second World War. And the increases 
that you see immediately are increases necessary to solve the 
crisis we start with. As a Nation today, we face extraordinary 
challenges and these challenges require extraordinary actions.
    Now, in passing the Economic Recovery and Reinvestment Act, 
the administration and the Congress have put in place a very 
powerful mix of programs to get Americans back to work and to 
help stimulate private investment. The combined effect of these 
investments and tax measures--and we are moving very, very 
quickly to put them in place--will be to save or create between 
3 or 4 million jobs and to increase real GDP by 3.2 percentage 
points by the end of 2010 above the level it would have 
achieved in the absence of these measures.
    Now, alongside the Recovery Act, the administration is 
moving quickly to repair our financial system so that it can 
provide the credit necessary for businesses across the country 
to expand and for families to finance what they need to 
finance. The deepening recession is putting greater pressure on 
banks, and in response many banks are pulling back on credit. 
Right now, critical parts of our financial system are damaged 
and are working against recovery, and this is a dangerous 
dynamic. And to arrest it, to break it, we need to make sure 
that our banks have the resources necessary to provide credit, 
and we need to act to get the credit markets flowing again 
directly.
    Finally, the President has launched a very broad plan to 
help address the housing crisis. This plan will help homeowners 
meet their mortgage obligations, enable them to refinance and 
take advantage of low-interest rates. Yesterday we took the 
very important step by releasing details of our loan 
modification plan and Treasury guidelines for servers. These 
guidelines will enable struggling borrowers to make lower 
payments, starting right away. And if you look at the impact of 
this program already on mortgage rates, those have come down 
significantly, even just over the last couple of weeks, not 
just over the last several months.
    Now, these actions in all three areas--recovery, to get 
credit flowing again, and in the housing area--are absolutely 
necessary to lay the foundation for recovery. But the 
President's budget builds on this foundation to set us up on a 
path to long-term growth.
    Now, the first step in addressing our Nation's fiscal 
problems is to be honest and candid about them. This budget 
breaks from the past by transparently presenting the stark 
fiscal challenges facing the American people. We include the 
cost of fixing the AMT each year. We include reimbursements to 
Medicare physicians. We include the likely cost of future 
foreign wars and natural disasters. And in an abundance of 
caution, we include the potential need for additional financial 
resources to get credit flowing again.
    We offer a 10-year rather than a 5-year budget 
presentation. This budget also proposes a series of ambitious, 
innovative policies to help address the most critical 
challenges facing our economy in health care, in energy and in 
education. And the President does this within a framework that 
gets us on a path to fiscal responsibility, to fiscal 
sustainability.
    As all of you know, the soaring cost of health care is 
crippling families, businesses, and our long-term budget 
prospects. There is no path to addressing our long-term 
entitlement challenges that does not start with and go through 
major health care reform. Our budget begins this process by 
reducing costs and inefficiencies, by increasing quality of 
care and preventative care, and by moving towards affordable 
coverage for all.
    To cite just one example, the Hospital Quality Improvement 
Program proposes to pay for performance and to reimburse 
hospitals for the quality of the services they provide rather 
than just the quantity of the services they provide. Health-
care reform is a moral imperative, it is an economic 
imperative, and it is a fiscal imperative for our country.
    Now, our budget also puts forth a significant commitment to 
reduce our dependence on foreign oil and carbon-intensive 
energy sources. This dependence threatens our economy, our 
environment and our national security interests. Investments in 
energy efficiency and renewable energy will help create new 
American jobs in industries and lead the path to a new, greener 
economy.
    And if we are truly committed to making our Nation both 
more prosperous and more just, we must recognize that it defies 
both our basic values as a country and our common sense to deny 
any child in America access to the quality education they need 
to compete in this global economy. Our budget calls for 
substantially more resources for early childhood education, new 
incentives to improve teacher performance and a significant 
increase in the Pell grant, together with President Obama's 
American opportunity tax credit, which provides up to $10,000 
of tax relief for a single student going to 4 years of college.
    Now, on the tax side, this budget rewards work, encourages 
growth, investment, and savings. Important provisions include 
making permanent the make-work-pay tax credit, which makes the 
tax credit available to 95 percent of working Americans; the 
expansion of the earned income tax credit; a zero capital gains 
provision for small businesses; and a permanent extension of 
the R&E tax credit.
    This budget also proposes to make substantial progress in 
reducing the tax gap by tackling tax shelters and other efforts 
that allow people to abuse our tax laws. And over the next 
several months, the President will propose a series of 
legislative and enforcement measures to reduce tax avoidance.
    I want to emphasize that we propose no new revenue 
increases in our budget, none, until we are safely into 
recovery in 2011. And at that point, with the consensus that 
private forecasters project significantly positive growth rates 
for the overall economy, the budget restores tax rates to the 
pre-2001 levels for families making more than a quarter of a 
million dollars.
    Now, I just want to pause here for one second. Those 
proposed changes in tax rates would apply to only 2 to 3 
percent of small business owners across the country. Only 2 to 
3 percent; 95 percent of small business owners of the country 
have incomes below that threshold of $250,000. Now, even with 
these critical long-term investments, the President keeps 
overall nondefense discretionary spending well below its long-
term averages as a share of GDP. And overall outlays as a share 
of GDP, once you account for the interest costs associated with 
our inherited deficits and once you account for the effects of 
the aging baby boom and rising health-care costs and 
entitlements, overall outlays as a share of GDP return to 
historical norms.
    Now, the President and I share a commitment to working with 
this committee to put our Nation back on a path of fiscal 
sustainability again, once recovery has been firmly 
established. The budget does this by making the tough choices 
to cut the deficit in half, to bring it down over 5 years to 3 
percent of GDP, so that our overall debt is no longer growing 
as a share of the economy. If we do not do this, then we face 
the risk that government borrowing will crowd out private 
borrowing, raising interest rates and threatening growth.
    Now, when I last served in the Treasury Department in the 
1990s, fiscal responsibility helped create a virtuous circle of 
greater confidence, strong private investment, strong 
productivity growth, higher overall income more broadly shared 
across the American economy. Addressing these problems that 
confront the Nation will not be easy, but we are a strong and 
resilient country. We have overcome challenges like this in the 
past. And if we accept this responsibility we share with the 
American people, we will meet those challenges effectively and 
successfully as a country.
    Thank you. I would be happy to take your questions.
    Chairman Spratt. Thank you very much, Mr. Secretary.
    [The statement of Timothy Geithner follows:]

       Prepared Statement of Hon. Timothy F. Geithner, Secretary,
                    U.S. Department of the Treasury

    Chairman Spratt, Ranking Member Ryan, and members of the Committee, 
thank you for providing me the opportunity to appear before you today 
to discuss the President's Budget at this moment of economic crisis, 
but also of real possibility, for the United States.
    What I propose to do in the remarks that follow is to:
     Describe the economic and financial challenges that 
greeted us upon our arrival in office, and discuss how we are 
addressing them;
     Lay out the intermediate and long-term threats to our 
fiscal condition, and explain how the President's Fiscal Year 2010 
Budget will return the nation to a sustainable fiscal position; and
     Explain how this Budget puts the nation on a path towards 
energy independence, better educational outcomes, and a reform of 
health care that both lowers costs and expands access.

               CURRENT ECONOMIC AND FINANCIAL CHALLENGES

    The economy suffers from a severe lack of aggregate demand, both 
from families and businesses--a problem that is driven by a slumping 
job market, where 3.6 million jobs have been lost in just over a year--
the largest number as a fraction of total employment in more than a 
quarter century and the largest number in absolute terms in over a half 
century. This problem is made worse by a contraction of demand from 
many of our key trading partners.
    Businesses, facing or projecting fewer customers for their goods 
and services, are laying off workers or cutting back on their hours or 
wages, causing families to further reduce their demand and businesses 
to respond with more layoffs and cutbacks.
    This dynamic is made worse by a financial system that is unable to 
provide the credit necessary for recovery. You can see this across 
America as families find it difficult to get the financing they need to 
buy new houses and cars while businesses have trouble lining up the 
credit necessary to meet payroll.
    The contraction in credit is causing more job losses and further 
declines in business activity, which, in turn, is adding more pressure 
on the financial system.
    Both our economic and financial problems are being compounded by 
problems in our housing market, where a record 2.5 million families 
faced foreclosure last year, undercutting overall home prices, 
shrinking Americans' real estate wealth by $2.8 trillion from its peak, 
causing further reductions in demand, more layoffs and a greater credit 
squeeze that threatens another round of foreclosures.
    You can see the scale of the damage in last Friday's announcement 
that the Gross Domestic Product, the broadest measure of the nation's 
output of goods and services, dropped at a 6.2% annual rate during the 
final quarter of last year. That was its worst performance in more than 
a quarter century, and the third worst in more than a half century.
    In addition to a deepening recession and financial troubles, the 
Obama Administration inherited the worst fiscal situation in modern 
American history, with a federal budget deficit of $1.3 trillion, equal 
to nearly 10% of GDP--the largest that the nation has faced since World 
War II--not counting the economic recovery or other legislation 
undertaken by the Obama Administration.
    And we begin our time in office after a long period in which our 
government was unwilling to make the long-term investments required to 
meet critical challenges in health care, energy and education.
    This is the reality that we face today. These are the challenges 
that shape both the American economy and the Administration's strategy. 
I want to outline for you today the President's program for addressing 
these challenges.
    Let me start with our immediate response to the acute problems 
confronting the country.
     a comprehensive economic recovery and financial stability plan

Economic Recovery Plan
    Immediately upon taking office, the President and the 
Administration worked with Congress to enact the American Recovery and 
Reinvestment Act, a package of targeted investments and tax cuts 
designed to get Americans back to work and get the economy growing 
again.
    Every agency of government is moving quickly to implement the 
recovery plan in order to reignite economic growth. In the last week 
alone, we introduced three of the plan's major tax provisions--the 
Making Work Pay tax credits of $400 a year for individuals and $800 for 
working families; a first-time homebuyer credit that could get up to 
$8,000 into the pockets of those buying homes before December 1, 2009; 
and a subsidy to ensure that unemployed Americans and their families 
can keep their health insurance.
    We estimate that the plan will save or create at least 3.5 million 
jobs over the next two years, and will boost GDP--over where it would 
have been had we not acted--by almost 1% this year and more than 3.2% 
next year.

Financial Stability Plan
    But reviving economic activity is not enough because without a 
regular flow of credit to families and businesses, recovery will be 
impeded. Therefore, we have taken another critically important step.
    We have introduced a Financial Stability Plan to get our financial 
system operating so that it promotes recovery rather than prevents it, 
by supplying the necessary credit for Americans to once again buy 
homes, purchase cars, go to college and turn good ideas into 
flourishing firms.
    The stability plan will ensure that banks have the capital cushions 
they need to keep lending under currently troubled economic conditions 
and, as a precaution, under even worse conditions as well. It will help 
thaw our important, but now largely frozen, non-bank financial markets 
so they can go back to generating the credit that families and 
businesses must have. And it provides a method for the government to 
join with private investors to begin buying the mortgage-backed 
securities at the center of so many of the financial system's problems, 
but whose resumed trading is so important to the stability of the 
system.

               HOMEOWNER AFFORDABILITY AND STABILITY PLAN

    Just as economic recovery requires financial stability, stabilizing 
our financial system requires us to improve conditions in our housing 
market.
    The Administration's affordability plan will help all Americans buy 
and refinance their houses by encouraging low mortgage interest rates. 
In addition, it will offer to help 4 to 5 million homeowners to 
refinance. And it will help another 3 to 4 million homeowners who are 
at risk of foreclosure through no fault of their own to convert their 
unaffordable mortgages into affordable ones.
    These three plans form our immediate and integrated response to the 
nation's economic and financial challenges. All three are carefully 
linked to our 2010 Budget.
    The Budget: A Plan for Fiscal Sustainability and Investments for 
Shared Prosperity
    The President's Budget carries forward and expands upon our 
immediate response to the acute problems confronting America.
    It also marries these efforts to an honest plan for how to proceed 
after recovery has taken hold and the financial system has stabilized. 
It lays out how to achieve long-term deficit reduction by reversing the 
short-term increases that are now necessary to achieve recovery and 
stability--increases that will have to be substantially reduced in 
order to get the nation back into fiscal shape. And it provides a 
blueprint for the investments in health care, education and energy that 
are so critical to our long-term future.

                             BUDGET HONESTY

    The President's Budget begins by offering an honest assessment of 
the dimensions of the problems facing the country in the intermediate 
and long-term.
    The President's Budget ends the practice of only recognizing the 
costs for overseas contingency operations--such as the wars in Iraq and 
Afghanistan--for as little as one year at a time and instead 
acknowledges that there is multi-year cost that must be reflected in 
the Budget. Although the budget includes estimated costs of these 
operations in the out-years to be fiscally conservative, these 
estimates do not reflect any specific policy decisions. Several 
strategy reviews are underway that will inform out-year costs, and it 
would be premature at this time to prejudge those reviews.
    It takes into account the possibility of a natural disaster such as 
Hurricane Katrina, instead of assuming that the country will be free of 
such disasters and the costs of helping Americans put their lives and 
communities back together.
    It ends the practice of assuming an increase in revenues from the 
Alternative Minimum Tax (AMT). The AMT has been ``patched'' year after 
year, but for the first time our Budget reflects the cost of doing so.
    It acknowledges that, as expensive as it already has been, our 
effort to stabilize the financial system might cost more. It 
establishes a placeholder to help ensure we can cover any additional 
financial stability costs.
    I should note here that the existence of the $250 billion 
placeholder for financial stability in the President's Budget does not 
represent a specific request. Rather, as events warrant, the President 
will work with Congress to determine the appropriate size and shape of 
such efforts, and as more information becomes available the 
Administration will estimate potential cost.
    Finally, the President's Budget gives a fuller view of the 
government's finances by looking out ten years, rather than the five 
years which has been the practice with budgets in recent years.

        REDUCING THE DEFICIT TO RETURN TO FISCAL SUSTAINABILITY

    We have set an ambitious, but economically crucial goal for 
bringing our deficits down dramatically once the recovery is firmly 
established and financial stability has returned.
    We project that the deficit for the current fiscal year, including 
the recovery and stability plans, will be $1.75 trillion, or 12.3% of 
GDP. Of that, $1.3 trillion, or 9.2% of GDP, was already in place when 
we assumed office.
    The President is determined to cut this $1.3 trillion deficit by at 
least half in four years. The budget would bring the deficit down to 
$533 billion by fiscal year 2013. More importantly, it would reduce the 
deficit to about 3% of GDP.
    By bringing the deficit down to the range of 3% of GDP, we can keep 
our national debt--the aggregate total of our past deficits--from 
growing faster than the economy itself and keep the size of our debt 
relative to the economy from rising towards the end of our ten year 
budget window.
    Failure to reduce deficits to this level would result in higher 
interest rates as government borrowing crowds out private investment, 
leading to slower growth and lower living standards for Americans.

            KEY REVENUE PROVISIONS IN THE PRESIDENT'S BUDGET

    Our revenue provisions are designed to encourage growth and 
recovery, improve the fairness of the tax code and support the 
President's critical priorities in a fiscally responsible manner.
    Our recovery plan reduces the overall tax burden on the American 
economy to help get the economy back on track.
    The President's Budget takes up where the recovery plan leaves off, 
cutting taxes for 95% of working Americans by making permanent the 
Making Work Pay tax credit of up to $400 for individuals and $800 for 
families. The Budget provides additional tax relief by expanding the 
earned income tax credit for lower-income families and extending the 
American Opportunity Tax Credit that provides up to $2,500 toward 
higher education. All of these are in the recovery plan that Congress 
enacted last month, but only in temporary form. The Budget also expands 
the Saver's Credit as part of the President's commitment to help 
Americans rebuild their savings.
    The President's Budget includes tax provisions to help small 
businesses. It recognizes that many small businesses are operated as 
sole proprietorships or through partnerships and other flow-through 
entities, and leaves the individual income tax rates at which these 
small businesses are taxed unchanged in 2009 and 2010. By extending the 
current rate structure for families earning less than $250,000 after 
2010, it ensures that 97% of small businesses will receive additional 
tax relief at that time or see their rates remain unchanged.
    Moreover, the President's Budget will provide small business owners 
with a new zero capital gains rate on new investments in their 
businesses, which should help them plan for expansion and succession.
    In addition, the budget will help provide more incentives for 
innovation and increase stability in the tax code by making the 
Research and Experimentation tax credit permanent.
    By 2011, when the economy is projected to have recovered, it will 
be important for the nation to put in place policies that restore 
fiscal responsibility. For this reason, our Budget includes revenue 
changes that become effective at that time. Those making less than 
$250,000 will not see taxes increase. The marginal rates for the top 2% 
of income earners will return to where they were during the powerful 
economic expansion of the 1990s.
    The Budget also seeks to restore fairness to the tax code. For 
example, the Budget proposes to tax the compensation paid to hedge fund 
managers, private equity partners and others in the same way that we 
tax the wages paid to ordinary American workers. By closing this 
``carried interest'' provision, the tax code will provide equal tax 
treatment for wages regardless of whether an individual works as a 
teacher or a hedge fund manager.
    The Budget addresses the serious issue of the ``tax gap,'' the 
difference between what taxpayers legally owe and the amount that they 
pay. Building on the recently enacted proposals to increase information 
reporting, the Budget includes a new proposal to require additional 
information reporting for rental property expense payments. We will 
make additional information reporting proposals when the full Budget is 
released.
    The Budget also seeks to close the ``tax gap'' by tackling tax 
shelters and other efforts to abuse our tax laws, including 
international tax evasion efforts.
    The Budget addresses the use of offshore structures and accounts by 
U.S. corporations and individuals to avoid and evade U.S. taxes. Over 
the next several months, the President will propose a series of 
legislative and enforcement measures to reduce such U.S. tax evasion 
and avoidance.
    Some proposals will focus on the rules in our tax code that put 
those who invest and create jobs in the United States at a 
disadvantage. We will propose rules to both reform U.S. corporations' 
ability to defer foreign earnings and deter high income individuals and 
corporations from using tax havens to avoid taxation.
  path to prosperity: investments in health care, education and energy
    The President's Budget will put the nation back on a sustainable 
fiscal path that is so important for long-term growth. But the Budget 
is about much more than deficit reduction. In it, the President 
reverses our government's long neglect of critical investments in 
health care, education and energy in order to improve the economy's 
performance and lift the standard of living of this generation of 
Americans and of future generations.
Investing in Health Care
    Without a plan to reform and bring down costs throughout our entire 
health care system, budget deficits will start climbing again as the 
costs of Medicare and Medicaid increase with rising overall health 
system costs. And we will not have taken a single step toward the time 
when every American--no matter their income--receives the quality, 
affordable health care they deserve.
    In recent years, most proposals for how the government should cope 
with its rising health care costs have centered on trying to hold the 
growth of Medicare and Medicaid costs below that of the overall system. 
But there is wide agreement among experts that this is not a long-term 
solution for containing health care spending.
    Any effort to slow the growth of Medicare's and Medicaid's costs 
requires slowing down the costs of the overall system and that, in 
turn, is helped by substantially expanding access to care. To do 
otherwise would result in economically distorting cost shifts, where 
those who are covered end up paying higher prices to pick up the 
medical tabs of those who are not.
    That's why this President is committed to achieving a goal that has 
eluded presidents since Franklin Delano Roosevelt, which is to reform 
America's health care system to make it less costly, more comprehensive 
and fairer.
    We already have made a down-payment on this effort by including 
over $20 billion for health information technology, comparative 
effectiveness and prevention in our recovery plan and by extending and 
expanding the Children's Health Insurance Program for eleven million 
children.
    The President's Budget will greatly advance that effort by setting 
aside a reserve fund of more than $630 billion over ten years to help 
finance reforms. The fund will be financed on a roughly 50:50 basis 
from new revenues from those Americans who can best afford this 
sacrifice and health system savings associated with, among other 
things, reducing drug prices by speeding access to affordable generics.
Investing in Education
    Without the President's new investments, we risk leaving a 
generation of workers unequipped to compete in the 21st century's 
global economy. In order to ensure that our workers are prepared to 
compete and that the economy can continue to grow, we must increase the 
number of Americans who have the opportunity and ability to earn a 
college degree.
    This is particularly important because of the projected slowdown in 
the growth of our labor force over the coming decades. And it is 
particularly important for those in our society--such as those from 
minority and lower-income families--who have traditionally had lower 
rates of college success.
    In this light, the higher education provisions in the President's 
economic recovery plan are essential to our long-term economic strategy 
because during periods of economic stress, the students who are most 
likely to drop out or never attend college are those for whom cost is 
the biggest barrier.
    The President's Budget includes substantial strides towards 
ensuring that a college education is affordable for all Americans. The 
American Opportunity Tax Credit will provide up to $2,500 a year of tax 
relief for a student going to college. The combination of the partially 
refundable nature of the credit and a sizeable increase in the maximum 
Pell Grant to $5500 a year embodies the President's commitment to 
ensuring young people at all income levels can obtain a college degree.
    At the same time, the President's Budget ensures that more young 
adults will be ready for college by starting them on the right track in 
early childhood.
    The President's commitment to quality early childhood education 
reflects the belief of experts ranging from child psychologists to the 
Minneapolis Federal Reserve and Nobel Prize-winning economist James 
Heckman that these programs are among the highest-paying investments 
not only for children, but for the economy as a whole. That is why the 
President's Budget includes measures to help states improve their early 
education programs, along with funding to expand Head Start and double 
the number of children in Early Head Start.
Investing in Reducing America's Dependence on Foreign Oil
    Without the President's new investments, the nation will remain 
dependent on uncertain supplies of foreign oil and carbon-intensive 
energy--a dependence that threatens our economy, our environment and 
our national security.
    The President's energy investments reflect our efforts to use 
broad-based market incentives to move us as efficiently and as quickly 
as possible towards a clean energy economy, while also providing relief 
to those who may bear a temporary increase in expenses during that 
transition.
    The recovery plan includes $65 billion in investments in clean 
energy technologies for programs like creating a smart electricity 
grid, improving energy efficiency, and investing in green jobs. As the 
President has made clear, we will work with Congress to develop an 
economy-wide emissions reduction program to bring emissions down 
approximately 14% from 2005 levels by 2020 and approximately 83% from 
2005 levels by 2050. This program should include a 100% auction of 
emissions allowances--ensuring that the biggest polluters don't profit 
on the basis of past pollution--and should use a cap-and-trade system 
that has worked effectively in the past as a mechanism to combat acid 
rain.
    The funds raised through this auction could be used to invest an 
additional $15 billion a year in clean energy technologies. It would 
also go towards covering the cost of making the Making Work Pay tax 
credit permanent, providing 95% of American families with tax relief. 
If there are any additional revenues, those could go back to the 
American people, with a focus on compensating vulnerable communities, 
businesses and families.
    The government will set the example by, among other things, 
retrofitting its buildings in order to improve their overall efficiency 
and save taxpayers billions of dollars.
    In all of the President's Budget proposals, as in our recovery, 
stability and affordability plans, we will make good on the imperatives 
set by the President to operate in the bright light of day so that 
taxpayers can know how their money is being spent and can hold us 
accountable.
    The problems that confront this nation are daunting. But we are a 
strong and resourceful country. Faced with great challenges in the 
past, we have shown the will to overcome adversity and carve a path 
back to prosperity. We will do so again.
    A budget is about more than columns of numbers and trend lines 
across a page. This Budget embodies our values, our aspirations, and 
our will to overcome the current crisis and usher in a new prosperity.
    I look forward to working closely with you in this great endeavor.

    Chairman Spratt. Mr. Secretary, your testimony includes 
reference to a $250 billion place holder, yet it cannot provide 
us with any detail because that is still being defined. Could 
you give us some idea of the magnitude, the gross size of this 
fund, these additional funds that will be required; because 
what is reflected here, as I understand it, is just that 
portion that impacts the budget and has an impact on the 
deficit.
    And secondly, could you tell us what categories, what 
generally speaking--what does this go to? Does it go to fund 
consumer credit? Does it go to build capital resources of the 
Nation's banks? Broadly speaking, where will they be used?
    Secretary Geithner. Thank you, Mr. Chairman. A very 
important issue. As you and the Ranking Member said, getting 
credit flowing again is absolutely critical to recovery. The 
impact of the recovery reinvestment program, even as powerful 
as that is, will be undermined if we don't get the banking 
system and the economy as a whole providing the credit that 
businesses need to expand. So the business that would otherwise 
benefit substantially from the provisions in the recovery act, 
will be less able to take advantage of it if they can't borrow. 
So this basic imperative, getting credit flowing again, is a 
critical priority for us.
    Now, in the budget, the President put in a reserve fund in 
an abundance of caution against the possible contingency that 
we may need additional resources. It is not a request for 
resources at this time. And when we get to the point, if we get 
to the point where we believe additional resources are 
essential to achieve this objective, then we will come to the 
Congress and to this committee with a specific proposal and lay 
out there exactly where those resources will go.
    Congress has already authorized substantial resources for 
this purpose, and we are moving very quickly to make those 
resources available in areas which we think will have the most 
effect on the economy as a whole.
    Now, if you look at what we have done so far and laid out--
and as I said in my opening statement, we need to make sure 
there is capital available to strengthen banks. We need to 
provide very substantial direct funding to help get credit 
markets working again. These are the markets that are critical 
for small business, lending for consumer credit, for auto 
finance, a range of other different markets. And as you have 
seen, we have committed to use a significant number of 
resources to help finance the housing plan that is going to 
benefit millions of Americans and have them take advantage of 
opportunities regarding refinance and to lower their mortgage 
payments.
    Those three areas--capital resources for banks where they 
need it, direct support for credit markets, and target 
initiatives in housing and other areas--will be necessary going 
forward, and those are the three critical pieces of the broad 
financial plan we laid out. But as I said, this is a reserve 
fund in the budget, very much in the spirit of how we account 
for foreign wars and natural disasters. It is not a request at 
this time or an estimate of what we think we ultimately need.
    Chairman Spratt. Let me show you some charts with respect 
to your budget and see if they comport with your numbers. First 
of all, a very simple back-of-the-envelope chart dealing with 
tax cuts and tax increases and the net tax that would be 
imposed by the budget you are recommending. The first shows 
revenue changes in President Obama's budget and indicates that 
by extending the 2001 and 2003 tax cuts for those under 
$250,000, that amounts to a net tax cut of $2 trillion. Is that 
consistent with your understanding?
    Secretary Geithner. Looking at these provisions now--and 
you are right--they do highlight the fact that we are extending 
tax cuts that affect 95 percent of Americans. We are proposing 
to make permanent the Make Work Pay tax credit, which reduces 
taxes for 95 percent of the working families. And we have a 
variety of other provisions in the bill that go directly 
towards reducing the tax burden on small businesses. And again, 
I think this is a very strong budget for small businesses. And 
if you look at the combined impact of these changes, with the 
investments we are making in reducing health-care costs and 
education, this is a very good budget for the long-term growth 
prospects of the American economy.
    Chairman Spratt. There are some revenue increases. Cap and 
trade would be one. The number we have here is simply one we 
have taken from the administration's request. It could be any 
range of numbers, an infinite variety of ways to do cap and 
trade or carbon taxes. That would be a revenue increase. There 
are some loophole closures and there are some other provisions, 
such as the limitation on itemized deductions for people making 
more than a certain income level. Those would be tax increases. 
But according to our back-of-the-envelope arithmetic, the total 
tax cuts, the net tax cuts after you have backed out the tax 
increases, are $2.2 trillion.
    Secretary Geithner. Mr. Chairman, I just want to emphasize 
that the estimate for resources raised from cap and trade is an 
estimate. And as the President said in the budget, we are going 
to use those resources to finance making the Make Work Pay tax 
credit permanent, providing additional resources to help 
facilitate this transition to more efficient, more green energy 
technologies. And if we raise additional resources, we will 
target those to people who might face increased energy costs 
associated with this plan.
    Now, what you refer to as loophole closures, international 
reforms, these include measures to reduce tax avoidance, 
address the tax gap. They have broad bipartisan support as a 
basic imperative. It is very important that we do that.
    Now, the last thing on your list, which is the proposed 
limit on deductibility, I just want to say a few things about 
this. Those proposals would affect only 1.2 percent of 
taxpayers who itemize; 1.2 percent. All they do is restore 
deductibility to the level that prevailed at the end of the 
Reagan administration; 28 percent is still double what the 
typical American enjoys in terms of that tax benefit. We think 
this is fair and reasonable and it is consistent with this 
imperative we all share, to present the American people a path 
to bring our deficits down to a sustainable level.
    Chairman Spratt. The bottom line is, once again, a net tax 
cut of $2.2 trillion. That comports with your numbers and your 
understanding of the budget?
    Secretary Geithner. Mr. Chairman, absolutely. What we are 
laying out is something that we think is going to be good for 
growth, good for business, good for the long-term growth 
potential of the American economy.
    Chairman Spratt. Let us look at another chart, the chart 
dealing with other cuts that are made in the budget, random 
savings that are proposed in order to generate revenues to pay 
for some of the initiatives. Jose, flip back to that one. That 
will be fine. Jose, the previous one. There we go. Leave it 
there.
    Program Integrity Savings. That is our one-liner for 
seeking to recover fraud, waste and abuse and other compliance 
measures. At the Treasury, do you have responsibility for the 
oversight of this effort?
    Secretary Geithner. Mr. Chairman, I believe I share that 
responsibility with a number of my colleagues in the Cabinet 
and, of course, with OMB. But I am glad you highlighted this 
because as you can see, we are trying to be as careful as we 
can to bring efficiency improvements and improvements in 
program design. So we are using the resources that the American 
people give us much, much more efficiently. This is just one 
example of concrete measures that we are committing to in the 
budget that achieve that.
    Chairman Spratt. Let us take tax compliance. The Internal 
Revenue Service is under your jurisdiction. Does this assume 
some additional funding for auditors, and for more audits, and 
for more compliance measures so that taxes that are owed but 
not paid can be recovered?
    Secretary Geithner. It does, Mr. Chairman. In the budget we 
are proposing--and I hope there is broad support for this--a 
carefully designed increase in enforcement resources for the 
IRS, which is a necessary part of trying to close the tax gap 
and trying to get ourselves to a more fair position where 
people who owe taxes are paying their taxes, so that the 
overall burden of people who have been paying their taxes is 
reduced.
    Chairman Spratt. And does the Treasury have an estimate of 
what it will cost at the front end for more audits and more 
auditors and more compliance measures in order to reap this 
$16.6 billion?
    Secretary Geithner. We do. In the budget that is working 
its way through the Congress now, we have a specific proposal 
for a significant increase, but I think a responsible increase 
in enforcement resources. And I would be happy to provide the 
detailed numbers to that committee. But they are modest 
relative to these proposed savings.
    Chairman Spratt. If you would provide that for the record, 
we would appreciate it.
    Now, in the interest of time and allowing every member to 
ask questions, we will move on to further questions. Thank you 
very, very much again for your testimony. Mr. Ryan.
    Mr. Ryan. Jose, could you bring up the first chart? This 
one right here.
    Secretary Geithner. I will have to bring some charts next 
time, Mr. Chairman.
    Mr. Ryan. We have battling charts around here. But I am 
going to use the Chairman's chart, if it gets up on the screen.
    Chairman Spratt. You may want to get yours out. It sounds 
like he is loaded for bear here.
    Secretary Geithner. I am looking forward to it, Mr. 
Chairman. I am really looking forward to it.
    Mr. Ryan. Just to try to shed some light on this 
statistical distortion that is occurring here. When we say you 
are raising taxes by $1.4 trillion, that is not our 
interpretation of your budget; that is your interpretation of 
your budget.
    Secretary Geithner. On that thing----
    Mr. Ryan. Just let me--please. Negative $3.5 trillion. If 
you take a look at those things, what it is basically saying 
here, there is--I will put those aside. What it is basically 
saying here is that by not raising taxes, we are cutting taxes. 
No, you are just not raising taxes on the AMT and these other 
things. So to suggest failure to increase taxes is the same as 
a tax cut, it is just intellectually dishonest; and therefore, 
you can't claim these things are net tax cuts. They are net tax 
increases.
    But let me move on because I want to give these members a 
chance. We sit here writing budgets and trying to pass budgets. 
And I just want to try and impress upon you the enormity of the 
task before you, under any situation, any administration. And 
this budget, I think, you are going to have challenges and I 
just think you ought to sort of know that. When we do the vote 
counts around here, we had a budget last year on the floor, 
which was to the right of this budget and that is the 
Congressional Progressive Caucus budget that came to the floor 
last year, I think by Congresswomen Lee and Waters. And this 
budget is so far to the left of the Congressional Progressive 
Caucus budget, that this plan on an apples-to-apples basis, 
spends $2.8 trillion more than the Progressive Caucus budget. 
It results in deficits that are $14.7 trillion higher than the 
Congressional Progressive Caucus budget, and I won't even give 
you the debt numbers on how much more debt this applies to our 
children and grandchildren than the Congressional Progressive 
Caucus budget. But if you look at the votes, the Congressional 
Progressive Caucus budget failed by 98 to 322; 131 Democrats 
voted against that budget, 15 of which are right here on this 
Budget Committee, the Democrats.
    So you just need to understand the enormity of the task to 
bring this massive borrow and spend and tax budget to Congress. 
I think you are doing something that I want to compliment you 
on, which is the stress-testing of banks which I think 
everybody believes is the right thing to do. And under your 
stress test, I think you are doing the right thing by having 
these different baselines that you are applying to banks. You 
have your alternative scenario and your average baseline 
scenario. The average baseline scenario used for your stress 
test that Treasury is imposing on banks is roughly the same as 
the Blue Chip's consensus forecast. But the forecast 
underpinning your budget is much, much higher than this average 
baseline budget.
    And so basically I want to ask you this: Under your average 
baseline, this budget would have deficits that are $758 billion 
higher. That is, using OMB's rule of thumb. Under your adverse 
scenario baseline, this budget would have a deficit cumulative 
that is $1.2 trillion higher. And I understand that you and 
former Secretary Treasury Summers want to get our deficit down 
to at least 3 percent of GDP, because you obviously believe for 
the credit markets that is a healthy thing to do. But under 
either of the stress test baselines that you impose yourselves, 
this doesn't do that. This budget deficit, if you apply your 
baselines, not OMB's baseline, you don't even get close to 4 
percent of GDP for the next 10 years. So my question is: 
Shouldn't we apply the stress test to the Federal budget that 
you are applying to the banks?
    Secretary Geithner. Congressman, thank you for raising 
this. And let me just respond quickly on these things and then 
I want to come back to some of the things you said at the 
beginning in your opening statement. This capital assessment, 
health assessment stress-test thing is designed by your 
Nation's--our Nation's financial authorities. And what they did 
is, they took a consensus of private forecasters for a baseline 
scenario and then they looked at what is a more extreme 
scenario, a scenario with a much lower probability, but again 
in an abundance of caution to look at that. What they did is as 
you might expect. What they did is to make sure it is done 
independently. They took a private forecast for that.
    Now, the President's budget and the forecast that is in the 
President's budget is within the estimate CBO presented taking 
into account the Recovery Act. It is within the estimates of a 
broad consensus of private forecasters. Our judgment is it is a 
realistic forecast and it shows, like all private forecasters 
show, the economy coming back to positive growth in the second 
half of this year and, in 2010, showing more significance to 
sustain a recovery. It is a realistic forecast and it meets our 
basic test for bringing more integrity and accountability to 
the budget framework.
    Now, you said several things that I need to respond to in 
this context. Just go back to the starting point in the deficit 
and the debt trajectory. We start today before anything 
happened with the $1.3 trillion deficit. The additional 
increment to the deficit that has to happen in 2009-2010 is 
what is necessary to solve this crisis. A big chunk of that is 
the Recovery and Reinvestment Act. There is an additional 
increment to that. It is the cost of fixing parts of our 
financial system that, again, we started with, that need some 
repair. That is what we start with.
    So the deficit increase you have seen in the near term is 
the consequence of not just the inherited burden of the 
recession, but what it is going to take to fix this crisis. 
Now, we share together this very important imperative of 
showing the American people that we are going to have the will 
and ability to bring those deficits down over time. I know you 
believe deeply in that imperative. But we are going to disagree 
on some important things, which is really how to do that.
    Now, what the President proposes is to return tax rates 
that apply to a very small percentage of Americans and a very 
small percentage of small business owners to the levels that 
prevailed in 2001. That is what the President's budget 
proposes. For the vast majority of Americans and businesses, 
taxes will not go up, and they will go down if we make Make 
Work Pay permanent.
    Now, you may disagree about whether that is the right way 
to bring these deficits down, but I know you agree that we have 
to bring those down deficits to get the recovery back on track. 
Because if we don't do that, the Americans today, looking at 
the future, will be more concerned about the future and 
recovery will be interrupted today.
    Now, a very important point about our disagreements on 
this. The proposed changes on the tax front which apply, again, 
to only 2 to 3 percent of small business owners and to a very 
small percentage of the highest income Americans, are levels 
that prevailed back in 2001.
    Now, just to come back to the decade of the 1990s, when 
those rates applied, we had during that period a sustained 
period of very high rates of growth and private investment, 
very high rates of productivity growth, very broad-based income 
gains across the country. There is no plausible way you can 
look back at that period where those tax rates prevailed and 
say that the economy at that point was not performing 
exceptionally well, not just relative to the past American 
performance, but that of other major economies.
    Mr. Ryan. Can I get you there? A number of things. And this 
is a great dialogue. I really appreciate this. First off, in 
2001, we were heading into recession. We cut tax rates and 
growth occurred and actually revenues increased. But I am glad 
you mentioned the CBO, because the CBO baseline says that if we 
didn't pass this budget, the deficit would get cut by three-
fourths over the next 4 years. You are actually slowing down--
--
    Secretary Geithner. You know as well as I do--but what the 
CBO baseline assumes is AMT is not extended, all the tax cuts 
expire fully----
    Mr. Ryan. No, no, no. You have to use the alternative 
baseline that goes down.
    Secretary Geithner. No. Again, in the forecast, their post-
stimulus forecast has a range of outcomes, and our forecast was 
in those outcomes. So this is a more candid, more honest, more 
transparent picture of our fiscal future than you have seen in 
years and years and years.
    Mr. Ryan. Look, I don't want----
    Secretary Geithner. It is more realistic.
    Mr. Ryan. Obviously we don't agree with that. But let me 
just say this. Using that Blue Chip consensus forecast that you 
are using for your own stuff, the deficit is $758 billion 
higher. It never gets to 3 percent of GDP. It is always 4.5 or 
higher or something like that. So the concern we have is if 
these great scenarios that you are projecting in the economy 
don't occur--and, boy, we sure hope they do--if they don't 
occur, then our deficit is going to get out of control.
    But here is the concern we have, just so you understand it. 
Saying to investors, to small businesses, boy, if you are going 
to hunker down and try to invest and bring new people back on 
the payroll, we are going to get you with higher taxes in a 
year-and-a-half time. Let me say it this way. Increasing taxes 
on the assets that make up our pension funds, our 401(k)s, our 
college savings plans, by a minimum of 33 percent, how is that 
going to help recover the wealth that has been lost? I mean, I 
have talked to so many 60- and 70-year-olds who are so worried 
about their retirement because their portfolios are down by 48 
percent and we are going to say in a year-and-a-half time we 
are going to increase taxes on these assets that make up this 
portfolio by at least a third? I mean, this is not good 
economics.
    And so our concern is that your rosy scenarios don't 
materialize, the private sector consensus forecast does, and 
the deficit is completely out of control. And in this budget, 
by the time that this budget is done, both Medicare and Social 
Security go on a path of permanent insolvency. So we just don't 
think we are being fiscally conservative.
    Secretary Geithner. Let us go through these provisions. The 
most important thing for us to do together is to get recovery 
back on track. I think we all agree on that. This budget does 
not raise taxes. In fact, it reduces taxes on the economy as a 
whole during this period of time.
    Now, again, what the President is proposing is when all 
private economists agree we will be back on a path to growth, 
that we are going to restore the tax rates that prevailed in 
2001 that only apply to a very small percentage of Americans 
and a very small percentage of small business owners.
    Now, you are saying, you are implying something that is not 
true, which is that we are proposing today a broad-based tax 
increase on the American economy 2 years out when recovery is 
established. Now, that is not----
    Mr. Ryan. Yes, you are.
    Secretary Geithner. That is not remotely plausible.
    Mr. Ryan. Your own budget acknowledges that.
    Secretary Geithner. No. But it is just a critical fact; 97 
percent or 98 percent of small business owners have incomes 
below $250,000. Now, just one more important fact. The most 
wealthy, most fortunate, richest 1 percent of Americans 
received 75 percent of the gains in income across the overall 
economy over the last 6 to 8 years. This restores some basic 
fairness to the American economy in a fiscally responsible way 
that will leave our economy stronger for the future. Now, if we 
did not do this, Congressman, as I think you know as well as 
anybody, then we would be leaving the American people with the 
prospects of rising deficits in the future, and that would be 
bad for growth.
    Mr. Ryan. Now, I want to get to a TALF question, because I 
want to--but turning on electricity, putting gasoline in your 
gas tank, heating your home, which is pretty expensive where I 
come from in Wisconsin, and having a government program that 
makes that more expensive--you may not want to call it a tax, 
but it is a tax. If it acts like a duck, if it quacks like a 
duck, it is a duck.
    Secretary Geithner. You are talking about cap and trade 
now?
    Mr. Ryan. Yes. So to suggest that you are only taxing 
wealthy people, when in fact you are taxing anybody who 
consumes energy, that is just not straight. But I want to--let 
us get beyond that.
    Secretary Geithner. That would be a good discussion to 
have.
    Mr. Ryan. If you can, I want to ask you a sincere question 
about the TALF. Some analysts are telling us that in order to 
boost the effectiveness of the TALF in the current economic 
climate, the program should be expanded to cover securities 
rated below AAA to just secondary market securities. Are you 
considering heading in that direction?
    Secretary Geithner. I want to do cap and trade really 
quickly. It is very important. I know that you keep coming back 
to this. Again, this is very important. It is critically 
important for our country that we begin the process now of 
changing the incentives Americans face for how they use energy. 
It is important to reduce our dependence on foreign oil, it is 
critical for climate change. You can't achieve that objective, 
again, without changing the incentives Americans face.
    Now, what the President does is take a program that has 
been used successfully to reduce acid rain emissions used in 
countries around the world to help begin that process. This cap 
and trade program will raise resources, but those resources are 
going to be devoted to making the Make Work Pay tax credit, 
which benefits 95 percent of working Americans, permanent to 
help facilitate this transition to renewable energy. And if we 
raise additional resources, it will be targeted to offset those 
costs of higher energy costs. I just want to say this because 
it is important.
    Now, on TALF--I am glad you raised this thing on TALF. What 
the Fed and the Treasury laid out on Tuesday was a program for 
broadening the class of assets we are going to provide 
financing, increasing the scale of financing we provide, and we 
are going to continue to look at ways to make that program more 
effective. Open to any suggestions, happy to receive feedback 
on this. We are getting a lot of feedback from market 
participants. But I am glad to hear you emphasize the 
importance of this program because, again, to get credit 
flowing again, we do not just have to reinforce banks, we need 
to make sure we are going around banks to get those 
securitization markets going again.
    Mr. Ryan. Thank you. I want to be generous to my 
colleagues. I have already taken enough time. I appreciate it.
    Ms. Schwartz. Thank you. And I think I am going to toss out 
my question and try and deal a little bit with what Mr. Ryan 
was pointing out. There is no question, it seems to me, on any 
factual basis that this budget is far more honest about what 
really we expect is going to happen. Now, of course, it 
includes some forecasts on what we think is going to happen in 
the economy. You have to make some forecast assumptions. But 
the notion, I believe, that Mr. Ryan actually said that the AMT 
relief on 26 million Americans--he didn't mention the number--
the fact that we are going to eliminate, repeal, AMT on 26 
million Americans is a tax increase, is stunningly incorrect.
    Mr. Ryan. I said it the other way around. I said imposing 
it is a tax increase; not imposing it is not a tax cut.
    Ms. Schwartz. Reclaiming my time. I think that is what the 
record would show, is----
    Secretary Geithner. Do not extend what would be a 
substantial tax increase.
    Ms. Schwartz. Yes, exactly. So I just want to be really 
clear that we have been talking about. Exactly. Mr. Ryan has at 
least in previous moments said that he wants to see the AMT 
relief, and the fact that we are budgeting it forward is an 
important thing to do. So let me just be very clear that this 
is tax relief for literally tens of millions of Americans. And 
in the recovery package, didn't we actually provide tax relief 
to 95 percent of Americans?
    Secretary Geithner. We did.
    Ms. Schwartz. Right. So----
    Secretary Geithner. And we propose to make that permanent.
    Ms. Schwartz. And we propose to make that permanent. 
Absolutely. So what this budget does, in addition to being 
honest about where we stand on taxes, and, yes, returning to 
some tax fairness, I think that there will be some debate about 
some of the specifics, but some of the limitations for the 
wealthiest 1 to 2 percent of Americans--we are not eliminating 
tax deductions for charitable donations. There will be a 28 
percent which is, as you pointed out, double what most 
Americans get. Is that not correct?
    Secretary Geithner. That is correct. And it is the level 
that prevailed at the end of the Reagan administration.
    Ms. Schwartz. Again, we will have a debate here in Congress 
about some of those specifics, how many of those exactly stay 
as they are. I think that is our responsibility to have a 
shared discussion.
    Number two. To suggest that is somehow going to hurt 
American business and American competitiveness is something 
that really is just blankly a difference of opinion for sure. 
So what I did want to ask, because I think it is important for 
us to communicate, is that not only is this budget honest about 
what we believe is going to happen in the future, but it also--
and provides tax relief to many, many Americans, but it 
actually tackles some of the major issues that have been 
hurting our economic competitiveness. The failure to make 
investments in education, in educating our people, in energy 
efficiency and energy independence and--an area of my 
particular interest in health care--in innovation, in 
technology, in cost containment, which will affect our fiscal 
health and our economic competitiveness for our businesses.
    Could you just elaborate on--you mentioned--it was a very 
nice line about the--both the moral and economic and fiscal 
imperative of taking actions. We are making up for 8 years of 
failure to make those kind of investments that is putting us in 
an economic disadvantage for our businesses. On health care 
alone, our businesses, small businesses and large, cannot 
sustain a double-digit inflation on their health benefits. 
Could you speak to why this is so important for our economic 
dependence, particularly our small businesses?
    Secretary Geithner. Thank you. I think if you look at 
surveys of small businesses, what their priorities are, at the 
top of every business priority is to address the rise in health 
care costs. Now, if you look at what we spend on health care as 
a country, we spend almost twice what the typical mature 
economy spends on health care. And despite that, we don't 
provide materially better results in terms of life expectancy 
and we have large parts of our economy that don't benefit from 
quality care. So there is a competitiveness imperative, an 
economic imperative of addressing those health care costs. 
Unless we do that, we are going to face progressively higher 
fiscal deficits in the future.
    And it seems to me the reasonable thing, to say that 
Americans should enjoy access to better quality care regardless 
of the circumstances of their birth. It is a clean, simple, 
stark imperative, but it is not enough. And if you just look at 
on the education front, what we are doing is trying to make 
sure that we are laying the foundation for a more productive 
economy by making sure that our children are going to benefit 
from much higher-quality education outcomes. And these are 
areas where our government has been unable to make significant 
progress over a long period of time. We can't afford to wait on 
that front. In this budget, we are trying to lay out for the 
American people a path to a more productive economy where the 
income gains are going to be more broadly shared.
    Ms. Schwartz. And it will help us with our fiscal stability 
of our budget as well. The other side of the aisle has been 
very concerned about the costs of entitlement, but the fact is, 
wouldn't you say that we are actually making some very 
important steps now to contain the cost both for businesses and 
for the Federal budget as well?
    Secretary Geithner. And because of the hard work of people 
in this room, the Recovery Reinvestment Act starts that budget. 
So the budget continues it, builds on it, but we started that 
process in the Recovery Act.
    Ms. Schwartz. Thank you, Mr. Secretary.
    Chairman Spratt. Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. And again, 
welcome, Mr. Secretary. And let me agree, you do have a great 
challenge in front of you and we acknowledge and appreciate 
your service.
    Can we pull up Figure 6, please? Both you and the Chairman 
spoke about, I believe, if I heard you properly, about 
inheriting deficits; which begs the question what is inherited 
and what is manufactured and who did you inherit it from?
    This chart is entitled ``Deficit Under Democratic 
Budgets.'' And I want to make very certain for the record I 
said ``Democratic'' for those who are sensitive about the uses 
of suffixes, participles, gerunds and that type of thing. But 
we all know that under our Constitution that the President 
can't spend a penny that isn't either authorized or 
appropriated by the United States Congress. And in this chart 
we saw declining deficits when Republicans controlled the 
Congress down to roughly, I believe, 160 billion. And now we 
are seeing that the 2009 OMB estimate is roughly 1.8 trillion.
    So, number one, if you inherited deficits, you inherited 
them from a Democratic Congress, number one. And, number two, I 
believe and certainly you have your economic justification, but 
if you were inheriting 1.2 trillion and you are proposing 1.8, 
aren't you adding--isn't it true you are adding, I believe, 
$540 billion to that deficit, Mr. Secretary?
    Secretary Geithner. Congressman, can I just say two things 
about this? One, is if you go back to the year 2000, to 1999, 
you will see that we started--we ended that period with 
surpluses. So your chart starts a little late to be fair to 
history. The other thing I want to point out is that in 2009--
--
    Mr. Hensarling. Mr. Secretary, are you saying this is an 
inaccurate chart?
    Secretary Geithner. No. I am saying it starts in 2004. If 
you went back to 2009----
    Mr. Hensarling. I am sure it would go back to 1789 as well. 
But is it not true, is it not true that in the last year of the 
Republican Congress it was $160 billion and you are proposing 
1.8? Is it true or is it not true?
    Secretary Geithner. Congressman, as you know, the national 
debt doubled during the last 8 years, after a period where we 
started with surpluses.
    Mr. Hensarling. Let us talk about that for a second. I am 
sorry, I don't have the advantage of having unlimited time as--
--
    Secretary Geithner. Can I just say this one thing you 
raised here? In 2009--again, this is very important to do--we 
start with no additional policies to fix the crisis. We start 
with a deficit of $1.3 trillion. That is a deficit produced by 
the policies that preceded it and by the deepening recession. 
Now, to fix this crisis, we have no choice but to move 
aggressively to put in place this economic recovery program, 
and that program----
    Mr. Hensarling. I appreciate that. And you had that 
opportunity to say that earlier. I understand that you have a 
justification.
    Secretary Geithner. But you asked that question, which is a 
very important thing to do. So it is 1.3 with no action, but no 
action will leave us with a deepening recession, higher long-
term deficits.
    Mr. Hensarling. All we are saying, Mr. Secretary, is when 
you talk about inheriting deficits, at least admit that you are 
adding to that deficit. And let us talk about the debt for a 
second. The President in his State of the Union address, said 
we have the responsibility to ensure that we do not pass on to 
our children a debt they cannot pay. Is it not true--can we go 
to Figure 7, please--that under the administration's proposal, 
that we will double the national debt in 8 years? Is that true, 
Mr. Secretary?
    Secretary Geithner. Congressman, let me say what is 
critical about the long-term fiscal picture.
    Mr. Hensarling. Is it true or not true?
    Secretary Geithner. No. But this is very important. If we 
don't get the recovery back on track, if we don't act to fix 
this recession and address it, then as a country we will face 
lower long-term growth rates, huge damage to the productive 
capacity of our economy, much higher unemployment rates and 
higher long-term deficits. Now, what the President's budget 
does is bring our deficits down to 3 percent, and will 
stabilize that debt to the--what matters is the level of debt 
relative to the economy as a whole.
    Mr. Hensarling. Mr. Secretary, I think we all agree we need 
more economic growth, but again are you not--are you or are you 
not proposing to double the national debt in 8 years under your 
budget?
    Secretary Geithner. Congressman, what we are proposing to 
do is to fix the crisis we inherited and to make our economy 
more productive in the future, and to do so in a way that is 
fiscally responsible and brings our deficits down to the level 
where we stabilize the overall level of debt to GDP. So if----
    Mr. Hensarling. It is clear that you do not wish to answer 
the question. I understand that. And I have a limited amount of 
time.
    The last question I would like to ask, though, is when you 
talk about the need for more credit in order to create jobs, 
promote economic growth, why then--why would you have a budget 
that proposes increasing the tax on capital up to one-third? I 
have got to tell you, Mr. Secretary, for many of us, it seems 
to be ideological, and at a time when our Nation desperately 
needs more capital, you are going to increase taxes on it up to 
one-third. It simply makes no sense, Mr. Secretary.
    Secretary Geithner. I would just come back again to say 
what the budget proposes to do to bring us back to fiscal 
sustainability. And I think we all agree we to have get back to 
a sustainable path. I think we all agree that is critically 
important.
    So what the President's budget does is, when recovery is 
established, to restore those tax rates that apply to the 
richest Americans to the levels that prevailed in 2001. And, 
again, if you want to look at the record and performance of our 
economy during a period when those tax rates applied, it looks 
exceptionally good relative to the decades that preceded it, 
and it looks very good relative to the last decade.
    Again, if you just look at the things we all care about, 
which is how productive is our economy, how much does private 
investment grow, that was an exceptionally good record of 
performance for the economy as a whole. Income growth was rapid 
and it was broadly shared. And I think that is the right test 
of our policies.
    Ms. Schwartz. Mr. Chairman, could I just inquire--I just 
wanted to inquire just a point of fact. When the budget that 
you presented reflects the deficit, that is actually a 
reflection of reality and honest budgeting. It is not a 
proposal. You are not proposing increasing the deficit. You are 
reflecting the reality of the deficit that the administration 
has inherited. Is that just a point of information?
    Mr. Hensarling. May I ask whose time she is on?
    Chairman Spratt. She was asking for a point of inquiry.
    Mr. Hensarling. Wait. That was a parliamentary----
    Chairman Spratt. Would the witness please answer the 
question in two sentences or three?
    Secretary Geithner. We do propose to increase the deficit 
in the near term because we have to do that to address the 
crisis we started.
    Chairman Spratt. Ms. Kaptur.
    Ms. Kaptur. Well, Mr. Secretary, how do you like your job 
so far?
    Secretary Geithner. This is a critical debate for the 
country. I am pleased to have it. I think it is a really 
important debate, and I think it is my tribute to all of you, 
which is that this is the kind of debate that the American 
people want us to have. This is about some important choices. 
And we owe them an open and honest debate about how we are 
going to fix these problems.
    Ms. Kaptur. Well, Mr. Secretary, we sure want to help you 
on that. And we are going to put up here the accumulated budget 
deficits under the Bush administration, including $1 trillion 
of war costs that were unpaid for. So that is where we start.
    But let me just say, Mr. Secretary, that unless we deal 
with the seized-up credit markets, none of our budget proposals 
on either side of the aisle are going to work. And I really 
want to focus my beginning questions on these today.
    During the 1980s, our Nation faced worse financial problems 
in the financial sector than we actually do today. Although, 
every day that passes seems to get worse. Back then, we had 
3,000 insolvent institutions, saw the banks in Texas fail but 
one. Continental Bank of Illinois, as you know, went down.
    Have you had an opportunity yet to meet with the senior 
statesmen in our country who were responsible for resolving 
that situation at no cost to our taxpayers?
    Secretary Geithner. I have looked very carefully at the 
record of what they did during that period of time, and I have 
had the chance to talk to many of those who were there at that 
time. Yes.
    Ms. Kaptur. I would like to bring Mr. Seidman and Mr. Isaac 
over to see you some time, and I hope you find time for us.
    Secretary Geithner. I would welcome that.
    Ms. Kaptur. I think it is really worth hearing about what 
happened. And I think you were about 2 then, I don't know, but 
I think it might be very interesting for you.
    Secretary Geithner. Unfortunately, I was much older then, 
but older today.
    Ms. Kaptur. All right. Let me talk about frozen credit 
lines. The district that I represent has unemployment rates in 
Toledo, Ohio, of 14.3 percent. Going over into Ottawa County, a 
rural area, 17 percent, and growing worse each day.
    At the same time, we are one of three leading solar centers 
in the hemisphere. We have struggled through 20 years of the 
loss of manufacturing jobs, and I have factory floors right now 
that cannot get loans to hire hundreds and hundreds of people. 
What can you do to help us?
    The second part of that question is in the automotive 
sector. I represent the most popular vehicle in America, the 
Wrangler and Chrysler Jeep, and the best GM facility in the 
hemisphere, GM hydromatic with the new 60 transmission. Our 
unions, our companies have worked together. If America is going 
to rebuild its automotive industry, it is going to be from the 
heart of the Ninth District of Ohio.
    We are stuck into this architecture that we can't seem to 
extricate ourselves from. Both companies are owned by Cerberus. 
How can you help us let our industry compete? We are ready to 
do that, and we are handcuffed. Again, it is dealing with 
frozen credit lines and being a part of an architecture by 
which we can't win, solar and auto.
    And then my final question to you is, what is your position 
on whether we need to reinstitute the regulations on short 
sellers the SEC removed in 2006?
    Secretary Geithner. Let me go quickly through those. The 
last is really a question for the SEC.
    Ms. Kaptur. I hope you have an opinion.
    Secretary Geithner. I do not believe that particular 
measure, but this is the SEC's responsibility, would be 
effective in the current environment. But the SEC Chairman is 
looking at a range of things as part of her new 
responsibilities to be responsive in that area, and I am sure 
she would be happy to talk to you about those details.
    On the automobile industry, as you know, we are looking at 
how to try to help bring about the very fundamental 
reconstruction that is going to be necessary to get this 
industry back on a path to long-term viability without 
government support. This industry is facing extraordinary 
challenges. The financing environment is making it dramatically 
worse, you are absolutely right, and we are looking at how best 
to support that process.
    Now, the Recovery Act and the budget has very, very 
substantial increases in tax incentives, and other support for 
clean energy, innovative new technologies, which will be very 
powerful and beneficial. And I want to come back to where you 
began, which is small businesses across the country are finding 
it much harder to borrow. And that, to fix that requires that 
we get capital into the system where it is necessary and that 
we are providing direct support to get these lending markets 
going again.
    The stimulus package has a very substantial increase in 
loan guarantees from the Small Business Administration, which 
we are very, very supportive of, and we are looking at whether 
we can bring these initiatives together to provide more 
substantial support for businesses across the country on the 
lending side.
    Ms. Kaptur. Mr. Secretary, I appreciate that.
    And I would hope there would be an iterative process by 
which we could bring some of these companies to you, whether it 
is tele-video, whether you assign somebody in your office. But 
every day that goes by and our unemployment gets worse and I 
have companies that can't get credit, I am saying something, 
somehow, we need to be able to link to what you are doing. I 
see TARP money flying out the window, and I am looking at our 
companies and saying, something isn't working here.
    Secretary Geithner. And we are open to meet with anybody. 
We are meeting with people across the country all the time. And 
as you know, in the automobile industry, we are in daily 
contact with the full range of people that are critical to 
making that restructuring plan work.
    Chairman Spratt. Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you, Mr. Chairman.
    And thank you for being with us here today, and thank you 
for agreeing to take on a pretty tough job.
    There are about 4 million people now that are roughly 
paying the AMT, alternative minimum tax, roughly. In your 
proposal, those numbers would more or less be the same 
throughout the next years. Correct?
    Secretary Geithner. We are proposing to extend it and, as 
you know, continue to extend it and to index it.
    Mr. Diaz-Balart. But roughly we are dealing with about the 
same number of people paying the AMT. And then you are going to 
still keep those that are not paying it, which are roughly now, 
I don't know, 20-plus million, from not paying it. Correct?
    Secretary Geithner. I am not sure where you are going. I 
would be happy to give you the detailed numbers on the 
estimated impact.
    Mr. Diaz-Balart. The reason I am asking that is, because 
those that are not paying the AMT are going to continue to not 
pay the AMT, in your numbers though, you are considering that a 
tax reduction to them? In other words, you are including in 
your tax cuts the AMT, even though most people don't pay it and 
are going to continue to not pay it. So it is not a tax cut for 
those who are not paying the AMT. Correct?
    Secretary Geithner. Congressman, again, I am not sure where 
you are going. You know, we can talk about baselines as much as 
you want to talk. What matters to the American people and to 
the economy as a whole is, what are we doing, going forward, to 
overall tax rates across the economy? And what is critically 
important is to recognize that, for the next 2 years, we are 
reducing taxes for--reducing the tax burden for the overall 
American economy. And when we get recovery back on track, we 
are proposing very modest increases that apply to a very 
limited section of the most affluent, most fortunate Americans.
    Mr. Diaz-Balart. Well, let's talk a little bit about that, 
because in Florida, where not everybody is affluent, yet 
everybody uses electricity. And as you know, at least in 
Florida, and I know it is around the country but let's talk 
about Florida, those are regulated industries. They pass on the 
cost of increases to energy to the consumers. And yet, you do 
have anywhere between $600 plus to $800 billion in this cap-
and-trade deal on a tax on energy production.
    So let me ask you this. Is it not wrong that--who is going 
to pay the money for that cap-and-trade? Energy producers?
    Secretary Geithner. Congressman, this is a good issue, an 
important issue, so let's just go through it.
    What the President's proposal does is beginning in what we 
expect to be 2012, not tomorrow but in 2012, just to put in 
place a program tried, based on things that have worked in the 
past that is designed to change the incentives for how 
Americans use energy so that----
    Mr. Diaz-Balart. By charging more?
    Secretary Geithner. By reducing our dependence, that we 
reduce our dependence on foreign oil.
    Mr. Diaz-Balart. When you talk about incentives, is it by 
charging more?
    Secretary Geithner. Well, you can't change behavior, how 
people use energy, unless you affect the incentives for how 
they face this economy.
    Now, the really important thing is that the resources this 
will raise are going to--go back to 95 percent of working 
Americans. And, there is $15 billion in the President's 
proposal to help facilitate this transition to cleaner energy 
technologies. So that is the way to think about it. Remember, 
it is a program that will take effect in 2012, and the 
resources raised will go back to 95 percent of working 
Americans.
    Mr. Diaz-Balart. Sure. That is like what we are told in the 
stimulus that some families, many families, will get up to $800 
back in tax credits. However, every household is being charged 
$9,400. That, by the way, is the kind of math that frankly 
scares me.
    Secretary Geithner. I don't understand that math. I don't 
think that is a remote reflection of reality in the budget. 
Again, it is very important.
    Mr. Diaz-Balart. That was in the stimulus.
    Secretary Geithner. For the next 2 years, for this period 
of challenge we are going through in this economy, the overall 
tax burden on the American economy comes down; 95 percent of 
working Americans get a significant tax credit; there is 
expanded earned income tax credit, expanded child care tax 
credit.
    Mr. Diaz-Balart. We are talking about the cap-and-trade 
here. I am trying to see if I can get you to answer that.
    Secretary Geithner. I did. On cap-and-trade, I said that in 
2012----
    Mr. Diaz-Balart. There is going to be an increase.
    Secretary Geithner. We want to work with Congress on a 
program based on something that has worked to bring down acid 
rain emissions that will generate resources that we will put 
back into----
    Mr. Diaz-Balart. When you say generate resources, that is 
through?
    Secretary Geithner. Through changing the cost of energy 
use, which you have to do.
    Mr. Ryan. Will you yield?
    Mr. Diaz-Balart. Yes, I will yield to the ranking member.
    Mr. Ryan. Are you suggesting that the $15 a week in the 
Make Work Pay fully offsets the higher energy prices?
    Secretary Geithner. Well, what I am saying, and this is the 
really important thing, which is, the resources that cap-and-
trade we estimate will raise will go back into the economy, 
concentrated on 95 percent of working families. Now that----
    Mr. Diaz-Balart. So you can't answer the question, really.
    Secretary Geithner. It is good policy. It is fair policy. 
And if you believe in the importance of reducing our dependence 
on foreign oil and reducing our dependence on carbon-intensive 
energy uses, then you have to be prepared to change the 
incentives for how people use energy.
    Mr. Diaz-Balart. In other words, if you believe in that, 
and then it is okay to charge people more for their energy, is 
in essence what you are saying.
    Now, let me ask you a little bit because in the few seconds 
that I have--I am out of time. Thank you.
    Chairman Spratt. The time of the gentleman has expired.
    Mr. Doggett.
    Mr. Doggett. Thank you, Mr. Chairman.
    Thank you, Secretary, for your important leadership.
    With that we could eliminate the first 4 years of the Bush 
administration and its horrible effect on the world as quickly 
as the Republicans have eliminated it from their chart. I can 
hardly blame them for wanting to forget and push away the 
disaster that was the first 4 years; I am surprised they didn't 
eliminate the entire 8.
    As far as the suggestion that they are concerned about 
borrow and spend, that was the principle theory of the last 8 
years, as they drove our debt up literally by the trillions. I 
think they may have certainly borrowed more money from abroad 
than all previous Presidents put behind--that came before them. 
And these are the same folks that still want a free lunch. They 
are the folks that endorsed what the Senate did during the 
recovery, economic recovery debate that proposed trillions of 
dollars of additional tax breaks that we would borrow money to 
achieve.
    I applaud the fact that you make the hard choices to raise 
a little of the revenue along with some of the spending cuts to 
help us get to more fiscal reality.
    And I appreciate very much your testimony in the Ways and 
Means Committee, where you endorsed our effort to stop tax 
haven abuse. The President has spoken courageously over recent 
months about the need to stop tax provisions that are designed 
to encourage companies to export jobs overseas. It is more than 
just the Stop Tax Haven Abuse bill that Senator Levin and I 
have introduced. There are a whole series of measures that are 
needed that are revenue raisers but accomplish other purposes.
    I know that some of our colleagues, both Democratic and 
Republican, have promoted the idea that we need a significant 
reduction in corporate taxes. Secretary Paulson, when he 
explored that issue last year, was not proposing a reduction in 
revenues. In fact, he was willing to challenge some of the most 
popular provisions that corporations rely on to reduce their 
taxes today. And I think it is critical as you go forward on 
this that while you hear people complaining about the corporate 
tax rate, that we look at the effective corporate tax rate and 
the steady reduction in corporate revenue that is being 
contributed from those taxes.
    In terms of gross domestic product, I believe that only 
Korea and Mexico have corporations that contribute less than 
ours do.
    And then in a separate area that you have talked about very 
articulately, the whole issue about cap-and-trade, what you 
have said is very important. The Treasury has unique expertise 
to conduct the auction system, which is what has been proposed 
in legislation that I have and a number of our colleagues have 
suggested. And a cap and trade system that is guided not by 
extreme ideology and not by political expediency, but is guided 
by good science, wherever that science leads us in terms of 
what we need to do. But a system where we put a limit on carbon 
pollution, and then we rely on a market system, which works so 
effectively on acid rain, to help us achieve the important 
objectives of moving to a less energy--more energy independence 
and less dependence on carbon pollution.
    I think, sadly, as the questions and comments here, just as 
in the Ways and Means Committee, as the administration develops 
its plan, I hope it will continue reaching out, as it has, to 
try to include people of all political parties. We don't have a 
monopoly on truth. But, sadly, the comments indicate that we 
will get the same level of bipartisanship, the same level of 
cooperation that we got on the economic recovery package in the 
House. And we have to realize that moving forward on this 
critical objective.
    Let me just ask you one unrelated long question that I 
would ask for perhaps a follow-up in writing. In 2007, there 
was a review by Fitch Ratings of mortgage-backed securities 
that were backed by subprime mortgages. It found evidence of 
fraud and misrepresentation in just about every file. Given the 
suspicion that is widespread that loans underlying some 
mortgage securities are incompletely documented or fraudulent 
on their face, my question would be whether Treasury has 
sampled all the loan files that it is proposing to obtain for 
evidence of misrepresentation and fraud before it offers any 
type of direct or indirect guarantees; and, if you have not, 
whether you will commit to conducting such a review so that we 
can have this question about fraud and misrepresentation 
answered in a credible and a transparent way.
    Secretary Geithner. A very important issue. I am happy to 
respond to you fully in writing on the range of things we can 
do to help address that risk.
    I think it is very important, though, to point out that, as 
we come to Congress with comprehensive proposals for financial 
reform, we are going to need to do a lot of things to make sure 
we fix this mortgage market, and we don't put the American 
people in the position again where anything like this could 
happen in the future. And that is going to require a lot of 
changes.
    Chairman Spratt. Mr. Campbell.
    Mr. Campbell. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for entering the maelstrom 
here.
    First, a couple of quick TARP questions. How much of the 
original $700 billion is currently remaining and has not been 
invested?
    Secretary Geithner. Congressman, I would like to give you 
an accurate accounting of the detailed numbers in writing, 
rough orders of magnitude.
    Mr. Campbell. Approximately.
    Secretary Geithner. I think the commitments outstanding 
are, in terms of money committed and spent, are in the range of 
just under $400 billion. That would leave something around $300 
billion left. But we have already laid out a variety of 
potential uses for those resources.
    Mr. Campbell. Which comes to my next question. 
Approximately, when do you believe you will have an opinion or 
be able to assess whether the remaining TARP funds are adequate 
to stabilize the financial system, in your view?
    Secretary Geithner. I don't have a judgment on that yet. 
Again, we are moving as quickly as we can to use the resources 
we have as effectively as possible. We are trying to bring a 
comprehensive set of reforms to the programs so we deliver more 
transparency and accountability. The assistance comes with 
tougher conditions to protect the taxpayer to make sure that 
these resources aren't going to benefit shareholders and senior 
executives, to make sure they result in higher lending than 
would otherwise take place, and that they are targeted to parts 
of the economy that are likely to benefit most from the 
assistance.
    So we are trying to reform the program completely, use the 
resources as quickly and effectively as we can. And in that 
context, we are looking at what is next and what might be 
necessary to get ahead of this. And what I really want to point 
out, and I am very glad to hear the recognition of this across 
the aisle, that if you look at the history of financial crises, 
most governments make the tragic mistake of not doing enough 
soon enough. They underestimate the costs; they are too 
tentative. And that leaves the system more at risk and the 
economy, therefore, more at risk. And it is very important we 
find a way to work together to make sure that we are getting 
credit flowing again.
    Mr. Campbell. Is CitiBank too big and too interconnected to 
fail?
    Secretary Geithner. Congressman, I want to say something 
about our banking system. We have a system of 9,000 banks. The 
vast bulk of this system was not part of the problem. It is 
going to be part of the solution. They are going to be able to 
provide the credit that their communities need.
    Now, there are parts of the system that are going to need 
some carefully conditioned, temporary, financial support as a 
bridge to private capital coming in. And it is very important 
that your government, and we will do this, make sure we make 
those resources available. Right now, because of the intensity 
of this recession and what we are going through, the markets 
are unwilling and unable to provide that capital. And so we are 
going to do what is necessary to make sure those resources are 
available, because if we don't, you are going to see less 
credit available, and that might create the risk of deepening 
the recession.
    Mr. Campbell. Is that a yes?
    Secretary Geithner. Congressman, again, I want to just--
this is a very important thing, and I want to say it----
    Mr. Campbell. I agree.
    Secretary Geithner. Carefully and clearly. The President 
said in his State of the Union, your Nation's financial 
authorities have said it; it is very important, and we will do 
this, to make sure that the major institutions in our country 
have the resources and the funding and the ability to play 
their continuing role in our markets going forward. And that is 
a very important commitment. The President has made it. The 
Chairman of the Federal Reserve has made it. The Secretary of 
the Treasury has made it. We have made it together as an 
entity. And I will repeat that.
    Mr. Campbell. Let me get, if I can, to just one other line 
of questioning which is relative to the numbers, budget 
assumptions, which basically assume 3 percent plus growth by 
next year, up to 4.6 percent growth 2 years after that, and all 
with virtually no inflation, inflation of 2 percent or under 
all those years. That is what is in the budget assumptions.
    Do you at Treasury, does that comport with your present 
best estimate of what you believe will occur?
    Secretary Geithner. Congressman, the way the budget process 
works is the Council of Economic Advisers independently comes 
up with their best judgment of the likely path of the economy, 
growth, inflation, interest rates.
    Mr. Campbell. Correct.
    Secretary Geithner. And that represents their best judgment 
at that time. And it is very important to point out, because 
there has been a lot of concern about this, if you look at that 
forecast against CBO's latest range of estimates, it is within 
that range. So we believe it is a realistic forecast. And all 
economists agree that it is realistic to expect the economy to 
begin to recover beginning late in this year and into next 
year.
    Now, one last thing.
    Mr. Campbell. I have 30 seconds, so let me just say and 
then you can go ahead. It is just that, when I would make 
budgets in my business sometime ago, it is very easy to 
increase sales by 5 percent, increase margins by 5 percent, 
hold expenses, and, boom, profit is enormous. And so the budget 
numbers here are highly sensitive to things like the inflation 
numbers and the growth numbers. And if these growth numbers are 
not met or the growth numbers are met with substantially higher 
inflation, which I think a lot of people believe that, if you 
are to have these growth numbers, you would have more 
inflation, then the numbers will be--then the budget numbers 
are highly sensitive then. And if you are off at all, even 
these numbers, which we obviously on this side of the aisle 
don't like very much, but that they would be significantly 
worse.
    Secretary Geithner. Mr. Chairman, can I just respond? This 
is very important. I don't think this budget faces that risk. 
Again, if you look at the long-term inflation forecasts by 
private economists, look at the long-term growth forecasts for 
private economists, which are the most important things to our 
long-term fiscal position, CEA's estimates are right there on 
those things. And, again, that is a realistic budget. And I 
agree with you about the concerns you expressed, but this 
budget is not vulnerable to those risks.
    Chairman Spratt. Mr. Berry.
    Mr. Berry. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for your service. I know you are 
having a wonderful time.
    I generally judge administration testimony by how I think 
it would fare at the breakfast table at the Rice Paddy Motel in 
Gillett, Arkansas. I think you would do pretty good. You hold 
your own.
    Secretary Geithner. Is pretty good good, or is pretty 
good----
    Mr. Berry. Sir?
    Secretary Geithner. Thank you for saying that, Congressman.
    Mr. Berry. I meant that as a compliment. Sometimes people 
don't understand me very well.
    Secretary Geithner. Is that an invitation?
    Mr. Berry. I talk too fast.
    I find it interesting here this morning that my colleagues 
across the aisle are suddenly obsessed with intellectual 
integrity, deficits, and fuzzy math. And we have been 
underwater with those things since January of 2001, after 
leading this country out of the fiscal economic wilderness that 
we were in, successfully. And so I appreciate what you are 
saying. I may not agree with all of it, but I appreciate it, 
and I know you are doing the best that you all can come up 
with.
    I want to make one point. Repeatedly, regardless of the 
administration, the party, or anybody else, the value of cheap 
food in this country is continually ignored by the people that 
make economic policy. Production agriculture has been assaulted 
by this administration publicly. And I think it would be a good 
thing for people in positions like yours and others in the 
administration to take a serious look at the value of 
agriculture to this country. It is still 20 percent of our 
economy. It is about the only industry that has not appeared on 
our doorstep right now begging for some kind of relief. They 
are actually getting less help now than ever before. But I 
think they are due some credit for the great way they produce 
and feed this country in a safe and cheap way. And I would hope 
that that would at least rise to the surface and to the point 
where someone in the administration might even recognize it in 
a positive way.
    So I am just an old dirt farmer and love it. And I don't 
think that the American agricultural community has to apologize 
to anybody for the contributions that they have made to the 
success of this country. And I thank you for listening to me, 
and I invite you to the Rice Paddy Motel any time you have got 
time. We will go down there and show those boys something.
    Secretary Geithner. I welcome that, and would be happy to 
do it.
    Mr. Berry. Thank you.
    Secretary Geithner. And I, of course, agree with you that 
the future of American agriculture is critical. We have a level 
of productivity in agriculture which is the envy of the world, 
and it is important we recognize that.
    And you are right, and I think you are saying this, that we 
do propose in the budget to reduce some subsidies to those at 
the highest end. And you understand why we are doing that.
    Mr. Berry. Yes, but pardon me for interrupting you. They 
are the people that produce the food. That is where that stuff 
comes from.
    Secretary Geithner. And it just underscores how difficult 
these challenges we face. And we are going to have to make some 
hard choices together, and we are going to have to do it as 
carefully as we can to make sure we are not burdening the 
economy in ways that we can avoid. But we are going to have to 
get back to a path of fiscal sustainability, and it is going to 
be hard to do that. But I respect and understand the point you 
are making, and I will always listen carefully.
    Mr. Berry. Thank you.
    Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman.
    Secretary, we appreciate you joining us this morning and 
appreciate some of what I would call good things in the budget 
dealing with the AMT. I think an acknowledgement that we have 
some real concerns in our entitlement programs, we certainly 
appreciate that language as well. But let me just kind of lay 
it out. And you have touched on this, but I want to package it 
and frame it in a way that it gets framed for me back home in 
the Fourth District of Ohio when I talk with families and small 
business owners. And our district, just so you understand, of 
the 435 districts in this country, the Fourth District in Ohio 
is 16th in manufacturing jobs. And, frankly, we were doing 
pretty well until of late with this auto industry, and now, 
obviously, we are feeling the impact just like the rest of the 
Midwest and, frankly, the rest of the country is.
    But when I talk with folks back home, here is the picture 
they get. And I know you are going to disagree with some of it. 
But, frankly, they see--and I would argue any one of these 
things done at any time is difficult for our economy, but when 
you attempt all four in the midst of a recession, I think it is 
scary, frankly:
    Raising taxes. And I know there has been a debate here in 
this committee. But the way we look at this is there is a net 
tax increase over the 10-year time frame of your budget. Taxing 
the successful out there. Not necessarily a good message to 
send to the business owners when we are trying to get out of a 
recession.
    An unprecedented level of spending, whether you start with 
the $780 billion in the stimulus, the 410 in the omnibus with 
the 9,000 earmarks, and now a budget that projects a doubling 
of the national debt over the next 10 years.
    Further, nationalization of health care, setting aside the 
billions of dollars you set aside to do the things in health 
care.
    And then, finally, the one that I would, frankly, if you 
could, Secretary, focus on the most is the cap-and-trade. 
Because when you come from a district like I get the privilege 
of representing, with that much manufacturing, the cap-and-
trade proposal scares me. Just like yesterday in the Detroit 
News where they talked about, I think the headline was, ``Cap 
and Trade Will Sink Michigan,'' was the headline of this 
editorial from the Detroit News. It concerns those kind of 
districts that, where you have heavy industry. And, frankly, 
the cap-and-trade will disproportionately impact the Midwest, 
where so much of our energy comes from coal-fired power plants 
and oil and gas those things.
    So respond, and, again, this is straight from the good 
families and business owners I get the privilege to represent. 
I happen to think they are right when they come with these four 
concerns, all done as we are trying to get our economy 
recovered from this recession.
    Secretary Geithner. Thank you very much for raising those. 
So, let's just go through this because it is very important to 
do.
    Small business owners in America today will face the 
prospects of a zero capital gains tax rate; substantial 
reductions in the rate of growth in health care costs; a range 
of other incentives that are very important to getting us to a 
clean energy economy; keeping their overall tax burden 
unchanged except for 2 to 3 percent of the highest earning 
small business owners, and, again, those increases only come 
beginning in 2011, and they only restore those tax rates to the 
level that prevailed going back to 2001.
    So it is not reasonable or fair or true to represent this 
budget as increasing the tax burden on small businesses who are 
struggling so much across the country. In fact, this budget is 
very good for businesses across the country.
    Now you said several times----
    Mr. Jordan. Focusing on the cap-and-trade, I mean, laying 
out the four issues, cap-and-trade is the one that concerns. 
Again, that is why I talked about the type of district I 
represent. I talked about the Detroit News editorial yesterday.
    Secretary Geithner. I would like to do that, and I would be 
happy to do that again. But I just want to reinforce something 
you said. Now, you said we are going to substantially increase 
taxes on the American economy over time and substantially----
    Mr. Jordan. $1.4 trillion. $1.4 trillion over 10 years.
    Secretary Geithner. Let's just go through those. If you 
look at the President's budget, you will see that the overall 
tax burden, revenues to GDP over this horizon are quite close 
to long-term average. Now, another thing you will see is that 
the overall level of spending in the budget relative to GDP 
after you account for interest rate costs for these inherited 
deficits and you account for the effects of the aging of the 
Baby Boom, the overall size of the government relative to GDP 
is very close to historical norms. So this is not a budget that 
raises materially the overall tax burden.
    Mr. Jordan. Mr. Secretary, isn't it true that your 10-year 
budget doubles the national debt? I mean, your numbers, when 
you add them up, we go from 11-point-something trillion to 
doubling that.
    Secretary Geithner. What increases the national debt is the 
size of the----
    Mr. Jordan. Too much government spending. That is what 
increases the size of the national debt.
    Secretary Geithner. No. It is the size of the deficits we 
have inherited and the costs of getting us out of this 
recession.
    Now, if we were starting from a different place, if we were 
starting from where we were at the end of the last decade, if 
we were starting without a recession this deep, then we would 
be able to give the economy a path for higher growth rates, 
lower deficits for the future.
    Now, given where we are, though, our common obligation and 
our only choice really is to move aggressively to try to get us 
out of a recession and fix our financial system, and that costs 
resources. If we did not do that, then growth will be weaker, 
unemployment higher, more small businesses would fail, and we 
would face higher deficits in the future because our overall 
productive capacity of the economy, future revenues would be 
lower. And that is very important to start with.
    Now, briefly on cap-and-trade, just to repeat, what the 
President is proposing is to put in place a cap on emissions 
with a market-based mechanism for allocating those credits; it 
will generate resources, but we are going to put those 
resources back into the hands of working Americans.
    Now, you are framing this in a way that----
    Mr. Jordan. If a working American has to pay more for the 
car they purchase, for the energy bill they pay each month, all 
their utility bills, and then you give them some back, aren't 
they going to have to pay more on those bills than they are 
going to get back on the tax credit?
    Chairman Spratt. The gentleman's time has expired, more 
than expired. And we have got to move on because there are 
three votes coming up on the floor, one of which will occur in 
about 10 minutes; it is a resolution. I plan to stay here 
through at least that. There are a couple of suspensions coming 
up behind it. But I will stay here at the sacrifice of a vote 
so that other members can ask questions.
    Let's move now to Mrs. Tsongas.
    Ms. Tsongas. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary. This has been quite a 
discussion.
    I would like to move on to the issue or focus on the issue 
of housing. I am from Massachusetts. I represent three old 
industrial cities, one of whom happens to have the highest 
foreclosure rate in the State. So I was very grateful to see 
the action that your administration, President Obama's 
administration, has taken, and I look forward today to 
supporting legislation that will help further that.
    We know it is only one piece, one leg of the stool. But I 
am curious; one of the challenges we have had ongoing is we are 
constantly playing catch-up around dealing with the foreclosure 
issues. So what do you look at as the benchmarks as to whether 
or not this is working, sort of the timing around how you will 
measure those? And what are you thinking in anticipation of any 
potential problems that may arise?
    Secretary Geithner. Excellent question. The best things to 
look at are what is happening to overall mortgage interest 
rates. And as I said earlier, they are coming down. What is 
happening to the amount of refinancing? That is a measure of 
how many people are benefiting from lower interest rates, and 
those numbers are reported at relatively higher frequency. And, 
as important, you are going to see relatively detailed high 
frequency reporting of the number of loan modifications that 
are going to occur that will help make mortgage payments more 
affordable for, we estimate, between 3 and 4 million Americans. 
And you will be able to see how many are occurring and the 
broad benefits. Those are the right measures.
    Ms. Tsongas. Is there sort of a minimal level that you are 
going to look at?
    Secretary Geithner. In terms of interest rates?
    Ms. Tsongas. No, just in terms of refinancing.
    Secretary Geithner. In the President's program, we laid out 
some initial estimates of people who would be eligible to take 
advantage of this new refinancing program; and again, I think 
those estimates are in the 3 to 4 million range. And so you can 
measure how many happen against that benchmark.
    Now, outside that program, you see hundreds of thousands of 
families now every week taking advantage of lower interest 
rates to refinance, and that is another measure, too. So you 
see broad refinancing trends in this program, outside this 
program. And those are the right measures. Overall interest 
rates, number of refinancing, and the kind of sustainable loan 
modifications necessary to help responsible families stay in 
their homes.
    Ms. Tsongas. And if we start to see the kind of issues we 
had with Hope for Homeowners, where in spite of our best 
intentions, it just didn't work, it wasn't effective, how 
quickly can you deal with those kinds of obstacles?
    Secretary Geithner. Well, the legislation changes that are 
under consideration now will make Hope For Homeowners, we 
believe, substantially more effective. And we want to move to 
put those in place as quickly as possible.
    Ms. Tsongas. Thank you.
    Chairman Spratt. Mr. Etheridge.
    Mr. Etheridge. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for your time this morning 
and your hard work. People don't realize the hours you are 
putting in, and I had the privilege to chat with you at the 
Ways and Means the other day.
    But I don't know in my lifetime of any administration that 
has inherited the challenge that this one did before they came 
in office and then faced the Armageddon almost since you have 
been there.
    So let me change the tone. And I want to associate myself 
with Mr. Berry's comments as relates to agriculture, and I will 
come back to that at the end if I have time. But let me change 
the tone for just a minute, because I am very pleased that the 
President has placed such a strong emphasis in this budget on 
education.
    I spent 8 years as State superintendent of schools before I 
came here. I was the first in my family to graduate from 
college. So education is a critical piece, and it is the 
foundation we are going to build, I think, a future on. So let 
me ask you to comment on two pieces in here very quickly, 
because I think the American Opportunity Tax Credit in the 
economic recovery piece was a good piece to start, but now we 
are talking about in this budget building on it. And that goes 
back to early childhood education, actually a critical 
component. If we are going to stop dropouts, we have to stop 
them before they really get to be dropouts.
    And the other piece is that it is critical to say to a 
young person, some say in high school, I do it in middle 
school: You can go to college, and here's the pathway. And I 
hope you will take a minute or so and cover that, and then 
leave me time to ask one other question, maybe, because I think 
it is important to get that on the record again. This is a 
long-term commitment for the future of our country.
    Secretary Geithner. I completely agree.
    And, again, just to say the three key parts of it, and we 
have got a terrific Secretary of Education with huge 
credibility in this area, and a President deeply committed to 
progress in this area.
    Substantial resources to early childhood education, proven 
programs make big impact on outcomes; a sustained commitment, 
range of different ways to help improve quality of teaching in 
our elementary/secondary education; and a greater financial 
commitment to help people afford higher education, both 
community colleges and 4-year colleges. Those three things, 
there is a rich ray of other things in there, but those are 
really the critical things.
    Mr. Etheridge. Called Pell grants, which are critical to a 
lot of youngsters who would not have an opportunity to ever 
enter the doors of a college or university.
    You know, Margaret Mead once said: ``Never doubt that a 
small group of thoughtful committed citizens can change the 
world.'' And, indeed, it is the only thing that ever has. I 
think we are at that point in history. I think we have that 
opportunity.
    Mr. Berry mentioned earlier about agriculture, and let me 
just touch on that. And you don't really have to comment on 
that, but I want to have an opportunity to work with you 
because my home State of North Carolina, about one in five jobs 
are tied to agriculture, as many as high tech jobs as we have 
and major universities and all the things we do, and we are 
currently going through a major crisis. There is about $130 
billion annually to the whole U.S. economy, as he had 
indicated, and 14 percent of the workers. In North Carolina, it 
is about 20. So it is much higher. But we are going through a 
unique crisis. And I think if we don't deal with it quickly, it 
could grow, and that is credit in the rural sectors that 
could--things that are happening on Wall Street may very well 
hit the country road. And we have seen where a lot of the 
poultry growers, who are people who really are affected, 
contract; they aren't fitting any of the categories. They don't 
get unemployment. They aren't fitting in these categories. And 
I hope you will allow us to work with you to find a way that we 
can, through maybe the Department of Ag or through the 
Treasury, to reach out and help these folks until this thing 
turns around. They aren't asking for a hand out; they are just 
asking for a hand up. And I hope you will allow us to work with 
someone in your office to deal with that. It is not just my 
State. It deals with Louisiana, Arkansas, and I think 
Pennsylvania and other places as well.
    Secretary Geithner. Congressman, we have had a chance to 
talk about that already. And I will absolutely commit to work 
with my colleagues at the Department of Agriculture on how we 
can best be responsive to that concern.
    Mr. Etheridge. I appreciate that. And I thank you very 
much.
    Thank you, Mr. Chairman. I yield back.
    Chairman Spratt. Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman.
    Mr. Secretary, welcome to the committee. My Republican 
colleague Mr. Ryan said that the Obama budget plan and 
proposal, and this is a quote, is not good economics.
    Mr. Chairman, I would like to put that criticism in a 
little bit of perspective.
    This is the chart that shows when the Bush administration 
took office. So that we are reading this chart correctly, the 
blue line is where we were at that point. That meant there was 
a surplus of nearly $200 billion a year when they took office.
    I would also point out that Mr. Ryan, who is genuine in his 
economic beliefs, articulate in expressing them, but I would 
also say, in fairness and in due respect, he was one of the 
chief architects of the good economics, if that is what he 
wants to call it, of the Bush era.
    So, Mr. Chairman, this chart shows what happened once the 
good economics of Mr. Ryan and the Bush administration went 
into place. We went from the largest surpluses in American 
history to the largest deficits in American history. And I see 
my chart didn't even go to 2009. I am glad this one has been 
amended, because the chart would have to be rewritten because 
the deficit is so bad in fiscal year 2009 left by the Bush-Ryan 
good economic programs that there wasn't enough room on the 
chart to show what the actual deficit is. Am I correct, the 
deficit, you said the Obama administration assumed is $1.3 
trillion. Is that correct?
    Secretary Geithner. And I think, just to be fair, that 
understates the underlying deficit because that is a deficit we 
start with. But we start also with a deepening recession and a 
financial crisis that is putting a lot of pressure on the 
economy. And so the right measure of where we are starting from 
has to incorporate the cost of fixing it. So I think we are 
starting with a deficit that is enormously high because of the 
deep challenges we all face.
    Mr. Edwards. And I can understand why Mr. Ryan and others 
might feel threatened that the American people voted for a 
change to try a different approach, because the good economics 
of the Bush-Ryan programs led us into not only the largest 
deficits in American history but the worst economic mess we 
have faced perhaps since the Great Depression. And following 
the advice that insanity is doing the same thing over and over 
again and expecting a different outcome, I am, frankly, glad 
that the Obama administration is trying to do this differently, 
in a more responsible way, even if those who are the architects 
of the worst disaster economically in my lifetime call this not 
good economics. So I consider that criticism, frankly, to be a 
compliment.
    I want to be correct in understanding a statement you made. 
You said something to the extent that approximately 75 percent 
of the income growth of the past 7 to 8 years has gone to 1 
percent of Americans. Could you clarify that? If it is anywhere 
close to that, if my understanding is correct, that is just an 
astounding fact.
    Secretary Geithner. I am looking for the precise fact, 
Congressman.
    Mr. Edwards. Is that approximately correct? We can fine 
tune the answer.
    Secretary Geithner. That is an independent assessment that 
I believe is correct. But let me just paint the context. We 
face this very long-term rise in inequality across the country. 
That rise in inequality accelerated over the last several 
years.
    Mr. Edwards. That was another result of the good economics 
of the previous 8 years.
    Secretary Geithner. And I will read the exact quote, and 
these are from analysis based on data from 2002 to 2006 during 
the last expansion: The top 1 percent took home 73 percent of 
all income growth.
    Mr. Edwards. So one of the primary problems we face today 
is not that the wealthiest 1 percent of Americans don't have 
enough money after paying their taxes; it is, frankly, that the 
middle class has lost ground and real income over the last 7 or 
8 years. Would that be a correct statement to make?
    Secretary Geithner. The basic troubling challenge that the 
economy has faced over the last decade is you saw income growth 
for average Americans slow significantly. And we need to bring 
about the kind of substantial changes in the basic direction of 
economic policy to try to address that basic challenge. And 
that is one reason why it is so important that we do a much 
better job of improving education outcomes and bring some more 
fairness and balance to the overall----
    Mr. Edwards. So this administration wants to pursue 
policies and help the middle class in the belief it creates 
more wealth in America if we have a healthy middle class. Some 
who were the architects of the good economics that led us 
through the worst crisis since the Great Depression want to 
continue policies to cut education, and health care programs, 
and job training programs that help the middle class while 
actually pushing for more tax cuts for the wealthiest 
Americans.
    So I compliment you for not following the good economics of 
the past 8 years and trying it a different way.
    Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Edwards.
    Mr. Secretary, we have votes on the floor. And we will be 
coming back as quickly as we can. We are mindful of your need 
to get out of here by 12:30, and we will abide by that. In the 
meantime, if you need some office space just behind us, you are 
welcome to use these facilities.
    Secretary Geithner. Thank you, Mr. Chairman.
    Chairman Spratt. That applies to your entire staff.
    Secretary Geithner. Thank you, Mr. Chairman.
    Chairman Spratt. We will be back as quickly as we can.
    [Recess.]
    Chairman Spratt. We will go first to Ms. McCollum.
    Ms. McCollum. Thank you, Mr. Chair.
    And thank you for your testimony today and for your 
patience during our voting interruption.
    I want to focus on health care for a little bit. I just 
find it totally unacceptable that in the wealthiest nation in 
the world, 46 million Americans don't have health insurance and 
millions more encounter a health care system that is 
unresponsive and inadequate to meet their basic medical needs. 
And along with that, there are too many that are underinsured. 
And underinsurance leads to poor medical outcomes. It leads to 
more expenses for families. And it is my opinion that health 
care should be a right in this country, basic access to health 
care, and not just a privilege for those who have financial 
means.
    Now, this budget makes it really clear that you are not 
going to wait to do health care reform. You are going to move 
forward. President Obama is living up to his promise to provide 
health care for America. Families and businesses are 
struggling. They can't afford to pay for their health care. I 
hear this all the time about the increasing costs and the 
decreasing coverage along with that increase in cost. So with 
the current economic conditions, the economic forecast dilemma 
that we find ourselves in, the housing crisis, families are 
continuing to be squeezed. And I am just, for the record, going 
to put in a few things for an example here: 1 percent of the 
increase in the unemployment rate, it is estimated that as many 
as 1.5 million Americans lose their health care coverage. Over 
2.5 million American families face foreclosure every year. 
Every year, 2.5 million American families face foreclosure 
because of medical costs. They lose their homes because of 
that. So, clearly, we know medical costs have an impact on 
workers' wages, it reduces their take-home pay. We know it 
makes them have to make hard choices about children going to 
college, making repairs on their homes, sometimes staying in 
their homes, let alone preparing for retirement. So as a member 
of this committee, the Budget Committee, and the Appropriations 
Committee, I am very interested to hear what some of the 
economic consequences you think that there will be if we do not 
address this problem of rising health care costs in a very 
fiscally responsible way? So could you maybe talk about the 
impacts that will increase access to health care and lowering 
costs that are in this budget and the effects, not just of the 
short-term but the long-term? And then if you could maybe touch 
on how decreasing health care costs, what that means for the 
future of Medicare and other programs for our families, seniors 
and that?
    And with that, I will listen to your answer. Thank you.
    Secretary Geithner. You said it very well. The President in 
the budget laid out a set of broad principles to guide our 
common effort to reform our health care system. And those 
principles are to protect families' financial health; make 
health care coverage affordable; to aim for universality; to 
provide portability of coverage; to guarantee choice; to invest 
in wellness and prevention; to improve patient care and quality 
care; and to maintain long-term fiscal sustainability. I think 
those broad principles provide a framework in which we can come 
together and reach consensus on how best to fix this system.
    And I think you said it exactly right, which is that it is 
not just a moral imperative, because in a country with these 
resources, it is just hard to understand why we can't deliver 
better health care more broadly spread to all Americans, again 
regardless of how fortunate they are in life. And our system 
does not deliver high enough quality care, despite how much we 
spend on it. So you see businesses facing huge increases in 
costs. Those get passed on to families. And that is a big 
burden on the overall economy as a whole. Again, our approach 
is to try to reduce the level of cost by improving the 
effectiveness of care, by using information technology in a way 
to help get a lot of these inefficiencies out of the system, to 
preserve for people the basic framework of choice that is so 
important. And this is going to cost money, so we have got to 
figure out a way to do it that is fiscally sustainable.
    What we did in the President's budget is to lay out some 
very specific ideas for how we can pay for these changes. But 
it is a critical priority. And as the President said in the 
State of the Union, it is time to move on this. We can't afford 
to wait. And I think it is a really important part of the broad 
set of programs in the budget to give Americans a sense that we 
are going to be moving towards fixing these long-term problems 
in ways that will make our economy more productive in the 
future, grow more rapidly than it otherwise would.
    Ms. McCollum. Mr. Chair, I thank you.
    And I believe we are going to see savings when we take care 
of health care for Americans. And I would hope at some point, 
we will figure out a way to capture the savings on property 
taxes, insurance costs, and all the other hidden ways we are 
paying for this poor health care and lack of health care that 
we have now.
    Chairman Spratt. Thank you, ma'am.
    Mrs. Lummis.
    Mrs. Lummis. Thank you, Mr. Chairman.
    And thank you, Mr. Geithner, for being willing to 
participate in this lively debate.
    And I want to tell you that, coming from the Mountain West, 
from Wyoming, you are scaring the wits out of my constituents, 
you are scaring the wits out of the American people, and this 
is how it is happening. You have a $646 billion cap-and-trade 
proposal in these budgets. And while you expressed a concern 
that the President wants to undo the huge damage to productive 
capacity of our economy, cap-and-trade is the biggest damage 
you can do to the productive capacity of this economy.
    We are an energy-producing State; 50 percent of the 
electricity in this country comes from coal; 20 percent comes 
from nuclear, both of which are targets of your budget. And yet 
even if you wanted to go to the cleanest-burning hydrocarbon, 
natural gas, this budget creates disincentives for the 
production of natural gas and leads the American people to the 
assumption and belief that solar and wind can replace nuclear, 
coal, oil and gas. It cannot. It cannot do it.
    And yet you are going to put in a cap-and-trade system that 
you believe will not impact the American people; yet we know it 
is a regulated industry and that people who are producing 
electricity go through a regulatory process that guarantees 
them a profit as part of their investment. That doesn't happen 
with the producers of oil, gas, coal, uranium, wind and solar. 
So your proposal will destroy, I am serious, destroy the 
productive capacity of my economy.
    Here is a couple of ways that it does it. One, it takes the 
AML moneys, the Abandoned Mine Land Moneys, that were 
guaranteed to the States under SMACRA and a more recent 
agreement by Congress for which President Obama voted when he 
was a U.S. Senator and takes it away. He is undoing a previous 
piece of legislation that was agreed on by easterners and 
westerners, unions and non-unions, Republicans and Democrats, 
and was supported by President Obama.
    Furthermore, you take away the intangible drilling costs 
deduction for oil and gas producers domestically, domestically. 
So what you are going to do is send oil and gas production 
overseas. You are not increasing energy production in the 
United States. You are making us more dependent on foreign oil 
and gas. And to take a commodity like natural gas, in 
particular, that is the cleanest-burning hydrocarbon, and 
punish it and punish the people in this country that produce 
it, is the most counterproductive thing that you can do and 
gets away entirely from the President's goal of not reducing 
the productive capacity of this country.
    So I challenge the statements that you have made. They are 
inconsistent with the realities of this budget. And I strongly 
encourage you to revisit the effects of cap-and-trade energy 
production in this country which will be retarded and it will 
increase our dependence on foreign oil. And of course, I want 
your reaction to the fact that you are scaring the wits out of 
the people in this country that produce energy.
    Secretary Geithner. I welcome that challenge.
    The President is proposing to do what we have not been able 
to do as a country, which is to put in place an energy policy 
that will put us on the path to more efficient use of energy, 
cleaner energy, and to help make that process work more 
quickly. Now, this proposal will reduce the cost of energy, 
some forms of energy, to the American economy. It will increase 
the cost of some other forms of energy to the economy, and we 
are proposing that for very clear reasons, which is that the 
American people want us to be more efficient in how we use 
energy, particularly those forms of energy that contribute to 
global warming, because of the long-term costs it will present 
to the economy as a whole.
    And you have to look at the overall package in this budget. 
And the overall effect of these measures will make this economy 
stronger than it is today, and will lead businesses in this 
country with a set of powerful incentives instead of--for an 
example, a zero capital gains rate for small businesses, a very 
important example. Many small businesses will enjoy lower taxes 
under this because of Make Work Pay going forward. You need to 
look at the overall package. And this package of proposals will 
make the American economy more productive in the future.
    Now, I understand your concerns about the impact of these 
cap and trade proposals. But as a country, it makes no sense 
for us to continue to actively subsidize the use of energy that 
is going to contribute to more damaging effects on the 
environment. And unless we address it as a country, we are 
going to be less secure and less prosperous.
    Chairman Spratt. We have got time for one more question, 
and that is from Mr. Scott.
    Mr. Scott. One more questioner or one more question?
    Chairman Spratt. One more round.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Secretary, a lot of concern has been expressed by those 
with incomes over $250,000. I know during the 1990s, the Dow 
Jones Industrial Average more than tripled for those with those 
incomes that had investments in stocks, bonds, 401(k)s and that 
kind of thing showed a substantial increase in assets. It seems 
to me that improving the economy where the Dow Jones Industrial 
Average will get back on track to going up rather than down 
would mean more to people in that income bracket than a 3 
percent differential in marginal tax rate. Could you say 
something about the value of getting the economy back on track 
as it affects people in the higher income brackets?
    Secretary Geithner. I think you are absolutely right. The 
most important thing for us to do is to focus on policies that 
are going to get growth back on track as quickly as possible; 
to bring the recession to an end as quickly as possible; and to 
get our economy back to a place where we are growing at a 
sustainable rate. The President has proposed and this 
administration has moved with unprecedented speed to not just 
work with Congress to pass a very powerful recovery 
reinvestment act, but to move to take actions to get credit 
flowing again, to address the housing crisis and propose a very 
dramatic bold set of proposals in the budget that will again 
make this economy stronger in the future. The most important 
thing you can do and that we have to do is to get recovery back 
on track. That will be overwhelmingly more important than 
anything else, not just for our long-term fiscal future, but 
for, again, reducing the damage that a recession like this is 
going to bring to businesses and families across the country.
    Mr. Scott. And it would be in the interest of those with 
incomes over $250,000 to get the economy back on track much 
more so than whatever the marginal tax rates that we are 
discussing would--whatever difference they may make?
    Secretary Geithner. I completely agree. Another way to 
think about it, unless we get the recovery established and lay 
out to the American people a framework that brings our deficits 
down over time, then recovery will be delayed and growth will 
be weaker, there will be less private investment and less 
overall gains in income across the economy as a whole.
    Mr. Scott. Thank you.
    In terms of the auto bailout, would it be cheaper for the 
government to buy cars rather than lend the corporations money? 
The advantage there would be that workers would actually have 
more work to do. After you have done that, it certainly should 
be just as likely to prop up the auto industry. An added 
benefit is you get some cars to show for it.
    Secretary Geithner. You are right to say we need to look at 
what is going to be the most efficient, the least costly way 
for the government to help facilitate the kind of restructuring 
we need. And we will look for the most effective use of 
taxpayer resources, if we feel there is a case for using 
taxpayer resources to help facilitate a restructuring.
    The really important thing to recognize is that we are 
going to need substantial restructuring to put these companies 
on the path to viability. And it is going to require a lot of 
sacrifice by all the stakeholders in those companies. And we 
are embarked on a very careful process of trying to make sure 
that we can improve the odds of that kind of restructuring.
    Mr. Scott. And finally, the auto dealers, some of them 
complained that some of their buyers can't get loans. Is that 
true? And if so, what are we doing about it?
    Secretary Geithner. You are right that the financing 
environment has deteriorated dramatically for the companies and 
for the overall financing available for cars. And the 
government has already taken action to put capital into the 
finance company. And it is--we are, through these direct 
lending programs we announced on Tuesday, trying to get the 
auto finance market to start to open up again. But any 
effective solution to address the crisis facing the auto 
industry is going to have to directly address these problems in 
the financing markets, which are making everything harder.
    Chairman Spratt. Mr. Secretary, could I ask you to take one 
question each?
    Secretary Geithner. Absolutely.
    Chairman Spratt. Go ahead, Mr. Nunes. One question if you 
will.
    Mr. Nunes. Thank you, Mr. Chairman.
    Mr. Secretary, I was glad to hear that you are a supporter 
of American agriculture. I sent a letter--actually two letters 
now to President Obama regarding a regulatory drought that we 
are experiencing in California where we are on the verge of 
idling 500,000 acres of the most productive farmland in the 
world. UC Davis just came out with a study that said that that 
was going to cost us 80,000 jobs. My home county is at 15 
percent unemployment, likely headed to 20 if this occurs. I 
would invite you, President Obama, we can all go have a big 
job-saving party. All we have to do is turn on the pumps in the 
delta so that we can pump water south. This is a regulatory 
drought dealing with ESA issues. But this is a very, very 
serious issue that we absolutely--I wanted to raise with you 
here today so that you know the seriousness of it. I want to 
talk a little bit about----
    Chairman Spratt. Mr. Nunes, would you--basically would you 
reduce it to a question because he has got to get to the White 
House for a function at 1:00 and he needs to leave here--12:30 
was the agreed-upon time, and we have stretched it out.
    Mr. Nunes. That was a statement. Can I just ask a quick 
question on cap-and-trade?
    Chairman Spratt. A quick question would be fine.
    Mr. Nunes. The point I want to make is that, in California, 
we attempted to limit greenhouse gases. I think that we can all 
agree that that is a good thing to do and you won't have any 
argument from me.
    However, what we have seen in California is we went to 14 
cents a kilowatt in our cost of electricity now which is 
contributing to this outflow of migration leaving the State and 
jobs leaving the State. This is--just to throw out there, this 
is kind of an example. But in the stimulus bill, we spent a 
trillion dollars roughly. That trillion dollars would build at 
least 200 new nuclear reactors, which would get us, just 
hypothetically here, would get us to almost 80 percent of our 
electricity produced emission-free from nuclear power. And I 
think if you and I sat down and came up with a real plan how we 
are going to provide cheap, abundant electricity on the market, 
that at the end of the day, we could go through solar, wind, 
fossil fuels, and we would always come back to the same thing, 
that we have to invest in new nuclear power reactors. And I 
would hope that--and I would like to hear your answer to this, 
that we would look at building these 200 reactors or some 
number. And do you guys have a plan of getting these reactors 
on line and how many should we expect should be built in the 
next 5 to 10 years? Or should we expect any at all?
    Secretary Geithner. Excellent question, but it deserves a 
more thoughtful response than I can give you here. I would be 
happy to talk to my colleagues on the energy side and come back 
to you with a detailed response to that question.
    Mr. Nunes. Well, fair enough. I hope that we can look 
seriously at reducing the burning of fossil fuels, and I think 
nuclear power is going to be the way to do it.
    Mr. Chairman, I want to thank you for indulging me.
    Chairman Spratt. Mr. Yarmuth, one question quickly.
    Mr. Yarmuth. Thank you, Mr. Chairman. I won't make a 
speech.
    If I picked up a newspaper on Sunday and saw a sale that 
was, for 2 days only, 40 percent off, and that was Monday and 
Tuesday. And I went into the store on Wednesday, and I had 
missed the sale and was back to regular price, would I have a 
legitimate argument in saying that they had raised the price or 
just that I had missed the opportunity to take advantage of 
that? And my question is, is that an apt analogy to the issue 
of whether we are actually raising taxes under this budget? And 
is there any evidence that the tax--that sale that we gave to 
the wealthiest individuals in the country over the last 6 to 8 
years has had any measurable benefit to anyone in the economy 
outside of those individuals?
    Secretary Geithner. Understand the analogy. I think that it 
is fair to say that economists are debating what the impact 
was.
    I think what you can say is you saw relatively small 
benefits on actual growth rates relative to what it did to our 
long-term fiscal costs. And in looking at all these kind of 
things, what you want to do is just find a measure, a set of 
measures that have substantial effects on incentives and growth 
at the least cost for long-term fiscal prospects. And that is 
the balance you want to achieve. And in my judgment and the 
judgment of many economists, we got that balance wrong in the 
earlier part of this decade.
    Chairman Spratt. Mr. Garrett, one question, please, sir.
    Mr. Garrett. Thank you.
    Thank you. There was a total lack of--or disbelief when the 
administration and yourself rolled out your reform efforts 
several weeks ago and the markets reflected that. There 
continues to be a lack of confidence in the market with this 
administration as regards to the proposal they have laid out. 
And now the administration says that they want to have a total 
regulatory reform basically in place, not just principles in 
place, for the G-20. How do you intend to reestablish that 
confidence by doing a rush to judgment on regulatory reform and 
a continued vacillation on some of these other proposals and 
establish that in a short period of time?
    Secretary Geithner. Congressman, I just want to say that we 
have two important obligations now. One is to move together to 
try to get credit flowing into the financial system. And we 
have laid out a framework of efforts to do that, and we are 
moving quite quickly to put in place a program of capital 
support and direct credit lending on a substantial scale to 
help get credit markets flowing again.
    But we also need to move to demonstrate to the American 
people and to the world that we are prepared to put in place 
the set of reforms necessary to prevent a crisis like this from 
happening again. We are not going to rush to judgment. It is 
going to be hard to do. And we are going to have to do it very 
carefully working with you. A lot of work has been done on this 
area. You are right to say it is going to be a complicated 
task, but I think it is important that we start that process 
quickly. And we look forward to working with you and your 
colleagues on how best again to begin that process of putting 
in place reforms to prevent this from happening. Because if we 
don't do that, then we are going to be leaving people with, I 
think, a deeper concern about whether we have the will together 
to fix this broken system.
    Mr. Garrett. I appreciate that.
    Thank you.
    Chairman Spratt. That concludes the hearing. Thank you very 
much, Mr. Secretary, for your excellent and forthright answers. 
And we look forward to working with you on this problem in the 
months ahead.
    Secretary Geithner. Thank you, Mr. Chairman.
    Chairman Spratt. Before we finally adjourn, all members who 
did not have the opportunity to ask questions will be given 7 
days to submit the same for the record.
    Without objection, so ordered.
    [Questions for the record, submitted by Mr. Aderholt, and 
their responses follow:]

Questions for the Record From Hon. Robert B. Aderholt, a Representative 
    in Congress From the State of Alabama, and Secretary Geithner's 
                               Responses

    1. The President says he is reducing taxes for 95 percent of the 
population. Will the cap and trade proposal affect those making less 
than $250,000?

    The President's clean energy agenda begins with an effort to lower 
the energy costs of American families through the American Recovery and 
Reinvestment Act (ARRA). A variety of tax credits, including credits 
for residential energy efficient investments, will reduce the carbon 
footprint of families and facilitate the transition to a clean energy 
economy while also reducing energy use and thus costs. In addition, the 
weatherization program provided for in ARRA will also lower energy 
bills by improving the energy efficiency of low-income residences.
    The Administration is looking forward to working with key 
stakeholders and the Congress to fully develop a program to reduce 
greenhouse gas emissions approximately 14 percent below 2005 levels by 
2020, and approximately 83 percent below 2005 levels by 2050. The 
program will be implemented through an economy-wide cap and trade 
program in which all emission allowances will be auctioned to ensure 
that the biggest polluters do not enjoy windfall profits. The 
Administration's budget reflects the proceeds from the emission 
allowance auction only to the extent they are reserved for clean energy 
technology initiatives and to compensate families through the Making 
Work Pay Tax Credit. Additional revenues generated from an emission 
allowance auction above those shown in the budget will be used to 
compensate vulnerable households, communities, and businesses for 
increased energy costs. The exact form and amount of compensation will 
be determined as the emission reduction program is developed.

    2. How much of the national debt is held by foreign investors? 
Considering that the Chinese are now developing their own economic 
stimulus plans, how will that affect their inclination to continue 
holding our debt?

    China's economic stimulus plan should not have a material effect on 
China's willingness to hold Treasury securities relative to any other 
securities in their portfolio of foreign exchange assets. We have long 
encouraged China to shift towards domestic demand--particularly 
household consumption--as a source of future Chinese growth. Such a 
shift would reduce global imbalances and the requirement to finance 
them, and would help assure sustainable global growth.

    3. Through TARP, Treasury has already guaranteed up to $25 billion 
in loans for automakers GM and Chrysler. In an annual report released 
in March 2009, GM stated that it might have to seek bankruptcy 
protection. Will GM and Chrysler be receiving additional TARP funds?

    The Presidential Task Force on the Auto Industry (including 
Treasury) remains committed to providing Chrysler and GM with 
sufficient assistance to help give them a chance to achieve financial 
stability. The task force is evaluating their restructuring efforts and 
the alliance being proposed for Chrysler. As the President laid forth 
in his announcement on March 30th, we will not be making any further 
decisions until the self-imposed deadlines, which was 60 days to the 
date for GM and 30 days to the date for Chrysler.
    For Chrysler, as the President noted in his announcement on April 
30th and his commitment on March 30th to provide both adequate working 
capital to help Chrysler through this restructuring period and a loan 
up to $6 billion to the Chrysler-Fiat Alliance, the U.S. government has 
committed to provide assistance sufficient to help give Chrysler a 
chance to achieve financial viability. Working capital: The U.S. 
government is prepared to provide approximately $3.3 billion in debtor 
in possession financing to support Chrysler through an expedited 
chapter 11 proceeding.
     Loan to the New Chrysler: Upon closing, the U.S. 
government loaned $6.6 billion to New Chrysler including proceeds of 
$6.3 billion and a guarantee of $350 million that is expected to remain 
undrawn. This loan was made in the form of a term loan with $2.0 
billion due in 30 months and the balance 50% due on the 7th anniversary 
and 50% due on the 8th anniversary of the loan. The interest will be an 
appropriate combination of cash and payment-in-kind. There is also an 
additional note of $288 million which is a fee for making these loans. 
The loans will be secured by a first priority lien on all of Chrysler's 
assets.
     For GM, after the President's March 30th announcement, the 
Administration provided GM with $6 billion of working capital for 60 
days while the Company developed a more aggressive restructuring plan 
and a credible strategy to implement such a plan. During that time 
period, Treasury also placed $361 million in an SPV for the Auto 
Warranty Commitment Program, which will not be drawn, and Treasury 
exchanged an $884 million loan to GM for a portion of GM's equity 
interest in GMAC. From the date of GM's filing for bankruptcy until the 
completion of the 363 sale of assets to the New General Motors, the 
Administration funded $30.1 billion of debtor-in-possession financing 
to the company.

    [Questions for the record, submitted by Mr. Blumenauer, and 
their responses follow:]

Questions for the Record From Hon. Earl Blumenauer, a Representative in 
 Congress From the State of Oregon, and Secretary Geithner's Responses

                       ENERGY AND CLIMATE CHANGE

    1. As the President's budget indicates, global warming is one of 
the greatest challenges the world faces. The Ways and Means Committee 
is poised to play an important role in legislative solutions, including 
the cap and trade proposal outlined in the budget. In addition to new 
legislation, however, we should examine existing policies to ensure 
that our federal efforts are not working at cross-purposes. For 
example, the federal tax code is replete with incentives, some direct 
and others unintentional, that encourage carbon-intensive activities. 
To address these concerns, this Committee drafted a provision that was 
included in the energy tax package that passed the House last year 
requiring a ``carbon audit'' of the tax code. Under this provision, 
Treasury Dept. must contract with the National Academy of Sciences to 
undertake a ``comprehensive review of the Internal Revenue Code to 
identify the types of and specific tax provisions that have the largest 
effects on carbon and other greenhouse gas emissions and to estimate 
the magnitude of those effects.'' Do you know whether the Department 
has initiated this study yet? If not, when do you plan to do so?
    (FYI: we sent a letter, co-signed by Reps. Doggett, Larson, and 
Stark, to then-Treasury Secretary Paulson back in December urging them 
to start and requesting a response. We never heard back. A copy of this 
letter is included.)



    Section 117 of the Energy Improvement and Extension Act of 2008 
(Division B of the Emergency Economic Stabilization Act of 2008) 
requires the Secretary of the Treasury to enter into an agreement with 
the National Academy of Sciences to undertake a carbon audit of the tax 
code and authorizes the appropriation of $1.5 million to carry out this 
requirement. Although authorized, the funds that would enable the 
Treasury Department to enter into an agreement with the National 
Academy of Sciences have not yet been appropriated.

    2. I was pleased to see the comprehensive climate change 
legislation proposed in the President's budget. The summary document 
indicates that the program will be implemented through a cap-and-trade 
system which will include 100% auction to ``ensure that the biggest 
polluters do not enjoy windfall profits,'' and that a majority of the 
auction revenues will be spent on ``investments in a clean energy 
future'' and ``returned to the people.'' Do you have any more details 
on how the administration envisions spending the revenues? In addition 
to the ``Making Work Pay'' tax credit, does the administration envision 
other tax policies to support its greenhouse gas reduction goals?

    The President's clean energy agenda begins with an effort to lower 
the energy costs of American families through the American Recovery and 
Reinvestment Act (ARRA). A variety of tax credits, including credits 
for residential energy efficient investments, will reduce the carbon 
footprint of families and facilitate the transition to a clean energy 
economy while also reducing energy use and thus costs. In addition, the 
weatherization program provided for in ARRA will also lower energy 
bills by improving the energy efficiency of low-income residences.
    The Administration is looking forward to working with key 
stakeholders and the Congress to fully develop a program to reduce 
greenhouse gas emissions approximately 14 percent below 2005 levels by 
2020, and approximately 83 percent below 2005 levels by 2050. The 
program will be implemented through an economy-wide cap and trade 
program in which all emission allowances will be auctioned to ensure 
that the biggest polluters do not enjoy windfall profits. The 
Administration's budget reflects the proceeds from the emission 
allowance auction only to the extent they are reserved for clean energy 
technology initiatives and to compensate families through the Making 
Work Pay Tax Credit. Additional revenues generated from an emission 
allowance auction above those shown in the budget will be used to 
compensate vulnerable households, communities, and businesses for 
increased energy costs. The exact form and amount of compensation will 
be determined as the emission reduction program is developed.

    [Questions for the record, submitted by Mr. Connolly, and 
their responses follow:]

Questions for the Record From Hon. Gerald E. Connolly, a Representative 
   in Congress From the State of Virginia, and Secretary Geithner's 
                               Responses

    1. Under the previous Administration, the initial TARP funding was 
directed to banks and large institutions. With its Housing 
Affordability and Stabilization Plan, does the current Administration 
believe that individual homeowners were underserved by the economic 
recovery efforts of the past?

    All of the initiatives the Administration has introduced under the 
Emergency Economic Stabilization Act (EESA) have had the common goal of 
stabilizing the financial system in order to avoid systemic failures 
and to prevent a deeper recession and further damage to the productive 
capacity of the American economy. Rather than focusing on specific 
constituencies or segments of the population, the Administration has 
laid out a broad strategy designed to address the major challenges 
facing the financial system in order to support the broader economy and 
benefit all Americans. The Administration's housing initiatives address 
one of these major challenges while complementing other Financial 
Stability Plan initiatives focused on strengthening confidence in 
financial institutions, re-starting credit markets, increasing 
liquidity for legacy assets, and developing a modern financial 
regulatory regime.
    The ongoing adjustment in the housing market remains at the center 
of the economic and financial crises. Falling home prices are a major 
financial challenge for many families. At the same time, financial 
losses related to the housing sector adjustment continue to be a 
significant headwind for banks and other financial institutions. 
Foreclosures are particularly problematic because they not only impose 
significant financial and emotional burdens on families; they are also 
costly for communities and neighborhoods. For all these reasons, 
addressing the housing crisis and reducing foreclosures is an important 
objective. We have taken aggressive action to prevent avoidable 
foreclosures with up to $75 billion ($50 billion of which is from TARP 
funding) pledged to the Home Affordable Modification Program and will 
reduce monthly mortgage payments to an affordable and sustainable level 
for as many as 3 to 4 million struggling borrowers. We have also 
introduced a Home Affordable Refinance Program to help as many as 4 to 
5 million borrowers who--through no fault of their own--have suffered 
home price declines that had prevented them from taking advantage of 
today's low rates. We have also taken important steps to strengthen 
confidence in Fannie Mae and Freddie Mac, and alongside the Fed we have 
helped push mortgage rates to historic lows, increasing refinancing 
nationwide.

    2. You recently reported that almost one in five mortgages in the 
country have zero or negative equity. With continuing falling housing 
values, millions more Americans will find themselves underwater unless 
we act on their behalf. In my home district, the 11th of Virginia, 
housing values this past year fell almost 13% in Fairfax County and 32% 
in Prince William County. As you noted in your written testimony, 2.5 
million Americans lost their homes last year. In addition to the over 
10,000 foreclosures in my district, many thousands more homeowners 
currently owe more on their principal mortgage than the value of their 
home. How will the President's Housing Affordability and Stability Plan 
assist homeowners with negative equity, but not currently facing 
foreclosure?

    Falling home values in Fairfax and Prince William counties, as in 
other counties across the country, have made it challenging for 
families to refinance their mortgages or sell their homes. Even 
borrowers with perfect credit who are current on their mortgages may be 
unable to take advantage of historically low interest rates if they 
have insufficient equity in their home. The Making Home Affordable 
Refinancing program is designed to allow borrowers with mortgages owned 
or guaranteed by Fannie Mae or Freddie Mac to refinance even if the 
loan-to-value (LTV) ratio on their first mortgage increases to as high 
as 105%.
    The Administration's housing plan also provides support for 
families who are struggling with their mortgage payments and, because 
home values have dropped, are unable to sell or refinance. The Making 
Home Affordable Modification program can help homeowners with negative 
equity reduce their mortgage payments to affordable levels. There is no 
LTV ceiling to qualify for the modification program, so being 
underwater does not disqualify borrowers from taking advantage of the 
program.
    The Home Affordable Modification Program uses incentives to 
servicers and investors to reduce borrowers' interest rates--or write 
down their principal, if the servicer chooses--to bring down the 
monthly payment to a level the borrower can afford. Additional 
incentives are available to borrowers to help them pay down their 
principal more quickly. The Administration also supports amendments to 
make Hope for Homeowners, a program designed specifically to help 
underwater borrowers, more widely available.

    3. The credit crunch that precipitated the difficulties in the 
financial sector has had troubling effects on municipal governments and 
their ability to issue municipal debt in order to fund critical 
infrastructure programs across the country. While Congress looks for a 
legislative solution to allow municipalities to access credit, do you 
anticipate a role for the Treasury Department in removing the barriers 
to capital?
    Thank you for your time, Secretary Geithner; I look forward to 
working with you and the Administration as we fashion the Fiscal Year 
2010 budget.

    Treasury is currently evaluating developments within the municipal 
market and analyzing potential policy options to address liquidity 
concerns. As part of this process, Treasury continues to maintain an 
ongoing dialogue with various market participants, government entities 
and other experts. Effective policy options should satisfy the 
following broad principles:
    Minimize the burden on U.S. taxpayers;
    Encourage private markets and avoid anti-competitive solutions;
    Preserve market integrity; and
    Increase market liquidity.
    Once this process is completed, Treasury will be better positioned 
to offer possible recommendations for implementation.

    [Questions for the record, submitted by Mr. Langevin, and 
their responses follow:]

 Statement and Questions for the Record From Hon. James R. Langevin, a 
    Representative in Congress From the State of Rhode Island, and 
                     Secretary Geithner's Responses

    Secretary Geithner, thank you for testifying in front of this 
committee today. Each passing day paints a clearer picture of the stark 
economic challenges we currently face--just in my home state of Rhode 
Island, our unemployment is at 10.3 percent, we have seen a sharp 
contraction in manufacturing output, home values remain in decline and 
millions of properties continue into foreclosure nationwide.
    At the center of this crisis are our capital and credit markets, 
which have become virtually paralyzed in the wake of the subprime 
mortgage meltdown. In an attempt to address this, Congress has 
appropriated hundreds of billions of dollars for the Troubled Asset 
Relief Program (TARP) and the Recovery Act. We will now be considering 
a request for an additional $250 billion contingent reserve for further 
financial stabilization in FY10.
    It appears very clear to me that one of the key drivers of our 
economy is small business, as is the case in Rhode Island. And yet the 
media has been dominated by reports of relief to our country's 
financial and manufacturing giants.

                        QUESTIONS FOR THE RECORD

    1. Can you please take this opportunity to specifically outline how 
the tax relief set forth in the budget will impact our nation's small 
businesses?

    The President's Budget proposes several steps that will help small 
businesses.
    Eliminate capital gains taxation on small businesses. The 
President's Budget will provide small business owners with a new zero 
capital gains rate on new investments in their businesses, which should 
help them plan for expansion and succession. Current law provides 
individuals a 50-percent exclusion from tax for capital gains realized 
on the sale of certain small business stock held for more than five 
years. The amount of gain eligible for the exclusion is limited to the 
greater of $10 million or 10 times the taxpayer's basis in the stock. 
For stock issued after February 17, 2009 and before January 1, 2011, 
the exclusion is 75 percent. The Administration proposes to increase 
the exclusion to 100 percent.
    Make permanent the 2010 limits for small business expensing. The 
President's Budget will prevent the small business expensing provision 
(section 179) from returning in 2011 to the levels in effect before 
2003. Instead of reverting to a maximum deduction of $25,000 that 
begins phasing out at $200,000 of total qualifying investment, the 2010 
levels will be made permanent, meaning a deduction of up to $125,000 
and with the phase-out beginning at $500,000 of total qualifying 
investment (indexed for inflation after 2006).
    Extending the current rate structure for families earning less than 
$250,000 after 2010. Most owners of small businesses pay taxes on their 
business income at their individual rate, and thus extending the 
current rate structure for single filers with income below $200,000 and 
for joint filers with income below $250,000 means that over 97 percent 
of small business taxpayers will either receive a tax reduction or see 
no change in their taxes when the rate structure is extended.
    Make permanent the tax credit for research and experimentation. By 
making this credit permanent, the President's Budget will help provide 
more incentives for innovation and increase stability in the tax code.

    2. What percentage of small businesses will see their taxes reduced 
under this plan?

    Most small businesses are organized in ways that the businesses 
themselves don't pay taxes, but the owners do. This is true for sole 
proprietorships, partnership, and S corporations. We estimate that over 
97 percent of small businesses will receive additional tax relief or 
see their rates remain unchanged when the current rate structure for 
families earning less than $250,000 is extended after 2010.

    3. You just recently announced a new ``Financial Stability Plan'' 
to provide up to $1 trillion in financing capacity. While I am sure 
there are many details that still need to be worked out, I am very 
interested in learning more about how this plan will be used to 
leverage financing for small businesses.
    What programmatic steps will be taken and investments made to 
restore liquidity to the frozen secondary credit markets and increase 
SBA lending--particularly within the SBA 7(a) loan program?

    In 2008, the Small Business Administration (SBA) typically 
guaranteed about $18 billion in loans, but this year new lending is 
trending below $10 billion. While some of this decline is due to the 
weakening macroeconomic environment, much of the slowdown in lending is 
due to problems in the secondary market for SBA securities. In the 
past, banks would originate SBA-guaranteed loans to small businesses, 
and then sell a portion of these loans to a broker. The broker would 
then bundle a number of similar loans together into a security, which 
was ultimately sold to investors. This process of securitization was an 
important source of liquidity for banks, and accounted for over 40 
percent of all loans guaranteed by the SBA.
    However, since October 2008, this market has ground to a halt. The 
investor base for these securities has essentially walked away, leading 
to a backlog in credit markets that has had a profound impact on small 
business lending. Given that there are fewer investors willing to 
purchase these securities, banks throughout the country have become 
less willing to originate new small business loans. If banks do not 
believe that they can sell a portion of their SBA loans into the 
secondary market, they are less willing to originate new loans to 
creditworthy small businesses.
    As part of its Financial Stability Plan, the Obama Administration 
has implemented several programs to strengthen our banking system and 
provide financial institutions with the capital and the confidence they 
need to restart lending to businesses and families. But Treasury has 
also taken steps directly targeted towards unlocking credit for small 
businesses:
     Higher Guarantees and Lower Fees for SBA Loans: Treasury 
worked closely with the SBA to ensure that $730 million was included in 
the American Recovery and Reinvestment Act to--among other measures--
temporarily raise guarantees to up to 90 percent in the SBA's 7(a) loan 
program and temporarily reduce SBA fees for eligible loan guarantees. 
The 7(a) program--the SBA's largest--is specifically designed to help 
small businesses who cannot find credit elsewhere access capital by 
guaranteeing loans up to $2 million, and 7(a) loans can be used to 
finance purchases of land, buildings or equipment as well as working 
capital. Higher SBA loan guarantees will ensure that lenders have 
greater safeguards against possible losses, which should encourage 
lending to small businesses. Temporarily eliminating certain SBA loan 
fees--which could save a business owner $31,500 if he or she took out a 
$1 million 7(a) loan with a 90 percent guarantee--will help encourage 
small businesses to borrow, and banks to lend.
     Efforts to Improve the Terms of the TALF for SBA Loans: 
The Term Asset-Backed Securities Loan Facility (TALF) provides 
investors with financing in an effort to stimulate demand for asset-
backed securities--including securities backed by SBA loans--and unlock 
frozen secondary markets. In February, Treasury and the Federal Reserve 
worked together to improve the terms with which the TALF lends against 
SBA securities to make it more attractive to use TALF financing to 
purchase these assets. Coupled with the Treasury's purchase program 
described below, we expect the TALF to encourage private investment in 
SBA securities.
     $15 Billion in Direct Purchases: In an effort to build on 
those earlier steps, Treasury announced its intention in March to make 
up to $15 billion in direct purchases to unlock lending in SBA's 
secondary markets. By doing so, Treasury is providing an assurance to 
banks and other lenders that if they originate a new 7(a) or 504 first-
lien loan, there will be a buyer in the secondary market, which will 
provide them with money they can use to extend more credit to other 
borrowers. This measure works together with the temporary increase to 
up to 90 percent loan guarantees and the temporary elimination of SBA 
loan fees to help encourage banks to lend. These efforts mean that 
lenders will know both that they have greater protection against losses 
during these difficult economic times and that they can securitize 
loans to get new money to lend to more small businesses.
     Call for Banks to Increase Reporting for Small Business 
Lending: Last month, Treasury announced that the 20 largest recipients 
of assistance through our Financial Stability Plan will be required to 
report their small business lending every month. In addition, we called 
for bank supervisors to require all banks nationwide to report their 
small business lending every quarter--rather than simply once a year. 
Together, these changes should make it easier for us to track whether 
or not banks are lending to small businesses, and how well government 
efforts are doing to stimulate this lending.
     Targeted Tax Relief for Small Businesses: As part of the 
Recovery Act, the Obama administration has implemented several tax cuts 
that increase liquidity for small businesses, including a provision 
that allows small businesses to ``carry back'' their losses for up to 
five years instead of two, effectively allowing them a rebate on taxes 
paid in recent years.
    As President Obama said on March 16, these efforts are only part of 
the Administration's plan to improve the flow of credit to small 
businesses. In the coming weeks, we intend to further our efforts to 
ensure creditworthy small businesses can borrow the money they need to 
maintain and expand their operations, and I am open to any ideas from 
Congress as to how we can best accomplish that goal.

    4. How much small business lending is expected to be leveraged 
under these initiatives?

    As noted above, while the SBA has typically guaranteed about $18 
billion in loans in 2008, that figure was trending below $10 billion 
for 2009 prior to the actions taken by the Administration through the 
American Recovery and Reinvestment Act and the Financial Stability 
Plan. In the first quarter of FY2009, lending in the 7(a) program was 
down 57 percent from the previous year. As much as $3 billion in loans 
remains on the books of community banks, preventing them from making 
new loans even to businesses with strong credit histories.
    It is difficult to project exactly how much small business lending 
will be leveraged through our efforts, but our pledge to make up to $15 
billion in direct purchases is an illustration of our commitment to 
stand ready to make any purchases necessary to restart the secondary 
market for SBA loans. As in any recession, we anticipate that demand 
for small business loans will remain somewhat diminished, despite our 
efforts to increase access to credit. However, in the weeks following 
our March 16 announcement, average weekly loan volume for the 7(a) 
program is up more than 20 percent over the period from January 1 to 
mid-March. While we cannot identify an exact figure for increased 
lending for the rest of the year, we do anticipate that the actions we 
take across several different channels will provide banks with the 
confidence to originate significantly more lending than they would have 
otherwise done.

    5. Broadly speaking, when do you anticipate we will start to see an 
impact of the recovery package that Congress passed last month?

    Some parts of the American Recovery and Reinvestment Act (ARRA) 
have already begun to have an effect. For example, starting in early 
April, withholding was reduced to allow the speedy distribution of tax 
relief. The unfolding of recovery programs is being carefully monitored 
and publicized at an easy-to-use government web site, which is updated 
nearly every day (www.recovery.gov). We expect to see noticeable 
benefits from the stimulus program in the second half of 2009, with 
strong growth continuing through 2010 and 2011.
    Among the highlights of recent announcements related to the 
provisions of ARRA:
     Providing State Fiscal Relief: The Department of Health 
and Human Services has made approximately $87 billion available to 
States through increases in the Federal Medical Assistance Percentage 
(FMAP), which defines the percentage rate at which the Federal 
government provides matching funding for most Medicaid and certain 
foster care and adoption assistance expenditures. This change results 
in an increase in the Federal portion (and a corresponding decrease in 
the non-Federal portion) of such expenditures. With respect to 
Medicaid, States to date have drawn down nearly $17 billion of the 
approximately $87 billion in additional Federal funds, which 
contributes to State fiscal relief. States will have until December 
2011 to draw down Federal funds at this higher matching rate.
     The federal government will send out $250 economic 
recovery payments to people who receive Social Security and 
Supplemental Security Income (SSI) benefits beginning in early May 2009 
and continuing throughout the month.
     The U.S. Department of Housing and Urban announced in mid-
March that, subject to HUD approval, public housing authorities can 
begin spending nearly $3 billion to make significant improvements to 
tens of thousands of public housing units nationwide. HUD is informing 
3,122 local housing authorities in all 50 states, the District of 
Columbia, Puerto Rico and the U.S. Virgin Islands that spending can 
begin on a backlog of previously underfunded capital improvement 
projects.
     On April 1st, Secretary of Education Arne Duncan made 
available $44 billion for States and schools under the American 
Recovery and Reinvestment Act (ARRA). These funds will help avert 
teacher layoffs in public schools and tuition increases in public 
colleges, while driving crucial education reforms. On April 13, the 
Secretary released an additional $108.8 million in Recovery Act 
funding.
     Making Work Pay Tax Credit: The Making Work Pay (MWP) Tax 
Credit provides a tax credit for more than 95% of working families--
over 120 million households--in the United States, providing up to $400 
for working individuals and $800 for working households, and increasing 
families' net income by more than $65/month. According to ADP, the 
nation's largest payroll service provider, more than 80% of workers 
paid through ADP received the MWP tax credit in paychecks dated March 1 
or later and essentially all their clients began using the new 
withholding tables by March 6th. During the recovery period, MWP is 
expected to put more than $100 billion into the pockets of hard-working 
Americans.
     Expansion Of The First-Time Homebuyer Tax Credit: On 
February 25, 2009 Treasury announced the expansion of the First-Time 
Homebuyer Tax Credit which allows eligible taxpayers to receive a tax 
credit of up to $8,000 on either their 2008 or 2009 tax returns. Unlike 
with the prior first-time homebuyer credit, individuals do not need to 
pay this credit back. This credit will contribute to stabilizing the 
housing market and is estimated that it will help 1.4 million Americans 
purchase their first home by providing over $6.5 billion in credits. 
Over $3 billion of credits have already been paid out to first-time 
homebuyers.
     Build America Bonds: The Build America Bonds, Qualified 
School Construction Bonds, and Qualified Zone Academy Bonds programs 
are intended to help states and localities pursue needed capital 
projects, such as infrastructure development and public school 
construction. Based on the most recent available data from Bloomberg 
and Treasury calculations, as of July 10, 2009, approximately $14.844 
billion in Build America Bonds had been issued in approximately 159 
bond issues. Some have estimated that over the next year to 18 months, 
between $100 billion and $150 billion may hit the market.

    The hearing is concluded.
    [Whereupon, at 12:38 p.m., the committee was adjourned.]

                                  
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