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



 
                      PRESIDENT'S FISCAL YEAR 2010

                            BUDGET OVERVIEW

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


                                HEARING

                               before the

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

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 3, 2009

                               __________

                            Serial No. 111-3

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts       PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee            ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota           PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California            GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut          GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon              DAVID G. REICHERT, Washington
RON KIND, Wisconsin                  CHARLES W. BOUSTANY, JR., 
BILL PASCRELL, JR., New Jersey       Louisiana
SHELLEY BERKLEY, Nevada              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
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                            C O N T E N T S
                               __________

                                                                   Page

Advisory of February 24, 2009 announcing the hearing.............     2

                                WITNESS

The Honorable Timothy F. Geithner, Secretary, U.S. Department of 
  the Treasury...................................................     5

                       SUBMISSION FOR THE RECORD

Liz Claiborne, statement.........................................    62


                      PRESIDENT'S FISCAL YEAR 2010

                            BUDGET OVERVIEW

                              ----------                              


                         TUESDAY, MARCH 3, 2009

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

    The Committee met, pursuant to notice, at 12:35 p.m., in 
room 1100, Longworth House Office Building, Hon. Charles B. 
Rangel (Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
February 24, 2009
FC-2

               Chairman Rangel Announces a Hearing on the

           President's Fiscal Year 2010 Budget Overview with

                    U.S. Department of the Treasury

                     Secretary Timothy F. Geithner

    House Ways and Means Committee Chairman Charles B. Rangel today 
announced the Committee will hold a hearing on the overview of 
President Obama's budget proposals for fiscal year 2010. The hearing 
will take place on Tuesday, March 3, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 12:30 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be limited to the invited witness, the 
Honorable Timothy F. Geithner, Secretary of the Treasury. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


FOCUS OF THE HEARING:


    On February 26, 2009, President Barack Obama will submit an 
overview of his fiscal year 2010 budget to Congress. The budget 
overview will detail his tax proposals for the coming year, as well as 
provide an overview of the budget for the Treasury Department and other 
activities of the Federal Government. The Treasury plays a key role in 
many areas of the Committee's jurisdiction, including taxes and 
customs.
      
    In announcing the hearing, Chairman Rangel said, ``I believe the 
Administration has gotten off to a promising start. I enjoyed working 
with Secretary Geithner on the economic recovery package and look 
forward to hearing him present an overview of the President's budget. 
This year's budget comes at a time of great concern about the economy 
and presents us with an opportunity to work together to move our fiscal 
policy in new directions and seek bipartisan solutions to the economic 
challenges facing American families.''
      

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2009. Finally, please note that due to the change in House mail policy, 
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    Chairman RANGEL. The Committee on Ways and Means will come 
to order.
    This is a crisis in our country. A historic role for the 
Congress and our Committee, and we are fortunate to have 
someone that has dedicated his life to his country. We welcome 
the Secretary to come here and to share with us the direction 
which he and our President would like to take. We can't promise 
you unanimity, but we can promise you civility as we all are 
concerned, Republican and Democrat, majority and minority, with 
the welfare of our great Nation.
    Because of the restriction on your schedule, I will ask 
formally what I requested of the minority Ranking Member of the 
Committee, whether we would consider reducing the normal amount 
of time for each Member to 3 minutes so that everyone would 
have the best chance that we can to ask their questions.
    Mr. CAMP. Yes, Mr. Chairman, I think that would certainly 
help give us all a chance to have an opportunity to question. 
So, thank you.
    Chairman RANGEL. Thank you. Well, we have a major problem, 
of course, with our economy. The fact that we inherited it 
doesn't mean that we don't have the responsibility to work our 
way out of this.
    It is clear that we are going to be asking some severe 
sacrifice from our constituents, but at the end of the day, we 
would know that we will be making major investments in the 
health of our country, the education of our country, the 
building of our infrastructure. We will try to make certain 
that we do this with a budget that America can understand, that 
certainly would include the cost of national defense, the AMT, 
which we know is not going to go away, the reimbursement of 
doctors, the realistic view of funds that may be necessary as 
it relates to disasters.
    This means some painful decisions have to be made, and some 
have already been made. So we look very closely--we look to 
work very closely with you, Mr. Secretary, because you are 
going to have to give us the confidence to be able to go get 
the votes and have the confidence of the American people.
    So, at this point in time, I would like to yield to the 
ranking minority Member and thank him for the cooperation that 
he has extended in recognizing that a lot of these decisions 
would have to be political, but we will try to make it as easy 
as possible for you to negotiate through the legislation and 
the budget that you will be recommending to us. At this time, I 
yield to Mr. Camp.
    Mr. CAMP. Well, thank you very much, Mr. Chairman. Welcome, 
Mr. Secretary. Mr. Secretary, the President's budget increases 
taxes on every American and does so during a recession. Let me 
also point out that what the President gives in some tax 
relief, he more than takes away in his new energy taxes.
    As the President has said, and you can read on the screens, 
and I quote, ``under his plan of cap and trade system, 
electricity rates would necessarily skyrocket. Coal power 
plants, natural gas, you name it, whatever the plants, where, 
whatever the industry was, they would have to retrofit their 
operations. That will cost money. They will pass that money on 
to consumers.''
    The $0.20 an hour you might get under Make Work Pay would 
barely cover the added $1.60 a gallon that EPA says that gas 
could cost, let alone the potential for an 80 percent jump in 
electricity rates. Of course, both of these pale in comparison 
to the potential jobs losses which the National Association of 
Manufacturers estimates to be in the range of 3 to 4 million. 
That hit would be absolutely devastating to my home State of 
Michigan.
    I am equally concerned that this new tax would have the 
perverse effect of harming our shift to cleaner renewable fuels 
right here in America. To manufacture the energy technologies 
of tomorrow, we need to utilize the abundant and low cost 
energy sources of today. Take, for example, Hemlock 
Semiconductor and Dow Corning, both with facilities in my 
district. One makes the raw materials while the other 
manufactures the initial portion of the next generation of 
solar panels.
    As you can well imagine, I and many in the region are 
supportive of and excited about this new growing venture. 
However critical to their growth and the region's economic 
recovery would be massive sources of energy and clean coal 
would provide that source of energy.
    Now, Mr. Secretary, my concern turns to the viability of 
such projects under your new energy tax proposals. If these 
projects are to be saddled with new regulations and new costs, 
which the President rightly noted would be passed on to 
consumers, how do they get off the ground? How do we grow our 
economy without new energy sources?
    As much as we may wish we could, you can't power a plant 
with solar alone. You can't fly a commercial airliner with wind 
alone. You certainly cannot expect American families to prosper 
under massive new energy costs.
    There is much in this budget I hope we have the chance to 
discuss. Taking a pass on Social Security reform, higher taxes 
on the American energy producers, higher taxes on small 
businesses, higher taxes on investments. But I am most 
interested in hearing your explanation as to how dramatically 
increasing the cost of energy in this country, A, helps 
families, and, B, helps create jobs.
    This and many of your other proposals have failed to ignite 
confidence in the market. In fact, since the President's 
election, the stock market has declined a staggering 28 
percent, $3 trillion. Frankly, Mr. Secretary, that drop has 
decimated the savings, investments, and retirements of millions 
of Americans.
    I sincerely hope we will hear today how you hope to reverse 
that direction and get our economy moving against so that 
Americans can go back to work. With that, I yield back the 
balance of my time. Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Levin is recognized. Well, I assume 
that the Administration's position still was the reduction of 
taxes for 95 percent of the tax base. I assume he still wanted 
climate control. So, I don't know whether there is any real 
differences. You may respond.
    Secretary GEITHNER. Should I proceed with my opening 
statement?
    Chairman RANGEL. Yes, the Secretary is recognized.

STATEMENT OF HON. TIMOTHY F. GEITHNER, SECRETARY, UNITED STATES 
                   DEPARTMENT OF THE TREASURY

    Secretary GEITHNER. Thank you, Mr. Chairman, Ranking Member 
Camp and Members of the Committee. Thank you for giving me the 
chance to appear before you today to discuss the 
Administration's fiscal year 2010 budget. It is an honor to 
appear before you. I look forward to working with you. We have 
much to do for our country and we are going to need to work 
together to make that happen.
    I have submitted a more detailed statement for the record. 
I just want to summarize my statement with a few opening 
remarks.
    Mr. Chairman, we start--we start this debate about the 
budget, we start this Administration and this Congress with a 
deepening recession, an intensifying housing crisis, and a 
financial system under stress. Since the recession began, 3.6 
million Americans have lost their jobs and millions more have 
lost or are at risk of losing their homes. Consumers are 
struggling to obtain loans to purchase the financing of a car 
or a home or higher education and many businesses across the 
country are finding it harder to get credit.
    This crisis, and the policies that preceded it, have helped 
cause a dramatic deterioration in our fiscal position. As a 
country we start--again, we start--with a $1.3 trillion 
deficit. The largest deficit as a share of GDP the Nation has 
faced since the Second World War. As a country today, we face 
extraordinary challenges and these challenges require 
extraordinary action.
    In passing the American Recovery and Reinvestment Act, the 
Congress has put in place a very powerful mix of programs to 
get Americans back to work and to stimulate private investment. 
The combined effect of these investments and tax measures will 
be to save or create between 3 and 4 million jobs and to 
increase GDP in real terms by 3.2 percentage points relative to 
what would have occurred in the absence of had program.
    This legislation--and this is critical--also lays the 
foundation for very important, long overdue investments that 
will make our economy more productive in the future.
    Now, alongside the Recovery Act, the Administration is 
moving 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 the purchase of a home or a 
new car. The deepening recession is putting greater pressure on 
banks, and in response many banks are pulling back on credit. 
So, right now, critical parts of our financial system are 
working against recovery. This is a dangerous dynamic, and to 
arrest it, we need to make sure that our banks have the 
resources necessary to provide credit to our economy and we 
need to act to make sure that we get credit markets working 
again. Where we provide assistance, we need to do so with 
conditions designed to help the taxpayer and to make sure that 
that assistance is going to improve and increase the amount of 
lending above levels that would otherwise happen.
    Finally, the President has launched a broad plan to help 
address the housing crisis. We are moving quickly with a 
comprehensive set of programs to help keep mortgage interest 
rates low, to help millions of Americans refinance, and to help 
make mortgages more affordable again for millions of Americans.
    Now, these actions are absolutely essential to lay the 
foundation for recovery. But President's budget builds on this 
foundation to set us on a path toward long term sustainable 
growth. The budget breaks from the past by honestly and 
transparency presenting the reality of existing policies. By 
making tough choices, it presents a fiscally responsible path 
to cutting our deficit in half in 4 years. At the same time, it 
lays out innovative policies to provide middle class tax 
relief, to reduce health care costs, to promote a clean energy 
economy, and to invest in education for all Americans.
    The first step in addressing our fiscal problems is to be 
honest and candid with the American people about them. This 
budget is straightforward with the American people about the 
challenges we face. We include in the budget the likely future 
cost of foreign wars, about natural disasters, the cost of 
fixing the AMT each year, reimbursement for Medicare 
physicians, and the potential need--the potential need for more 
resources to address this financial crisis. We offer a 10-year 
rather than a 5-year budget presentation.
    This proposal lays out some carefully designed but very 
substantial changes to policy to address our most critical 
long-term challenges in the areas of health care, energy, and 
education. We make these commitments within a framework that 
puts us on a path to fiscal responsibility and fiscal 
sustainability.
    The soaring cost of health care presents a crippling burden 
for families and businesses and our long-term fiscal path. Our 
budget begins the process of major reform by lowering cost, 
improving quality, and expanding access. Just to give one 
example, the hospital quality improvement program proposes to 
pay for performance and reimburse hospitals for the quality 
services they provide rather than merely the quantity of 
services they provide.
    There is no path to addressing our long-term entitlement 
challenge, our long-term fiscal problems, that does not begin 
with major health care reform. Any effort to simply reduce the 
growth of Medicare and Medicaid without holding down the growth 
of the overall system would lead to a two-tiered health care 
system in which the poor and elderly receive lower quality care 
than private patients. We need health care reform that moves to 
affordable coverage to all, increasing quality and prevention, 
and reducing cost inefficiencies. This is a moral imperative, 
an economic imperative, and a fiscal imperative for the 
country.
    Now, this budget also puts forth a significant commitment 
to reduce our dependence on uncertain supplies of foreign oil 
and carbon intensive energy, a dependence that threatens our 
economy, our environment, and our national security interests. 
Investments in energy efficiency and renewable energy will 
create new American jobs and industries and lay the way to a 
new green economy.
    If we are truly committed to an economic policy that will 
make our Nation both more prosperous and more just, we cannot 
shortchange our commitment on education. It defies our basic 
values and our economic common sense to deny any child the 
quality preschool, the quality teachers, and the quality higher 
education they need to compete in this 21st century global 
economy.
    Mr. Chairman, these are causes you have fought for your 
entire public life and they are issues that our budget 
champions as well. The budget calls for more resources for 
early childhood education, new incentives for teacher 
performance, and a significant increase in the Pell grant, 
together with the President's American Opportunity Tax Credit, 
which provides up to $10,000 of tax relief for a single student 
going to 4 years of college.
    On the tax side, this budget targets tax relief at middle 
class families that have lost ground during the last 8 years. 
We reward work through Making Work Pay tax credit for 95 
percent of working Americans and the expansion of the Earned 
Income Tax Credit. An expanded savers credit, an automatic IRA 
and 401(k) provisions, help promote savings and rebuild wealth. 
Other tax cuts are also pro growth, including a zero capital 
gains tax provision for small businesses, a permanent expansion 
of the R&E tax credit, and most of all these changes are paid 
for with other savings in the budget to ensure fiscal 
responsibility.
    This budget also seeks to close the tax gap by tackling tax 
shelters and other efforts to abuse our tax laws, including on 
the international front. Over the next several months, the 
President will propose a series of legislative and enforcement 
actions 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. At that point, when the consensus of private 
forecasters projects significantly positive growth rates for 
the economy, the budget restores tax rates to the pre-2001 tax 
rates for families making more than a quarter of a million 
dollars.
    Even with the critical long-term investments in health 
care, energy and education, proposed in the budget, overall, 
nondefense discretionary spending in this budget will fall to 
levels well below its long-term average as a share of the 
economy. The overall amount of government outlays as a share of 
the economy rise only slightly above the long run average once 
you account for the interest cost associated with our inherited 
deficits and the impact of the aging of the baby boom 
generation on entitlement costs, and of course, the health care 
costs that are burdening the economy as a whole.
    The President and the entire Administration share a 
commitment to fiscal responsibility, and we look forward to 
working with you, Mr. Chairman, and your colleagues to confront 
the dramatically difficult fiscal challenges that lie ahead. We 
must remain committed to a fiscally responsible path over the 
longer term. Investing in health care, energy, education, and a 
fairer Tax Code will help generate a stronger economy over the 
longer term, but we have to make those investments in a 
framework that brings us back to the point where we are living 
within our means as a Nation.
    A critical part of laying the foundation for economic 
recovery is a clear commitment now that, when recovery is 
firmly established, we bring the deficits down to the point 
where they are sustainable. The budget does this by making the 
tough choices to reduce the deficit down sharply to the point 
where 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, causing higher 
investments and weaker growth. When I last served in the 
Treasury Department in the nineties, fiscal responsibility 
helped create a virtuous cycle of greater confidence, strong 
private investments, strong productivity gains, higher overall 
growth and income gains for the broader American economy.
    Now, the problems that confront our Nation are daunting, 
but we are a strong and resilient country. We have faced these 
challenges in the past and we will confront them effectively. 
This will not be easy but we have a great responsibility to the 
American people to work together to confront these challenges.
    Thank you. I would be happy to answer your questions.
    Chairman RANGEL. Thank you, Mr. Secretary.
    [The prepared statement of Secretary Geithner follows:]

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    Chairman RANGEL. I am very anxious to find out at this 
hearing and subsequent hearings as to what the differences will 
be as we approach this very serious economic crisis. I don't 
know whether an alternative has been presented to you by the 
minority. I am under the impression that most all economists 
agree that we have to do something to stimulate the economy. No 
one can challenge the fact that we are taking the education of 
America--the access to education to a historic high. That no 
one can challenge the fact that a healthy America through 
universal health insurance means a more productive America. 
When we find those who know best about our National security, 
we will have tremendous savings there.
    Everyone says that you should not increase taxes during a 
time of recession, so we move into 95 percent of taxpayers who 
would have it reduced.
    Climate control. I don't think the President has made a 
commitment as to how we are going to distribute the equity in 
terms of the cost that it is going to take, but I know that is 
something that we all have to be working together on.
    Of course, the whole concept of a green society and new 
jobs and new scientific research projects is something that is 
going to make this a better and stronger country.
    Recognizing that there will be pain felt by other people, 
could you kind of just share with me what appears to be the 
biggest complaint that is made by those people who are not 
completely supportive of the direction in which the President 
is taking us? Because with most of the complaints that people 
have at a time of what has to be done, you don't find unanimity 
in terms of the end goal.
    So, could you share with us what we would have to overcome 
in order to reach the President's goal?
    Secretary GEITHNER. Mr. Chairman, I think that what the 
economy requires, what the American people demand, is that we 
move as aggressively as we can to get growth back on track. 
That at the same time, we lay the foundation for these critical 
investments in improving education outcomes, laying the 
foundation for a greener economy, and addressing the health 
care crisis in the country, which is again presenting a 
crippling burden on American business.
    You know, as a country, we spend almost twice what other 
major economies spend on health care and we do so in ways that 
still does not deliver the kind of high quality health care to 
the average American that our people deserve.
    These things are critically important to our economic 
future. I don't believe that we have any alternative as a 
country except to make those investments and to do so as 
carefully and quickly as we can.
    That is not enough. We also have to demonstrate to the 
American people, given the size of the deficits that we start 
with and we inherited, that we are going to work with the 
Congress to put our country back on a fiscally sustainable 
path. We have laid out a very ambitious set of targets that 
once recovery is firmly established, we are going to bring 
those deficits down and that is very important to do. You have 
seen the benefits of what those policies did in the nineties 
and you can understand and imagine the cost for our country if 
we do not do that.
    The alternative would be we would face higher interest rate 
costs and a greater burden on growth going forward. So, I 
believe this is the right package for the country. It is 
critically important to do and challenging to do, hard to do, 
and we have to do it together with the Congress. But I am 
confident, Mr. Chairman, that this is the right path for the 
country.
    Chairman RANGEL. Thank you. Mr. Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman.
    Mr. Secretary, President Obama stood before the Congress 
and said that his budget won't raise taxes on anyone who makes 
less than $250,000 a year, but the budget before us assumes 
large amounts of money from cap and trade, or as we learned 
last week in this Committee, tax and trade. That means higher 
prices for Americans for food, for gas, for electricity and in 
a State like Michigan, for home heating, pretty much anything 
that they buy.
    Won't that hit more than the top 2 percent of taxpayers? My 
question is what Americans won't end up paying more for 
virtually every item, they purchase because of this higher tax 
on energy?
    Secretary GEITHNER. Congressman, thank you for raising 
those questions and I want a chance to respond, and also to 
what you said in your opening statement, because this is very 
important. The overwhelming priority for the country today--and 
this is what the Recovery Act does--is to get people back to 
work and stimulate private investment. The Recovery Act does 
that by reducing in a very substantial way, the overall tax 
burden on the American economy as we go through this recession. 
That is good economic policy. It is necessary economic policy. 
There is broad-based support for doing that. During this 
period, while we are still going through a recession before 
recovery comes, we do not raise any taxes.
    Now, in the budget, the President proposes to make 
permanent tax reductions that would benefit 95 percent of 
working Americans and the overwhelming majority of small 
businessowners, people who receive small business income. It 
also includes very, very substantial benefits in terms of 
reducing health care costs that will be very important to 
businesses across the country improving long term growth rates.
    Now, it is also important that we move to reduce our 
dependence on foreign oil and that requires that we do things 
to change the incentives our country faces and how we use 
energy. The resources generated by that program, that cap and 
trade program, will be directed to paying for this commitment 
to Make Work Pay to provide additional support to facilitate 
the transition to cleaner energy sources. If there are 
additional resources we will compensate to offset the cost for 
people who might be most affected by that.
    Now, if people don't change how they use energy, then they 
will face higher costs for energy. But there is no way to try 
to get us on a path to energy independence and address the 
critical problems without changing the incentives that are----
    Mr. CAMP. I appreciate that and time is so short, and I am 
almost out of it. The concern is, I think you mentioned that 
this Make Work Pay tax relief would offset the costs. The 
problem is, a lot of people don't get Make Work Pay. If you are 
unemployed, you don't qualify. If you are a student you don't 
qualify. If you are a retiree or a family earning more than 
$190,000 a year, you don't qualify. The problem is $0.20 an 
hour will not offset the higher costs of energy in this 
proposal.
    I realize my time has expired. I am very concerned about 
the proposal and its impact on charities that limits the 
itemized deduction. We are in a recession and taxing the top 2 
percent, which is what you are trying to do by limiting this 
deduction, actually hurts those most in need. Those who rely on 
philanthropy, on food banks, the Red Cross, on Salvation Army. 
So, I would ask that you reexamine that proposal. Thank you.
    Secretary GEITHNER. Mr. Chairman, can I respond briefly on 
those two points? They are very important issues raised and I 
would like to clarify in this case. Let me start with the 
charitable contribution that you referred to.
    What the President is proposing is beginning in 2011 as 
part of an effort to make sure that we do health care reform in 
a fiscally responsible way, that we would reduce the tax 
deductibility of charitable contributions for--and this would 
only affect 1.2 percent of taxpaying Americans, and those 
Americans account for a modest fraction of charitable 
contributions, and we are only restoring those rates to the 
level that prevailed at the end of the Reagan Administration.
    The combined effect of this change in the President's 
budget will be substantially beneficial, not just the sake of 
local governments, but to businesses across the country and to 
universities and to nonprofits. Very important to look in that 
context.
    The typical American only gets to deduct 15 percent. We are 
reducing that rate to 28 percent. We think that is fair. Again, 
this is as part of a comprehensive health care program that we 
want to work with the Congress to design that we are paying for 
a fiscally responsible way.
    Mr. CAMP. Far more than the top 2 percent rely on those 
charities for their help and support.
    Secretary GEITHNER. But this provisions only affects a very 
small fraction of Americans, 1.2 percent is the estimate given 
us by independent----
    Mr. CAMP. The phaseout of the deduction, yes. But the 
actual contribution to the charity which will be hurt by that 
tax proposal will affect those at the lowest end of the 
economic ladder.
    Secretary GEITHNER. Only if they change their behavior in 
response to this provision. The evidence is mixed as to whether 
they would do that. The biggest impact we could have on 
charitable contributions is by getting this economy back on 
track and addressing the long-term challenges.
    Just one more thing, Mr. Chairman, back to where Mr. Camp 
began on cap and trade. The President's proposal is to take 
these resources and use them to finance making permanent a tax 
reduction that will benefit 95 percent of working Americans. 
That is the critical fact. Additional resources will go to help 
facilitate this transition to clean energy. If there are 
additional resources raised, they will be directed to those 
people who are most affected by the potential increase in their 
costs. But you can't address the problems of climate change or 
dependence on foreign oil without changing the incentives 
people face for how they use energy.
    Chairman RANGEL. The Chair recognizes Mr. Levin from the 
troubled City of Detroit.
    Mr. LEVIN. Thank you. Mr. Secretary, let me ask you two 
questions that I would like you to answer based on your years, 
really a couple of decades with experience with economic fiscal 
and monetary issues. One relates to carried interest. You 
comment on this in your testimony. You say by closing this 
carried interest provision, the Tax Code will provide equal tax 
treatment for wages regardless of whether or not an individual 
works as teacher or as a fund manager.
    Secondly, if you would comment on the enormity of the 
economic challenge that you have faced coming into the Treasury 
Department.
    Secretary GEITHNER. Thank you Congressman. On the first 
issue, the President's budget proposes to treat income that 
Members of partnerships get in payment for services provided to 
the partnership the same way they are treating ordinary income. 
We propose to do that for all partnerships. That is a fair 
thing to do. I think the American people understand why that is 
fair and it restores a basic imbalance in our current system in 
a way that helps us meet in a fiscally responsible way these 
deep long-term challenges we face. So, I think it is good 
policy and we very much hope that will become law.
    We began, as I said, with a recession that is deeper and 
broader globally than we have seen in generations. What has 
happened in the United States today, which you see in the loss 
of jobs and businesses struggling across the country, you are 
seeing really around the world. This crisis is powerful in part 
because it comes after a long period in which you had a huge 
boom in credit, people taking risks they didn't understand, 
people borrowing more than they could afford, governments 
borrowing beyond their means, and that was unsustainable. We 
are seeing the other side as an adjustment to that long period 
of excess growth and leverage.
    That was a product of many failures in policy and 
oversight. We are going to have to bring about very 
comprehensive reform of our financial system, here and around 
the world, to prevent this from ever happening again. But you 
need to look at everything we are doing through the prism of 
the magnitude of the economic challenge we start with. Because 
if as a country we don't move aggressively to get people back 
to work and provide support for demand in growth, then we are 
going to be living with a longer deeper recession that will 
cause much more damage to the American people.
    The President's judgment, based on the lesson of watching 
countries deal with crisis in the past, that unless we move 
aggressively, the cost of the crisis will be much more 
damaging. So, the choice we are making, and it is the fiscally 
responsible choice, not the just the economically sensible 
choice, is to provide substantial support for demand, fix the 
economy, fix the financial system, get credit flowing again. 
Because to not do so would live us with a longer deeper 
recession with much greater cost to the American people.
    It makes everything we are trying to do much harder, but we 
have no choice as a country but to try to work through this. We 
want to make sure that the American people understand that we 
are going to keep after this, we are going to keep at it until 
we can fix it, until we lay a foundation for not just recovery, 
but an economy that is going to be stronger in the future.
    Chairman RANGEL. Thank you. The Chair recognizes Mr. Herger 
from California.
    Mr. HERGER. Thank you, Mr. Chairman. Mr. Secretary, I have 
been examining this document and I must confess I am very 
troubled by what I see. While I would like nothing more than to 
work with you and the President to put our country back on the 
path to fiscal responsibility, when I look at this budget, I 
see a net tax increase of about $1.4 trillion, a tax increase 
that will full especially hard on job-creating small businesses 
and charitable organizations. But in spite of this tax 
increase, this budget also manages to increase the debt held by 
the public by $7 trillion over the next 10 years. That comes 
out to some $60,000 per household. It is as if we had bought 
every family in America a brandnew luxury car fully loaded, but 
completely unpaid for. It seems to me that this kind of 
overspending is exactly what got us into this financial mess.
    My question is where is this money going to come from? Does 
the global economy have the capacity to absorb this much 
additional government debt and is China going to be able to 
keep buying our debt at this rate?
    Secretary GEITHNER. Thank you, Congressman. Let me start 
out by pointing out that the deficit that we start with, which 
is a product of the policies of the last many years and is the 
product of this deepening recession, leaves us with a $1.2 
trillion deficit. Now to fix this crisis, to address it, to 
arrest the decline in the economy as a whole, Congress has 
decided already to provide substantial stimulus to the economy 
and provide substantial resources to fix the inherited problems 
in the financial system.
    Those are what produced this temporary increase in the 
deficit. That is absolutely necessary to solve this crisis. 
There is no alternative. As Congress has already realized, it 
has to act quickly to address the recession, mitigate the 
recession with substantial support from the government.
    Now what this budget does is commit to bring those deficits 
down to a level that is sustainable, in a way that is fiscally 
responsible, in a ways that does not pose undue burdens on the 
American people.
    It is very important to point out that 93 percent--97 
percent of small businesses have incomes below $250,000. The 
tax provisions in this budget will reduce taxes on 95 percent 
of working Americans. The only parts of the economy that see an 
increase in the marginal tax rates are those at the very 
highest end and there we are just restoring to the levels that 
prevailed in 2001 and only after recovery is firmly 
established.
    This is a remarkably fiscally responsible budget. I don't 
think you have seen a budget this fiscally responsible in a 
very long time.
    If we were not able to do this, to commit to get us down, 
then as a country, we would face the prospect of higher 
interest rate cost, lower investment, lower growth in the 
future. That you are absolutely right. We have no choice as a 
country that as we try to address the recession that we make 
people confident, both here and around the world, that we will 
have the will and the ability to bring these deficits down.
    But this is a very pro-growth budget. It is very favorable 
to small businesses across the country. It is very favorable to 
the average working American. It makes very important 
investments in things that we have not been investing in over 
the last decade and at great substantial cost to our economy.
    The alternative path for us which is to sit back, hope this 
crisis burns itself out, would mean a much deeper recession 
with much greater damage to American businesses and families, 
with much greater fiscal damage to our economies leaving us 
with much greater deficits in the future. The judgment we are 
making--and it is absolutely the right judgment--is that as a 
country, given where we started, we have no choice but to move 
aggressively on these fronts. We are trying to do so in a way 
that is as fiscally careful and responsible and is going to 
leave our economy stronger, not weaker, in the future.
    Mr. HERGER. Mr. Secretary, I respectfully disagree with 
you. But my question is where is this money going to come from? 
Is China going to be able to continue with a bad economy to 
continue investing in us as they have in the past?
    Secretary GEITHNER. Congressman, the best way to for us to 
sustain confidence in our country is to act to solve these 
immediate problems we inherited and to try to get the economy 
back on the path to sustainable growth going forward.
    Now, that is a necessary condition. It is not sufficient. 
As we do it, we also have to commit to bring these deficits 
down in the future. If we do those things together, we are 
going to be able to sustain confidence in the American economy 
and the American financial system. The alternative path as I 
said--for us to stand back and hope this resolves itself--would 
leave us with a deeper recession, higher deficits, higher debt, 
and much greater risk of long-term cost to our economy and the 
capacity to grow as a country.
    Mr. HERGER. I don't think anybody is recommending that we 
do nothing.
    Chairman RANGEL. Mr. McDermott.
    Mr. MCDERMOTT. Mr. Secretary, as I look at you, you remind 
me of a dilemma of a battlefield medic who finds a patient in 
the field bleeding from a variety of sources. He starts a 
transfusion, $700 billion, into the problem, but it continues 
to bleed. What I don't understand is what is preventing you 
from taking him back to the hospital, nationalizing the banks 
as the Swedish did, and deal with some things like shared 
appreciation mortgages.
    That issue has been laying there for 25 years with 
uncertain tax consequences. Banks could use it to work out 
loans with various people who have gotten in trouble whose 
loans are under water. But the tax consequences have been on 
the no-ruling list for 25 years so they don't know how to do 
it.
    So, I am asking you why don't you use the more powerful 
instruments of the Federal Government to force the lending? I 
mean, we can continue to give money to banks but it if they 
say, well, I haven't got enough capital yet, then they are not 
going to lend. So, I would like to hear you talk about that.
    Secretary GEITHNER. Thank you. You are absolutely right 
that fixing the financial system so that credit flows again is 
really important for our economy. If we don't do that then the 
big, powerful impact of the Recovery Act is going to be limited 
and we will be living with a deeper more protracted recession. 
It is very important that we do this and do it aggressively in 
a way that will improve the amount credit available to the 
economy, and that is what we are doing.
    We are doing it through two very important strategies. The 
first is to try to make sure that banks who need capital are 
going to have access to capital.
    Mr. MCDERMOTT. But who decides when they have enough to 
lend?
    Secretary GEITHNER. That is a combination of judgments that 
are complicated to make. But the key thing is to make sure they 
have enough so they can lend. Now, when we do that we don't do 
it for the benefit of the banks. We are not doing to because we 
want to give assistance to the banks. We are doing it because 
the people who depend on banks, small businesses and families 
across the country, need access to credit in order to expand 
and grow and finance their dreams.
    Mr. MCDERMOTT. Or keep the doors open.
    Secretary GEITHNER. Exactly. Exactly. But you have to do it 
in part by making sure that banks have enough capital to lend. 
Our country, we have a remarkably diverse financial system. We 
have 9,000 banks, large parts of our financial system were not 
part of the problem and they are going to be part of the 
solution and they will be expanding and growing in this 
context. But parts of the system are going to need some 
temporary assistance on tough conditions. We are going to 
provide that assistance in ways that provide greater 
transparency and accountability to the American people, on 
tough conditions designed to make sure that that assistance 
increases lending and doesn't go to benefit shareholders or to 
senior executives, and that leaves these institutions stronger, 
not weaker. We are going to do that in ways that we think have 
the best benefits to the economy as a whole at the least cost 
to the American taxpayer.
    But that is not enough. We announced today a very important 
program to provide direct support to help get the credit 
markets working again for small businesses, for student loan 
markets, for auto financing markets. In our system, banks are 
important, but typically, 40 percent of lending comes through 
the securitization markets and those markets are not 
functioning well. So, we are going around banks also by doing 
something only that government can do, which is on appropriate 
terms to protect the taxpayer try to get those credit markets 
opening up again.
    Now, on the housing context quickly, the President's plan 
on housing is a very powerful package of measures to help keep 
interests rates low, mortgage rates low for everyone; to make 
sure that people can refinance--take advantage of those lower 
rates; and to help lower mortgage payments through a 
combination of interest and principal reductions for citizens 
who can afford to stay in their home if they are allowed to 
restructure.
    That I believe brings together the best ideas in the 
country to solve this crisis. You are referring to a very 
interesting idea, which may be a necessary part of any long-
term reform to the mortgage market. I would be happy to come 
and talk to you and your staff about that specific provision. 
But I think the President's plan is a very powerful plan.
    Mr. MCDERMOTT. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Johnson of Texas.
    Mr. JOHNSON. Thank you, Mr. Chairman. Mr. Secretary, the 
President's proposed a new mandate on every business in America 
that employers will be mandated to set up 401(k) accounts or 
automatic IRAs. The Pension Protection Act permitted employers 
to do that and I was a big supporter of that provision. 
However, it was a far cry from mandating that every small 
business in America create account for their employees, take 
money out of their paychecks, and then put the money into a 
stock market that is in decline.
    I can only imagine how angry they will be when they find 
out their employer has taken money out of their paychecks and 
they have lost money. This new mandate is being proposed at a 
time when many employers have existing 401(k) plans and are no 
longer making matching contributions because they can't afford 
to.
    Finally, page 37 of the budget document mentions that this 
new mandate on employers lays the groundwork for future 
establishment of a system of automatic workplace pensions on 
top of and clearly outside of Social Security.
    So, you are planning another mandate on employers and 
employees on top of the 12.4 percent that Americans are already 
mandated to set aside in the Social Security program, when that 
program now is not able to fund the promises made. These are 
new taxes and a further reduction in take-home pay. A citizen 
tax, a new citizen tax. Could you address that problem?
    Secretary GEITHNER. Thank you, Congressman. Let me start 
out by saying how important it is that all Americans have the 
opportunity to save for retirement in the way that you would 
typically have if you worked for most of the majority of 
companies across the country.
    Mr. JOHNSON. But you don't mandate it.
    Secretary GEITHNER. But the administrative costs in 
compliance are modest. We think it is good economic policy. We 
think it is fair because it gives the average working American 
a benefit that many typical Americans have. We think it is a 
responsible thing to do at this time.
    Now, it is very important that we look for ways to 
responsibly use the Tax Cost Code to encourage savings and 
investment. That is a important challenge. We think this is 
consistent with that. That is an objective that many people 
share across the aisle. I think a broad cross section of 
economists believe this is good economic policy in this 
context. The specific burden of administratively complying with 
this we think is a relatively modest burden.
    Mr. JOHNSON. Well, it should be voluntary. You force people 
to put money into a stock market that is flopping around----
    Secretary GEITHNER. This doesn't force people to put money 
in the stock market. It gives them the opportunity to save for 
retirement in the same way that many Americans have the 
opportunity to do. Where that money is invested is a choice 
they make and they can make in the context of the advice of 
their investment professional. It the doesn't require them to 
put money in the stock market.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes that the 2 minutes is 
very awkward, but I want to let the minority and majority know 
that the Secretary has agreed to meet with us in more informal 
type of setting where the Members would have the opportunity to 
ask intelligent questions and get adequate responses. In 
connection with that, since the Secretary has a sharp 
limitation on his time today, we will also--with the consent of 
Mr. Camp--have the Democrats double up because of the 
differences in numbers of people that are here today.
    So, the Chair will recognize Mr. Lewis of Georgia.
    Mr. LEWIS. Thank you very much, Mr. Chairman. Thank you 
very much Mr. Secretary for being here today.
    Mr. Secretary, the tax policies of the last Administration 
led to extreme income inequality. I am very proud to see that 
you and the President with this budget are trying to restore 
some equity and balance to our Tax Code. It is making the Tax 
Code more fair. By repealing the tax breaks for the wealthiest 
among us we will now be able to target tax relief for the 
working family. Was this your intent?
    Secretary GEITHNER. Absolutely. A critical objective of the 
President is to bring more fairness and balance to our Tax 
Code. That is why the budget proposes reducing the overall tax 
burden on 95 percent of working Americans and a range of other 
benefits for people that are at the lowest end and face the 
most challenging lives in our country.
    It is an important objective and we think it is critical to 
improving overall confidence in the policies of our country and 
allowing us to try to address these long term increases and 
inequalities that have been so damaging to confidence in 
frankly the American dream.
    Mr. LEWIS. Mr. Secretary, can you tell us if you really 
know, why does the President believes that this is so 
important? Does he really feel that this is important?
    Secretary GEITHNER. Yes. I would say--and of course, you 
have heard this from him directly--that this is a deep moral 
imperative to make our society more just. But it is very good 
economic policy too. Because it will mean that there is, again, 
a fair, more equitably shared tax burden on the vast majority 
of Americans and will allow us to help us pay for, in a 
fiscally responsible way, these very important improvements in 
education reform, to reduce health care costs, and put us on 
the path of energy independence. It is that mix of policies 
that we believe will make our Nation stronger, not just more 
just.
    Mr. LEWIS. Mr. Secretary, long before these economic 
difficulties, so many of citizens had been left out and left 
far behind. Is there some way even during these difficult times 
to help to intervene for those who have been on the edge for a 
long time?
    Secretary GEITHNER. Absolutely, and you have seen in the 
Recovery Act that the Congress passed and you helped shape--and 
you did important work early on to shape this bill--a very, 
very, substantial set of benefits targeted to those Americans 
who face the most challenging immediate future. Both in the tax 
provisions, both in what you see in terms of direct aid. There 
are very, very substantial benefits in there. Those are 
sustained for a period that we believe will extend beyond the 
point of the recession.
    So, this is a very powerful package of support not just for 
the economy as a whole and the American people, but targeted to 
those people who are most at risk. In fact, they are most 
likely to benefit from the tax changes and financial incentives 
that the budget provides.
    Mr. LEWIS. Thank you very much, Mr. Secretary.
    Chairman RANGEL. Thank you. In order to bring some balance 
to this, the Chairman recognizes Mr. Neal of Massachusetts.
    Mr. NEAL. Thank you very much, Mr. Chairman. Mr. Secretary. 
Mr. Secretary, compliments on the Auto-IRA. It is a good 
concept. It is my bill. I am working with the Administration. 
It was based on that proposal, and a reminder: That legislation 
has been endorsed by the Heritage Foundation.
    To talk about bipartisanship, a Massachusetts Democrat and 
the Heritage Foundation, it is a winner.
    Mr. Secretary, a decade ago I submitted legislation, a 
series of bills, in fact, on the use of derivatives, calling 
for greater transparency, more regulation, greater clarity. 
They have, I think all would agree, put us in a very 
disadvantaged position as it relates to our economy, AIG being 
the case in point.
    I held a hearing last year for my Subcommittee, asked the 
Treasury for some guidance on how to go forward, particularly 
on credit default swaps, and despite that request for comments 
dating back to 2004, I haven't had any additional information.
    At a minimum, we need some clarity on the proper tax 
treatment of those instruments, and I would encourage you to 
make that a priority item in tax policy as you move forward. I 
think, had we been more aggressive on that front in the past, 
that we certainly wouldn't be looking at the problems that AIG 
has today.
    I would, maybe, have a quick response from you, because I 
do have another question I want to raise as well.
    Secretary GEITHNER. You were prescient then and I think you 
are absolutely right today. I think that, as part of what we do 
to put in place comprehensive financial reform, we are going to 
have to make sure there is strong, sophisticated, tough 
oversight over all parts of the financial system that pose this 
kind of systemic risk to the economy.
    We did not have that going into this crisis. It made the 
crisis much worse. It is a critical thing.
    We also need to make sure we are bringing a level of 
oversight to these markets, including derivatives that are so 
critical to market functioning. I have spent a huge part of my 
recent professional life trying to improve the basic 
infrastructure that supports those markets to make them safer 
and more stable. But we have more to do in this front--look 
forward to working with you on this area.
    Finally, one more thing is that we also need to make sure 
we have better capacity for dealing with and preventing--not 
just preventing, but dealing with potential failures of these 
large, complex financial institutions--better to prevent them 
from ever happening in the beginning, but we need to, as a 
country, make sure we have better tools to manage these things.
    These will be the critical components of the financial 
reform agenda we bring to the Congress.
    Mr. NEAL. Mr. Secretary, domestic reinsurance: I filed 
legislation time and again to deny deductions for excessive 
offshore reinsurance, that is, reinsurance that exceeds the 
industry norm. It is similar to earnings stripping, already in 
the Code.
    Now, this legislation has broad support from the domestic 
reinsurance industry. They feel that by keeping an American 
address, they are at a distinct disadvantage in terms of 
competition. This issue from time to time has raised its head 
around here, and I hope the Administration is true to the 
budgetary outline that you have offered to do something about 
cracking down on international tax avoidance.
    Secretary GEITHNER. You are absolutely right. There is a 
whole range of areas where we are going to have to do a better 
job at addressing international tax avoidance. You saw in the 
budget a commitment to come to the Congress with a 
comprehensive set of proposals.
    We are going to need to work with other countries, too, 
which the President is committed to do.
    Mr. NEAL. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    Chairman RANGEL. The Chairman recognizes the gentleman from 
Texas, Mr. Brady.
    Mr. BRADY. Welcome, Mr. Secretary.
    I applaud the President's effort to submit an honest budget 
and a fiscally responsible budget, but when you look closely, 
it doesn't appear to fit the bill on either of those cases. At 
the heart of this bill are the economic assumptions, what will 
our economy do over the next few years? Yet when I look at the 
assumptions that are included in the budget, they are 
unrealistic and overly optimistic and, I think, hide the true 
deficits and debts to come. In fact, my worry is, looking at 
this, it looks like--and not you--it looks like someone is 
cooking the books to hide a $2 trillion deficit for this year 
and much higher deficits in the future.
    The Congressional Budget Office believes your estimate is 
dramatically low. Chairman of the Fed, Ben Bernanke, his 
estimate is much higher than this. Blue chip consensus is much 
higher.
    Is there a--do you know of a single economist who believes 
that we will contract only 1 percent this year?
    Secretary GEITHNER. Congressman, thank you so much for 
raising this point. It is very important.
    The Administration's forecast is within the range of CBO's 
poststimulus forecast; it is within the range of the full range 
of private forecasters out there. Now, it is true that in some 
ways it does predict a somewhat more rapid recovery than some 
private forecasters predict. That is because we are committed 
to and we are confident that the recovery act and the range of 
other measures we are going to take to address this crisis are 
going to be effective.
    Now, the critical thing that matters for the long-term 
fiscal path is the long-term assumptions about long-term growth 
rates. Those assumptions are absolutely within and at the 
closer-to-the-center of long-term private forecasts.
    So, I believe this is a realistic forecast and within the 
range of----
    Mr. BRADY. Mr. Secretary, Mr. Secretary, if you look at 
what Chairman Bernanke said just last week, 2 percent 
contraction this year, 2 percent growth next year, you are 
nowhere near those numbers. If you look at CBO's numbers, 
neither that. In truth, the basis of your 5-year deficit are 
these near numbers, not the outlying 8-, 9-, 10-year numbers.
    So, there is--again I will come back to, is there an 
economist we can look to who says we are only going to contract 
1 percent this year? Because with that basis, I clearly think 
we are going to a $2 trillion deficit this year alone.
    Secretary GEITHNER. Congressman, as I said, the 
President's--the forecast that underpins this budget, which is 
a carefully designed forecast, designed to be realistic, is 
within the range of CBO's estimates and the range of private 
forecast estimates out there.
    Now, you are right that what our economy is going through 
is a deepening recession. That is where we started from. Our 
central obligation to the American people is to try to make 
sure we are moving quickly to help arrest that process. As I 
said, because these deficits are large that we are starting 
with, we are also going to have to make sure we convince them 
that we are going to have the will and the ability to bring 
these deficits down over time.
    But this is a realistic forecast. We will have the chance 
to reflect on it when we do our normal--through the normal 
calendar forecasts. We will be very careful to make sure that 
we are looking at this with a cold, hard set of eyes. Again, we 
are within the range of not just CBO's ranges, but the private 
forecasters out there.
    Mr. BRADY. I beg to differ. It is nowhere close.
    In April, when Director Orszag brings back the fleshed-out 
budget, will he have more accurate economic numbers?
    Secretary GEITHNER. Congressman, we will make sure that the 
forecast that underpins our budget reflects a realistic 
assessment of the risks and challenges ahead for the economy as 
a whole. I believe this forecast does that.
    Mr. BRADY. Thank you, Mr. Secretary.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Tennessee, Mr. Tanner.
    Mr. TANNER. Thank you very much, Mr. Chairman.
    Thank you, Mr. Secretary, for being here. Following up on 
Mr. Neal's line of questioning, many of us on the Committee 
feel that a reduction in the corporate tax rate would be good 
public policy. The Chairman has introduced a bill to that 
effect. I was wondering if the Administration had plans to 
flesh out--that we tried to close some loopholes in the last 
Congress and were unsuccessful--I understand that what Mr. Neal 
was talking about, the offshore business. This, I think, would 
be somewhere we could go and get some broad bipartisan support.
    So, thank you, sir.
    Secretary GEITHNER. Congressman, we are hopeful that we 
will find the basis, working with you and your colleagues, to 
try to bring a broad reform to the corporate tax system. We 
want to consult with you on how best to do that.
    I think it is an important link to look at, and I think 
there are opportunities there.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Texas, Mr. Doggett, for 3 minutes.
    Mr. DOGGETT. Thank you very much.
    Just following up on these same questions, I think, as the 
President's budget recognizes, we cannot expect the American 
people to help us dig out of the giant hole the Republicans 
have gotten us into unless there is more tax fairness. You have 
a number of specific proposals that are helpful as you finalize 
the budget.
    I would just ask you to take a close look at the Stop Tax 
Haven Abuse Act that Senator Carl Levin and I and a number of 
Members of this Committee have refiled--Senator Obama was a 
cosponsor last year--and even in addition to that legislation, 
that you look closely at those that are coming and asking for a 
government bailout, like Morgan Stanley, which has 158 
subsidiaries in the Caymans, Citigroup with 90, and Bank of 
America with 59, to explain why it is equitable for them to be 
able to avoid taxes at the same time they are asking for so 
much tax money.
    Secretary GEITHNER. Thank you.
    Mr. DOGGETT. The second issue I would like to raise with 
you quickly, Mr. Secretary, is a concept that was truly alien 
to the last 8 years of the Bush Administration, and that is the 
concept of accountability.
    When I am talking to my constituents down in Texas about 
what has been going on here these last few months, and what I 
know are complex and difficult challenges you face, they see 
AIG writing contracts to insure mortgage-backed securities 
which are done in a way to avoid any regulation. Just like 
Bernie Madoff, who bought no stocks for his Ponzi investor 
victims, AIG set up few, if any, reserves, as you know, on its 
quasi-insurance policies.
    I think the principal difference that many of my 
constituents see between some of these companies that come here 
asking for a bailout and Bernie Madoff is that Bernie Madoff 
isn't asking for a bailout, at least not yet.
    In the period since this crisis developed, I have yet to 
learn of one single Federal employee who was disciplined or 
dismissed because of dereliction of regulatory duties. When we 
look at what happened in the timeframe between the first AIG 
bailout and at least last Friday, unlike some of the conditions 
that were imposed on the auto manufacturers, there is no 
indication that there is any effort to get different 
management. One gets the message that the only way to get out 
of this crisis is to rely on some of the scam artists who got 
us into it.
    Don't the American taxpayers have good reason to demand 
some accountability in the private sector and from Federal 
employees concerning this crisis?
    Secretary GEITHNER. They do, and you are absolutely right.
    Let me just start by saying that we fully support the 
legislation you referred to, championed by your colleagues, on 
offshore tax centers, and we look forward to working with you--
--
    Mr. DOGGETT. Thank you very much.
    Secretary GEITHNER [continuing]. As part of a broader 
effort to address international tax evasion, close the tax gap.
    Let me just say a few things about AIG. AIG is a huge, 
complex, global insurance company attached to a very 
complicated investment bank hedge fund that was allowed to 
buildup without any adult supervision, with inadequate capital 
against the risks they were taking, posing putting your 
government in a terribly difficult position. Your government 
made the judgment back in the fall that there was no way that 
you could allow default to happen without catastrophic damage 
to the American people. That judgment, I am sure, was the right 
judgment at the time.
    Today we are in a situation where the world is dramatically 
worse. You are seeing pressures across broad parts of the 
economy in the financial system. Those pressures are facing 
AIG, too. But we are still in the position where, given the 
nature of the entity, given the nature of the broad environment 
and legal tools we have, given the risks AIG poses to the 
economy, the most effective thing to do is to try to make sure 
that that firm can be restructured over a period of time and--
so that we get through this. To let it--to allow a disorderly 
unwinding to happen right now in this context would cause 
enormous damage.
    Now, that initial intervention back in September came with 
very substantial conditions. Management was changed right then. 
There have been substantial changes in the composition of the 
board, and the government has a very substantial ownership 
stake in that institution. The government, since it came with 
very tough conditions designed to force a very comprehensive 
restructuring--and that is under way today.
    So, I completely understand the concern. I agree with you 
about the broad concern. It is very important that people 
understand the assistance we provide is going to come with 
conditions that are designed to make sure that we are 
protecting the overall economy and the American people and that 
we are demanding accountability. I completely share your view 
about the importance of that objective.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Georgia, Mr. Linder.
    Mr. LINDER. Thank you, Mr. Chairman.
    Mr. Secretary, according to today's paper, it seems that 
President Obama has found one more high-level appointee who 
thought he was above paying taxes. I believe that it was five 
people that chose not to pay taxes; and maybe, to be 
charitable, the Tax Code is too difficult to understand.
    So, tell us what is in this--you have referred to 
simplification on three occasions so far. What are you doing in 
this proposal to simplify the Tax Code?
    Secretary GEITHNER. Fair question, Congressman. Fair 
question.
    You know, the President in his campaign proposed a very 
simple, innovative way to reduce the problem of compliance for 
millions of Americans. This is for the IRS to automatically 
fill out a tax return for those Americans. That is an 
important, good step toward simplification.
    But we think there is a range of other things we are going 
to have to do, and we look forward to working with you and your 
colleagues on how best to do that. I think any effort to try to 
improve the overall Tax Code will have to have, as part of it, 
efforts to make it more simple to comply. There is a range of 
opportunities in this Tax Code, as I am sure you understand 
better than I do, for trying do that; and we look forward to 
with working with you on how best to do that.
    Mr. LINDER. Thank you. I look forward to that.
    You have made three references in this last hour or so to 
saying that the tax increases at the margin will not go into 
effect until the economy has turned around. What metrics are 
you going to use to tell us in 2011 that the economy has now 
successfully turned around? Would you not raise those taxes if 
the economy had not turned around?
    Secretary GEITHNER. Thank you, Congressman.
    I would say again, if you look at the broad-spectrum 
opinion among private forecasters today, I really think there 
is almost universal agreement that in 2011 our economy will be 
back on a path for very substantial growth rates. Everything we 
are doing right, now working with the Congress, is designed to 
improve, to achieve that outcome.
    I just want to emphasize again that if you look at the 
pattern of government responses to past crises, there is risk; 
governments have made the mistake in the past that they applied 
the brakes prematurely, and we are going to be very careful not 
to do that.
    So, what the budget does is, again, makes sure that 
recovery is firmly established before we put the deficits back 
on a path toward sustainability. That process begins starting 
in 2011, which is outside the timeframe that almost all 
economists believe we are going to have recovery in place.
    Mr. LINDER. Thank you.
    Chairman RANGEL. The Chair recognizes the gentleman from 
North Dakota, Mr. Pomeroy, for 3 minutes.
    Mr. POMEROY. Mr. Secretary, thank you for your testimony. 
Thank you for your role in preparing this budget, which at last 
accounts for what all of us knew were accruing liabilities of 
the Federal Government, but not reflected in the budget. It was 
time for those budget games for the American people to end, and 
I believe you ended it with the budget submission of the 
Administration.
    There is considerable discussion about the new taxes that 
might accrue on the wealthiest in this country. I would like 
you to tell us something of what have been the economic trends 
relative to accumulation of wealth, the relative distribution 
of income in this country leading up to this budget reflected 
through, perhaps, the years since the turn of the millennium.
    Secretary GEITHNER. Thank you, Congressman.
    Again, if you look back, we have this long-term rising 
trend in inequality, and over the last decade in particular you 
see the largest income gains going to the small fraction of the 
most affluent Americans. So, that is an inexorable long-term 
trend. You can see it in all the numbers.
    As you said, what the President is proposing to do is bring 
more fairness and balance to the overall Tax Code. The vast 
majority, 95 percent of working Americans, will see a reduction 
over time in the taxes applied to them.
    Mr. POMEROY. How did that group fare relative to wage 
earnings during, for example, the years of this decade?
    Secretary GEITHNER. You are absolutely right, the income 
gains for those richest Americans rose at a dramatically more 
rapid rate than they did for the average American.
    Mr. POMEROY. I believe a statistic that I have heard--on 
average, so it is not entirely revealing--but 7 percent 
annually on vast income, while the middle class, over the 
cumulative years, $1,000 all together. Does that sound 
roughly----
    Secretary GEITHNER. That may be roughly right, sounds rough 
orders of magnitude.
    Mr. POMEROY. Do you believe that we can sustain an economic 
recovery with the stalling out of the middle class and the 
concentration of wealth at the very top of this country?
    Secretary GEITHNER. I don't believe so. I think our country 
will be stronger if we are giving all Americans a greater 
chance to participate in our economy, make sure they have 
access to education so they can do so, make sure they have the 
type of assistance they need to get through hard times. That 
will make our economy not just more just, but more productive 
in the future.
    Mr. POMEROY. I have looked at some of those tables, and I 
haven't seen distribution imbalances like that until the years 
leading right up to the Great Depression. I am personally 
convinced there is not a coincidental relationship about the 
economic tailspin we had then now and the economic tailspin we 
have now.
    A final point, Mr. Secretary: I sent a letter to Treasury--
you don't have to respond to this; I just want to call it to 
your attention now that I have you here--pensions are suffering 
some deep trouble. There is a call made by Treasury that made 
their funding crisis worse at this moment. It can be 
administratively addressed. I believe the circumstances would, 
in fairness, drive Treasury to that action. I will be 
telephoning you to discuss this further.
    Secretary GEITHNER. Thank you for your letter. I have read 
your letter and understand your concern, and we are looking 
very carefully at how we can--whether we can address that 
problem.
    Mr. POMEROY. Thank you, Mr. Secretary.
    Yield back.
    Chairman RANGEL. Thank you.
    The Chair recognizes Mike Thompson from California.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. I just have three 
quick points I would like to leave you with. One, car 
dealerships throughout the country are suffering, and it looks 
though--as though the GMAC, which was a recipient of TARP 
funds, is doing everything they can to make sure a lot of these 
guys fail. I think that would do irreparable damage to 
communities across the country, and would really like you to 
look into that.
    Second, we briefly chatted about this, the last 
Administration, the Alcohol and Tobacco Tax and Trade Bureau 
promulgated some rules that would do lasting damage to the wine 
industry, and I would like to make sure that those two rules 
are permanently disposed of, and I would like to have an 
opportunity to talk to you about that.
    Then, lastly, this Committee did great work to ensure that 
we put on the front burner renewable energy in the stimulus 
bill. If all works as planned, a lot of businesses and a lot of 
homeowners are going to be installing solar panels and doing 
some great things to move us to a renewable-based economy and 
society.
    We also put in a provision providing for a green 
manufacturing tax credit for the people that manufacture the 
components that people are going to be installing, and that is 
going to keep those manufacturing jobs right here; the worst 
thing in the world that could happen is, everybody goes solar 
and all the equipment is built in China or Germany.
    I would like to urge you to quickly promulgate rules--and I 
think you have to work with the Department of Energy on that--
but get those things wrapped up so we can make sure that not 
only we move to a renewable future, but the equipment is 
manufactured right here in this country, making more jobs and 
improving our economic situation.
    I yield back the balance of my time.
    Secretary GEITHNER. Thank you.
    Chairman RANGEL. The Chair recognizes the gentlelady from 
Florida, Congresswoman Brown-Waite.
    Ms. BROWN-WAITE. Thank you very much, Mr. Chairman.
    Mr. Secretary, I have mixed emotions about your being here. 
It seems every time that a statement is issued by you the stock 
market plummets. I am sure that is not something that you feel 
good about.
    What exactly do you think is going to help the public's 
confidence in the economy, in the business model that has made 
our country so great? You know, when you look, the Dow was at 
9,034 January 2nd; yesterday it went down to 6,763. Americans 
are frightened. They truly are frightened, whether it is their 
401(k) or their company's pension plan or perhaps some 
investments that they have.
    My constituents--and I don't have a wealthy constituency, 
sir; I need to tell you that right at the outset--but my 
constituents are frightened of where is the bottom and why is 
government throwing so much money at what some would consider 
zombie banks? I would like you to also address that.
    Secretary GEITHNER. Thank you very much. It is very 
important to start by recognizing that what is happening in our 
economy and around the world is causing a lot of damage. It has 
a lot of force momentum to it still. As you saw on the fourth 
quarter GDP numbers, our economy declined by 6.2 percent in 
that quarter. What you saw here you are seeing around the 
world.
    This is a--there is just no way around it, this is a 
serious economic crisis, something we haven't seen, really, in 
generations. That is being reflected in greater pressure on the 
financial system, and you see the effects of that really across 
the country.
    The obligation we all share is to make sure that our 
government does as much as we can to try to put support to get 
Americans back to work, to help stimulate private investment, 
and help get credit flowing again. There is no alternative 
except for us to move together to try do that as forcefully and 
aggressively as possible. Part of that requires that we make 
sure banks are strong enough that they can provide credit, and 
that is what our plan is going to do.
    We will do that with the necessary force and speed because, 
again, the alternative is for us to live with a situation where 
the financial system continues to be more defensive over time. 
That will leave, again, businesses and families without the 
credit they need to do what they need do.
    Ms. BROWN-WAITE. Sir, have we unwittingly invested hundreds 
of billions of dollars to create zombie banks? When will 
Americans know exactly if that is what we have?
    Secretary GEITHNER. Right.
    Congresswoman, again, we have a very diverse financial 
system. There is a lot of strength in our banking system. There 
are pockets of the system that ultimately are going to have to 
be shrunk and closed and shut down. That is happening now 
through the established mechanisms the FDIC created.
    But it is very important that Americans have confidence 
that our major institutions are able to provide the critical 
role they provide in providing credit. No economy works without 
credit. No economy can function without a well functioning 
financial system. That requires, in a crisis like this, that 
the government provides conditional assistance where it is 
needed so, again, that credit can flow.
    Very important to point out that the alternative to doing 
that would be a deeper recession and a deeper crisis. If you 
look very carefully at the lessons of past crises, what happens 
is they get deeper, they last longer, they cause higher, long-
term deficits; they cause more damage, they are more expensive 
to the taxpayer when governments don't move quickly to try to 
provide that assistance.
    Now, of course, we want the assistance to leave a stronger 
system, not a weaker system. We want it to come with conditions 
to protect the taxpayer, to ensure accountability to make sure 
the assistance is going to improve credit. That is what our 
program is designed to do.
    Ms. BROWN-WAITE. I yield back the balance of my time.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Oregon, Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Mr. Secretary, I am pleased you are here. I am pleased that 
you didn't respond to questions about public perceptions by 
contrasting the confidence the public has in Congress, 
particularly some of us in Congress, versus the Administration. 
I admire your self-restraint as I admire your professionalism.
    I have a request and a question. My request focuses on the 
troubled Transportation Trust Fund, which is locked into a 
downward spiral. We have had to transfer money the last 2 
fiscal years, and the projection going forward does not even 
come close to sustaining the current funding level.
    At this current time, we are watching a vast coalition that 
is forming around the country that includes organized labor, 
the U.S. Chamber of Commerce, AGC, local governments, State 
governments, professional organizations, all who agree that we 
must put resources into transportation and would actually 
support revenue increases, which, as you know, have not been 
increased since 1993.
    Now, I appreciate the Administration is in the process of 
formulating its approach, you are staffing up. But I wonder if 
you would work with us on this Committee as we move forward for 
perhaps a hearing or a work session that talks about the 
choices and opportunities to return to long-term stability with 
transportation. Would that be possible?
    Secretary GEITHNER. Yes. Happy to work with you, and look 
forward to a chance to hear your concerns and suggestions on 
this issue.
    Mr. BLUMENAUER. Thank you, sir.
    I was disappointed, but not surprised to hear some of my 
friends on the other side of the aisle start the hearing today 
focusing on some small pieces of a very large mosaic that you 
and the Administration are bringing forward. It is the same 
mindset that prevented any reform recently, because any 
adjustment that wasn't a cut for everybody was somehow a major 
tax increase.
    I am wondering if you might be able to make some 
observations and again help us look at the big picture. My 
friend is concerned about people in Michigan who are paying a 
tax now in terms of higher gas prices this last year, the 
effects of global warming, drought, flood, forest fires, global 
instability; and you have a package that would help with health 
care, energy, tax cuts. Can you speak about the big picture 
that would be reflected by the approach that you are offering 
up?
    Secretary GEITHNER. Thank you, Congressman.
    I think it is very important again to look at the combined 
effect of the entire package of programs that are in the 
budget. You are absolutely right; I think it is tempting to 
look at a piece of it and see, well, that is going to 
disadvantage some particular business. But you need to look at 
the impact of that in the context of everything else that is 
there.
    So, you see again in the stimulus package, in the recovery 
act, just very, very substantial support not just to State and 
local governments, not just downpayments on long-term 
investments in energy efficiency, clean energy, in education, 
but support at levels you just haven't seen in decades.
    But beyond that, if you look at the budget itself--again, 
by taking on the challenge of health care costs, we are 
confronting directly what is probably the most crippling burden 
on American businesses. In that area too, as well as the full 
range of measures that have helped reduce taxes on small 
businesses, on working Americans, it is a very powerful package 
of incentives.
    These things will have tangible benefits quickly, not just 
over the long term. But I think you make a good point, you want 
to look at the net effect of everything.
    Mr. BLUMENAUER. I see my time has expired, but I wonder, 
Mr. Secretary, if you could work with us to develop pictures of 
how this affects the average farmer, the average small 
business, the 97 percent of which make below the $250,000 
threshold, so we could look at the interactions with your help.
    Secretary GEITHNER. I welcome that suggestion, and I think 
it is an important way to illustrate the overall effects.
    Mr. BLUMENAUER. Thank you very much, sir.
    Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Washington for 3 minutes, Mr. Reichert.
    Mr. REICHERT. Okay. You skipped Mr. Davis, but I will be 
happy to go, sir.
    Chairman RANGEL. What is it? I am sorry, according to the 
list, you came before the gavel.
    Mr. DAVIS OF KENTUCKY. Okay. I was in before the gavel 
also.
    Chairman RANGEL. It may be a question of just seniority; is 
it not?
    Mr. REICHERT. I will yield to Mr. Davis for now.
    Chairman RANGEL. Mr. Davis, you are recognized. 
Unfortunately, we will correct the error here. Mr. Davis is 
recognized for 3 minutes.
    Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman.
    We talk about large mosaics, the devil is always in the 
details. I appreciate my friend from Oregon making the comment 
earlier. I am going to come back with a practical question on 
the impact to create the environment to stimulate private 
investment means that you have got to be able to manage that in 
a way with a volatile economy. I want to come to one of the 
devils in the details, as one of the only manufacturing 
professionals who is in the Congress right now. It has to do 
with your proposal to repeal last in, first out accounting.
    We talk a lot about helping manufacturing, but I see this 
as something that would be quite devastating, particularly to 
capital-intensive businesses. LIFO mistakenly has been called a 
loophole or an exotic tax shelter. In fact, it is a 
conventional and well-established accounting practice designed 
to minimize artificial inflation gains, to maintain and reflect 
accurate replacement costs; and it has been expressly permitted 
in the Tax Code since 1936, in the height of the Great 
Depression.
    It is important to many industries. Specifically, in 
Kentucky, this proposal is alarming to our bourbon 
distilleries, to our precision manufacturing in aerospace 
industries. In the distillery example, distilled spirits have 
to be inventoried for many years before being sold.
    At the same time, in high technology, precision 
manufacturing and aerospace, companies like General Electric, 
many of our small, specialized machine tool operations are 
required to carry large inventories for parts for AOG 
conditions; and my concern is that the repeal of LIFO would 
have a devastating impact in requiring an additional $61 
billion in taxes, falling heavily on our manufacturing 
companies that are already challenged. It reduces capital for 
investment. It reduces job security and ultimately job 
creation.
    I also think that it creates a problem in the U.S. economy 
because we would be doing this regressively, already having the 
second highest business tax in the world. What I would like you 
to do is elaborate, if you would, on your proposal to repeal 
LIFO, and specifically address the issue of smaller businesses, 
small manufacturing and development firms.
    Secretary GEITHNER. Thank you, Congressman, for raising 
this issue.
    I think that it is fair to say that there is a lot of 
difference of opinion on the overall impact of this stuff. 
There is a body of tax professionals who think this is good 
policy for the country and is, overall, beneficial for the 
country. But I understand those concerns, and absolutely would 
be happy to spend some time and understand those concerns more 
directly.
    Mr. DAVIS OF KENTUCKY. Reclaiming my time, Mr. Secretary, 
the one thing that I would make a comment, I think some of 
those tax professionals have never actually run a factory at a 
time--particularly with the monetary policy that we are engaged 
in.
    At some point you and the Chairman of the Fed are going to 
have to pull money out of circulation, once inflation begins, 
and this, in fact, would create--the very problem that they say 
would be good for the country is going to actually depress 
manufacturing.
    Secretary GEITHNER. Just to be quick, yes, I will be happy 
to work with you and listen to your concerns on this as we 
think about how to design it.
    But I just want to emphasize a really important point, 
which is, again, we start with a more challenging fiscal 
environment than we have faced in generations. We are going to 
have to put our country on a path to fiscal sustainability. 
Obviously, as we do that, we want to do it in ways that make 
the country stronger, not weaker. But we are going to have to 
make some tough choices, and not everything is going to be 
possible.
    If you look at the balance of judgments in this budget, it 
is our best judgment about how to again put us on a path to 
fiscal sustainability in a way that makes our country stronger 
going forward. But you are right, the details matter, and we 
would welcome a chance to listen to your concerns in more 
detail.
    Chairman RANGEL. The Chair recognizes Mr. Kind for 3 
minutes.
    Mr. KIND. Thank you, Mr. Chairman.
    Mr. Secretary, I want to thank you for your testimony here 
today. Obviously, you are dealing with some very large issues 
facing our Nation and the globe today. I think a lot of the 
credibility that you are going to have to have going forward 
really starts with the first budget proposal that you made.
    I, for one, am very pleased with the truth-in-accounting 
approach you have taken to this budget--you know, accounting 
for the war costs, for instance, AMT relief, natural disasters, 
the sustainable growth rate for doctors, all of which were huge 
ticket items that were never previously budgeted before. This 
Administration recognizes it and has it included in the budget, 
and I commend you for doing it.
    Just a quick observation, and I can follow up with you on 
it, and then I would like to hear you expand on another issue.
    But I heard from a lot of my community and independent 
bankers and credit unions back home that they are getting hit 
with a huge increase in deposit insurance premiums recently, 
which is affecting their capitalization requirements, cash flow 
ratios; and I am wondering if anyone at Treasury has been 
focused on this aspect and thinking through it. I could follow 
up with you.
    But on a larger issue, I was wondering if you could speak 
to the tax implications proposed under the President's budget 
and the impact it will have on small businessowners throughout 
the country. I think--when there is a recovery taking place, I 
think it is going to be the small businesses that will 
literally act as the locomotive for us. We need to be careful 
what policies we are setting forth and the impact they are 
going to have on small businesses throughout the country.
    So, if you could just take a moment and give us your 
insight on what the tax implications will have on small 
businesses.
    Secretary GEITHNER. Thank you, Congressman.
    On the first question, yes, we worked very closely with the 
FDIC. Of course, they are playing a very important role in our 
financial system, providing confidence to depositors. We will 
be happy to hear from you more on that particular question.
    On the broad provisions in the budget that affect small 
business, let me just emphasize a few critical points. Again, 
the President's budget proposes to reduce taxes on 95 percent 
of working Americans. Ninety-seven percent of small businesses 
have incomes below $250,000, and would find vast--probably 
would find their interest burden reduced under the President's 
plan.
    The budget also proposes to eliminate the capital gains 
taxes on the sale of small business stock held more than 5 
years, and it makes permanent the research and experimentation 
tax credit.
    Now, going beyond that, to look at the overall package, 
again, by proposing to work with Congress to bring 
comprehensive health care reform to reduce the growth in health 
care costs, we also will be providing very substantial benefits 
to businesses, small and large, across the country. We are 
working very closely with the Small Business Administration to 
make sure that they are able to provide greater lending 
opportunities to small businesses at a time when the financial 
crisis is under such stress. We are working to make sure 
community banks have access to capital under the government's 
programs so they can lend in their communities on a substantial 
scale.
    We announced today this program of direct lending to help 
get the credit markets going again, which are very important to 
small business lending. If you look at the package as a whole, 
this is a very powerful package of support for businesses, not 
just large businesses, but critically target the small 
businesses.
    Mr. KIND. All right. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes Mr. Pascrell from New 
Jersey for 3 minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Good afternoon, Mr. Secretary. In New Jersey, the 
unemployment rate is not far behind the national average. We 
pay out in the State $45 million weekly in unemployment 
insurance benefits. These payments continue to increase, 
contributions decrease. The surplus is dipping to levels that 
automatically trigger payroll increases in our businesses.
    Our State can't sustain the trend, Mr. Secretary. It 
cannot.
    The President's budget includes such proposals as the 
Financial Stability Plan you refer to on page 3 of your 
testimony. What guarantees, however, do the American people 
have that once banks receive these capital cushions--you 
referred to them as the necessary credit for Americans to once 
again buy homes, purchase cars, go to college, et cetera--what 
guarantees that they will open the credit markets to the 
consumer?
    My second question: What protections will be set in place 
so that our banks have--that they have to, in more than mere 
good faith, commit to opening up consumer access to credit?
    Two questions. I wish you would address them.
    Secretary GEITHNER. Thank you, Congressman.
    Let me just start with the conditions on the assistance we 
provide to banks. So, first, we will make sure that every 
dollar we provide generates at least a dollar in additional 
lending capacity that wouldn't have been possible in the 
absence of that assistance. We are going to require them to 
give us a report for how they plan to use those resources to 
expand lending capacity. We are going to require them to report 
on what they are actually doing with lending. We are going to 
make those reports public.
    The broad oversight mechanism existing will look at what 
they are actually doing; and the American people will have a 
chance to see what is actually happening to lending by the 
recipients of these institutions.
    Second, very important thing, we are going to make sure 
that the assistance we provide does not go to pay dividends 
unless there is a specific case for doing so, or to enrich 
senior executives with compensation packages, lavish 
compensation packages. We are going to make sure that--again 
that alongside what we are doing with banks, that we are 
providing direct support to get these credit markets opening up 
again.
    I think these are necessary things to do. If we do these 
effectively and aggressively, then we are going to put our 
financial system on the path to repair, and there will be more 
credit available to support recovery.
    Mr. PASCRELL. Something isn't happening that should be 
happening. This weekend I met with 10 businesspeople from my 
district--all of them solid businesspeople, all of them good 
numbers, good business acumen.
    They can't get into the banks. They cannot get to the 
banks. There is something wrong. We have had the TARP back in 
September, we have had a recovery, we have had a budget which 
is now before us, a blueprint at least.
    I mean, what do they--they need to have confidence that 
this is going to open up. I haven't seen it yet, to be very 
honest with you. I want you to talk to those 10 business 
people. What do you tell them?
    Secretary GEITHNER. First of all, what they are seeing is 
happening across the country, and it is a measure of the 
severity of this crisis. You know in a recession, particularly 
after a long boom in credit like this, demand for credit is 
going to fall. But what we are worried about and what you are 
seeing is, it falls below the point necessary; and that 
requires that banks have the strength to be able to lend.
    Everything we do, the results in assistance to banks, 
again, as I said, is not done for the benefit of banks. It is 
there so that the businesses and families that depend on credit 
are going to have the ability to borrow, where they are 
economically viable. Everything we do is designed to support 
that objective. But we are going to have to do more to do it.
    The reason you are seeing this pressure across the country 
is that this crisis is so severe and is putting so much 
pressure on the system. That is why we are going to have to do 
more.
    Mr. PASCRELL. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Reichert is recognized for 3 minutes.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I will try to get to three quick 
issues in my 3 minutes.
    One, in your 26-page, 15,414-word budget plan titled 
Jumpstarting the Economy, Investing in the Future, free trade 
is not mentioned once. Are you not concerned that America is 
ignoring the importance of opening new markets to trade as a 
means of creating American jobs? In Washington State this is 
especially important, since one out of every three jobs is 
connected to trade.
    Secretary GEITHNER. Congressman, you are absolutely right 
that our future depends on remaining open and playing a 
critical role in this expanding global economy. The President 
is very committed to trying to make sure we sustain a 
commitment to the openness necessary for----
    Mr. REICHERT. Mr. Secretary, it not mentioned in the budget 
once.
    Secretary GEITHNER. The budget document is a comprehensive 
set of proposals that relate to the budget and lays out a 
comprehensive set of policy priorities. It does not address--
you are right, it does not address all the other challenges of 
the country in the economic area.
    Mr. REICHERT. Mr. Secretary, just to reclaim my time again, 
can we expect the Administration then to bring a vote, push for 
a vote, push the House to come to a vote on the agreements with 
Colombia and Korea--Panama?
    Secretary GEITHNER. What you can expect is, the President 
and his Administration will work carefully with the Congress to 
find a way to move forward on those important agreements, 
because it is so important to our country that we sustain a 
commitment to--not just to keep our markets open, but that we 
can find new trade agreements that are going to benefit 
American businesses and the American worker.
    Mr. REICHERT. I hope to see these votes come to the floor. 
Our State needs that business.
    I want to go back to the big picture. I think the big 
picture is great, but you know, people are worried about how 
does this impact me, my family? That is what I want to know, 
and that is what my constituents want to know.
    I met with a family named Doug and Candy. They owned a 
business for 25 years, 170 employees. They started it out in 
their garage. Their brothers, sons, daughters worked for the 
company. They just went bankrupt last week. They went to the 
bank, $310 million TARP recipient. They refused to give Doug 
and Candy a loan.
    I notice in this budget that there is $250 billion more in 
bailout money that is set aside. How can we make sure that Doug 
and Candy and families like that get the money that they are 
supposed to get to keep their businesses going? Now, next week, 
Mr. Doug and Candy are going to have to file personal 
bankruptcy and lose their home.
    Secretary GEITHNER. Congressman, this is why it is so 
important that we move to make sure we strengthen our financial 
system so that banks have the resources able to provide credit 
and so that we move aggressively to try to get these credit 
markets working again, which is what we are doing.
    The reason you are seeing this pressure on the system is 
because--not just because of the pressures on businesses, but 
because of the pressures in banks that puts them in. That is a 
vicious and dangerous cycle, and it requires more action by the 
government to solve it.
    Mr. REICHERT. I agree with Mr. Pascrell, this is a serious 
problem. We need to act now and we need to make sure that these 
people have access to the credit that you say you want to free 
up.
    My last question, sir, according to February 26th article 
in the Politico, Speaker Pelosi is quoted as saying that she 
thinks that the President's budget does not raise taxes quickly 
enough. Specifically, she is quoted as saying, ``Quite frankly, 
I would have done it faster.''
    Mr. Secretary, in light of the current economic climate, do 
you agree or disagree with the Speaker's view that taxes should 
be raised immediately?
    Secretary GEITHNER. Congressman, I support the President's 
budget in its full package of measures because I think that is 
the best way for us to get the economy back on track. I think 
it is very important that, as we do that, we still explain to 
the American people how we are going to get our budget back to 
a sustainable path. The budget makes very clear, specific 
commitments to do that, but again, after we believe recovery 
will be firmly established.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you.
    The Chair recognizes the gentleman from Illinois, 
Congressman Davis, for 3 minutes.
    Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Chairman.
    Mr. Secretary, I am very pleased that the President's 
budget invests in higher education, with increases in the Pell 
grant and making the American Opportunity Tax Credit permanent. 
One area that I hope we can improve with is on the new tax 
credit, to make sure that it benefits students who attend 
community colleges.
    Especially for students who attend community colleges, 
expenses differ somewhat from those who attend 4-year 
institutions. Given the fact that many lower income and 
minority students attend community colleges, I hope that we can 
ensure that our tax structure values the costs to students who 
attend these colleges equally with those who attend 4-year 
institutions.
    My question is, the Administration has sought to respond to 
the economic crisis with a balanced package of tax cuts and 
spending, along with efforts to address the troubled housing 
and credit markets. How do you respond to the theory that we 
might be better off with an approach that cuts both taxes and 
spending at the same time?
    Secretary GEITHNER. Congressman, on your first point, I 
think it is very important that people have the opportunity to 
use this tax credit for a community college, not just for a 4-
year college; and am happy to work with you on how best to make 
sure we achieve that. But I believe the Administration shares 
that commitment.
    You are absolutely right, Congressman, as a country right 
now, for us to be cutting the deficit today would leave the 
recession deeper, would create higher future deficits, weaker 
growth in the future, and would ultimately lead us to the 
position we are doing much more damage to the fabric of the 
American economy. That would be the wrong policy for the 
country.
    I don't know of any economist that advocates today that we 
move to cut spending in the face of this deepening recession. 
That is why the package that Congress proposes has a mix of 
investments in infrastructure, things that will put people back 
to work, alongside the tax incentives it creates to put money 
in the hands of Americans and stimulate private investment.
    Mr. DAVIS OF ILLINOIS. Let me thank you very much, and let 
me just agree with my colleagues who suggest that anything that 
we can do to help assure bankers have enough confidence to make 
these loans, especially to small businesspersons, who are 
crying that they just cannot get the assistance that they need.
    I want to thank you very much. That is the end of my 
questions.
    Chairman RANGEL. The Chair recognizes Mr. Etheridge of 
Tennessee for 3 minutes--North Carolina.
    Mr. ETHERIDGE. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. Let me echo my 
colleagues' thanks to you for--and to the Administration--for 
your proposals on education. One that Chairman Rangel and I 
joined in was school construction. I was at home over the 
break, and I can tell you children don't really care who pays 
for those buildings; they just know what they get, and they 
really want better ones. When it comes to giving a child an 
education, they are not worried about whether it is public, 
private, how it gets there.
    It makes a difference in our future, and I thank you for 
that investment. I think it is critical. As it relates to small 
business and loans, I hear the same thing; and I trust that you 
are working on that.
    But let me move to another area, just to put it on the 
record, and ask that you take a look at it, because as you look 
at the agricultural sector across this country, it is about 
$130 billion annually to the U.S. economy. Across the country 
it is responsible for about 14 percent of the employment, but 
in my home State, it is almost one in five jobs in North 
Carolina.
    Many farmers now are starting to be hard hit, because they 
really are small businesses; people talk about small 
businesses, but forget they really are. They are seeing costs 
increase, their incomes plummet.
    When we talk about farm loans, a lot of folks don't realize 
they are connected to where people live. There has been an 
unusual thing hit certain States in the poultry industry, where 
their contracts were being pulled. They have no income, they 
are in jeopardy of losing their homes, their land, everything 
they have. I would encourage you to take a look as you look at 
TARP.
    They are not asking really to be bailed out. All they are 
asking is to have a bridge loan to get them past 12 months or 
18 months, because this is going to turn around at some point, 
and they would like to be there. Because a poultry house costs 
anywhere from $250,000 to $300,000; without poultry, they are 
worth zero.
    This is a problem for the lending institution, but it is 
really a problem for those farm families. I look forward to 
working with you or someone in the Administration to try to 
help work through this.
    I thank you for what you are doing. I know you have got a 
difficult job. I want you to know this is one Member--and I 
won't speak for the whole Committee, but I think, Chairman, we 
want to help because the country needs us all to be together in 
this situation, working together.
    Thank you, Mr. Chairman, and I yield back.
    Secretary GEITHNER. Thank you, Congressman.
    Mr. PASCRELL [presiding]. Thank you, Mr. Etheridge.
    Mr. Yarmuth from Kentucky.
    Mr. YARMUTH. Thank you, Mr. Chairman.
    Secretary Geithner, it is nice to see you. I would like to 
begin by echoing the comments of Congressman Davis. Bourbon is 
an extremely important product in my district and my State; and 
it is a product that is required by law to be on the shelf for 
a long period of time. Changes in the LIFO treatment would put 
them at a severe competitive disadvantage with the balance of 
the liquor industry, which is overseas. So, I think there is a 
real interest in not just preserving one industry in Kentucky, 
but also an American industry and American jobs.
    So, I look forward to working with you and Congressman 
Davis and also with Chairman Rangel on that issue.
    One of the things that we have talked about a lot today and 
over the last few days, since this budget was made public, is 
the question of predictability and estimates and so forth. We 
understand that this is a very dangerous process to project 
economic growth.
    So, my question is, as we move forward, we are adopting a 
budget, even with a 10-year window, essentially for 1 year; so 
what is the Administration prepared to do and what kind of 
metrics would we look forward to over the next year or two if 
we adopt this budget largely as it is, to see whether we are 
making progress? How can the American people--how will they 
know whether the budget is having its intended effect?
    Secretary GEITHNER. Well, I think it is important to start 
by saying that the transparency provisions and reforms that are 
built into the budget will provide a level of transparency to 
the American people about how this money is being spent that 
they have never seen before. That is really important, because 
they will be able to see not just what is happening in their 
communities, but they will be able to see, as these things are 
implemented, where the money is flowing, how effectively it has 
been used.
    We think that will be effective; the American people 
deserve that. But we think it will help drive better policies, 
frankly, because that level of scrutiny and transparency will 
help.
    But if you look at the economy as a whole, the best measure 
of what is happening in the economy, you are going to see what 
is happening to unemployment rates, what is happening to income 
gains, what is happening to overall growth, what is happening 
to interest rates. Those are the things that are going to drive 
parts of the long, sort of basic environment in which we make 
these basic fiscal policy choices.
    But the best measure of the effectiveness of the policies 
is going to be when you start to see the pace of growth 
decelerate, start to see a foundation put in place not just in 
housing, but the parts of the economy that are most directly 
affected by this, and then the beginnings of confidence or 
recovery coming.
    Most economists expect that process to begin in the second 
half of this year, but it really depends a lot on how effective 
we are in moving the recovery act into place quickly and, as I 
said, moving more effectively to try to provide confidence to 
the banking system and to help get credit flowing again.
    Mr. YARMUTH. All right. Because one of the things that I am 
getting when I am home--and it is very frustrating--is that 
looking particularly back at the [TARP|tarp] and the first 
stage, it is one thing to say things would be worse if we don't 
do this. It is another thing to--like we haven't been attacked 
since 9/11, it is another thing to draw a cause and effect. The 
American people need that degree of confidence.
    Secretary GEITHNER. Can I just come back on this?
    It is a very important point, but mortgage interest rates 
are substantially lower today than they were in the fall. Parts 
of the credit market are opening up again. Those things are the 
direct effects of the actions that have been taken to try to 
make sure that there is a stronger level of confidence across 
the country that we are going to make sure that our system 
holds together and is able to provide credit.
    So, that is not enough, but it is a very important 
beginning, and we need to keep at it to try to reinforce that 
progress.
    Mr. PASCRELL. Thank you.
    Mr. Boustany from Louisiana.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for your testimony today. You 
know, I have reviewed the budget, this budget proposal, and I 
have some very deep concerns. In fact, today I received a 
letter from a Louisiana small business leader who is worried 
that tens of thousands of Gulf Coast energy jobs will be lost 
under this plan.
    Mr. Secretary, this budget raises energy taxes on every 
American and sends jobs overseas. So, can you tell me how many 
Gulf Coast energy jobs will your budget kill?
    Secretary GEITHNER. Congressman, I can't answer that 
question, but I would be happy to try to look at any analysis 
you have been given and give you a sense from the 
Administration, what the impact is going to be.
    But I just want to emphasize again that what the budget 
proposes is that, as we work with the Congress to put in place 
a cap and trade system to move us toward energy independence 
and better use of clean energy technologies, that sometime in 
2012 we are going to be putting in place a framework that will 
change the incentives for how people use energy.
    Those resources raised by that, if we work this through the 
Congress, will be put into helping finance these tax cuts that 
benefit 95 percent of Americans, that go to help facilitate 
this transition to cleaner energy technologies. If there is 
additional resources, we will use them for----
    Mr. BOUSTANY. But that is the key. We don't have a 
transition strategy. Natural gas has been considered one of the 
key transition fuels.
    This budget will tax natural gas production; and in fact, 
if you look at natural gas that we are using in this country 
today, one-third of it is coming from rigs that were drilled 
within the last 2 years. We are talking about thousands, tens 
of thousands of jobs, small companies, small businesses that do 
the production, the service, maritime support and so forth.
    Secretary GEITHNER. Well, Congressman, I do think it is 
important to point out that in the stimulus program there is 
very, very substantial support, as some of your colleagues have 
pointed out, for helping facilitate this transition--just like 
you said--a very, very substantial amount of support to provide 
incentives for investment in more efficient energy 
technologies, greener energy technologies.
    So, I think there is a lot of effort and care put into the 
transition.
    Mr. BOUSTANY. But what about the Gulf Coast energy jobs 
that we have today? This will kill those jobs. The President 
himself has said his goal is to save or create jobs. ``Save'' 
is a very important word here.
    Secretary GEITHNER. Congressman, again I think it is very 
important to emphasize that, looking ahead, this budget, 
because we are inheriting a huge fiscal hole, does require us 
to make some tough choices about how we are going to pay for 
these critical, long-term priorities of the country. So, we are 
going to have to work with the Congress on how best to meet 
that balance.
    But remember where we are starting from. We are starting 
with these huge accumulated deficits, a dramatic increase in 
our overall debt-to-GDP ratio, a deep economic crisis that is 
going to require additional resources to get recovery back. We 
are going to have to work with you to determine how we make 
sure we balance these priorities, so that we are leaving the 
country living within our means, but with a stronger economy in 
the future.
    It is going to be a difficult thing to do. But remember, 
you are talking about things that we are going to have to work 
with the Congress to design that would come into effect after 
recovery is established.
    Mr. BOUSTANY. Thank you.
    Mr. Chairman, before I close out, I ask unanimous consent 
to include this letter I have from the Louisiana Oil and Gas 
Association to be included in the record.
    Mr. PASCRELL. Without objection, so ordered.
    Mr. BOUSTANY. Thank you.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] 50223A.009
    

    Mr. PASCRELL. Ms. Sanchez from California.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    Thank you, Secretary Geithner, for being with us this 
afternoon. I was absent for a part of the hearing, so pardon me 
if I am asking questions that have already been answered. But I 
know that a lot of criticism has been leveled at this budget 
because of a fear of future debt. That is what we keep hearing: 
We can't burden, you know, future generations.
    My question to you is a very specific one. Do we really 
need to balance the budget in order to reduce our future debt 
burden, or can we reduce our debt burden while still running 
deficits? Because some people would have you believe that the 
two must go hand in hand.
    Secretary GEITHNER. Okay.
    Congresswoman, if we--it is important to start again by 
saying that the fiscally responsible thing to do and the most 
important thing we can do if you are worried about our long-
term fiscal path is to get this economy growing again.
    That is why the Recovery Act was so important, and that is 
why this budget accounts for the other costs we may face in 
trying to fix our financial system. That necessarily results in 
a temporary short-term increase in our deficit. That is why it 
is so important that we commit to bringing those deficits down. 
If we don't do that, then we are going to have a rising debt-
to-GDP ratio over time and higher interest rates and will crowd 
out private borrowing and the recovery will be interrupted and 
we will see more damage done to the productive capacity of our 
economy, higher future deficits.
    So, I think that is the balance we are trying to strike, 
and there is no alternative we face as a country, but to try to 
make sure that people understand that again, when recovery is 
in place, that we are going to bring those deficits down to a 
level that we can sustain over time. Sustainability, people 
will disagree on what it is, but the most important thing is 
that it means that it is a level where that debt-to-GDP ratio 
is no longer growing. You need to commit to achieve that within 
a horizon that includes the medium term.
    So, we are proposing to do it at the end of 5 years and to 
make sure that we sustain that over the next 5 years after 
that. That is the critically important thing to do.
    Ms. SANCHEZ. So, it would be fair to say that there is sort 
of a short-term strategy combined with a long-term strategy to 
get us out of this economic black hole that we are in?
    Secretary GEITHNER. That is a better way than I said it. 
You said it right, but you have to do them together. Because if 
all you did was the short-term address the recovery stuff, and 
you left people without the confidence that we were going to 
try to bring those thing down, then again, you would face the 
risk that higher interest rates would choke off recovery. So, 
you need to do it together, being careful, again, to reassure 
people, as I am trying to do today, that we are not going to be 
raising taxes on the American economy until we get through this 
recession.
    Ms. SANCHEZ. Great. I appreciate your answer. I yield back 
the balance of my time.
    Mr. PASCRELL. Thank you. Now Mr. Heller from Nevada.
    Mr. HELLER. Thank you very much, Mr. Chairman. Mr. 
Chairman, thank you. Mr. Secretary, thank you for being here 
today. The last time I was able to ask you questions, I was 
over in the Financial Services Committee. So, I don't want you 
to think that I am chasing you around from Committee to 
Committee. But thank you very much for being here. I want to go 
back to a couple of statements. You said several times in your 
testimony that the best way to sustain confidence--and we 
continue to talk about confidence. I would argue that from what 
I am seeing in the markets today, we don't see a lot of 
confidence. The previous Administration, as you are well aware 
of, put together the bailout package, supported by this 
President. Consequently the market dropped about 2,000 points. 
We put together a stimulus package put together by this 
Administration, and upon passage the market dropped 
substantially.
    We have seen the same thing in the omnibus package that was 
passed, the market decreases. We are seeing the same thing now 
during the last joint session with the President when he spoke 
in front of us, that based on his remarks, the market 
struggled.
    I am concerned about that, and I guess my question for you, 
even with this current budget, we are seeing the markets 
struggle. Why do you think that the investment public right now 
is discounting this budget and current actions by this 
Administration?
    Secretary GEITHNER. I think it is just important to start 
with the underlying reality, which is growth here in the United 
States and around the world is still weakening. You are seeing 
that reflected and spreading in term of impact across the 
economy. That is fundamentally what is been driving this crisis 
from the beginning. This was true, if you just go back 18 
months ago to the beginning of this crisis. You are seeing that 
basic dynamic increase and intensify. This forces us to maybe 
some choices. What this President is doing, working with the 
Congress, is putting in place as powerful a set of policies as 
we can to get recovery back on track.
    There is no choice but to do this. It is going to take time 
to work. This crisis took a long time to build up. It is going 
to take some time to fix. But again, we are starting with a 
deepening accelerating decline, not just here but globally. You 
know, in some ways, it is important to point out that this 
started here in some ways and we started a slow more quickly 
than the rest of the world is. But the rest of the world, you 
see, growth decline at an accelerating rate. You are seeing 
that affect export demand. So, you are seeing that ripple 
across the U.S. economies too.
    So, the only thing that I can say is that this is a grave 
and serious set of challenges. I think that is broadly 
recognized now. But the choice we have is to act. I am very 
confident for us to choose not to act, to hope this would work 
itself out, hope it would burn itself out, hope that we get 
through this without making these tough choices now, would 
leave us much more vulnerable as a country. What the President 
is going to do working with the Congress is to make sure we 
keep at it until we get recovery back on track and firmly 
established.
    Mr. HELLER. Thank you, Mr. Chairman.
    Chairman RANGEL. The gentlewoman from Nevada, Ms. Berkley.
    Ms. BERKLEY. Thank you, Mr. Chairman. Thank you Mr. 
Secretary for being here. I appreciate it very much. Let me get 
started by telling you what I like about the budget. The 
transparency is truly a breath of fresh air. I am very glad 
that we included the cost of preventing cuts to doctors who 
serve Medicare patients. I have got the fastest-growing senior 
population in the United States. Short of me going to medical 
school so I can go treat them when I go home on weekends, we 
are going to be in a world of hurt if my doctors stop treating 
Medicare patients. The fact that--including the cost of the 
wars in Iraq and Afghanistan, I think also is sad but 
refreshing. I am also glad the budget assumes extension of 
current tax cuts targeted at the middle class, including AMT 
protection. Thirty-three thousand of my constituents are 
affected by the AMT, making work pay tax credit enacted in the 
stimulus bill is going to cost money. It is important. Also, 95 
percent of Americans, but of the people that I represent, are 
going to pay less taxes under the President's plan. The energy 
provisions for the State of Nevada are great. We simply must 
diversify our economy. If we can do it by helping to go green, 
that would be great. Nevada has an abundance of sun, wind, 
geothermal up north. If we can harness that through tax credits 
and other incentives, I think that is terrific.
    Now I am not a financial genius, but I know my district 
really well. My constituents are some of the hardest hit in the 
country because of the current economic crisis. Nevada has the 
highest mortgage foreclosure rate in the country for 2 years in 
a row. Home values went down 34 percent in Las Vegas just in 
this year alone. Unemployment, while it shows the official 
numbers are 8-point-something, I would bet you dollars to 
doughnuts we are over double digits. One of my major casinos, 
casino hotels had a 27 percent occupancy rate last week. It was 
a disaster for us. Our construction industry is dead in the 
water. Small businesses are folding at an alarming rate. My 
major developers and major businesses can't get loans. I would 
like to emphasize what the others have already said. It is a 
disaster. Banks that they have been doing business with for 20 
years aren't loosening up any money for them. So, that is so 
bad.
    In order for my district to recover, it is necessary to 
address both the housing crisis and jump start the economy. We 
have made great inroads, but there are two things that I have 
been trying to push, and I would like your opinion on them. One 
of them is 100 percent deductibility of business meals. What I 
have in my district is hotels and restaurants, an abundance of 
restaurants. Small businesses don't have big conference rooms. 
They use the back booth of restaurants in order to do business. 
If we could do 100 percent deductibility that would be a great 
help for my small businesses and for my restaurants. The second 
thing is, a tax credit from business travel for people to bring 
their spouses. We don't have any business in Vegas. I would 
like to caution the Administration and my colleagues to stop 
bashing Las Vegas. It is still a great deal and you are taking 
business away by talking about, oh, Las Vegas, don't travel 
there if you are a TARP recipient or someplace else. It is 
still the best bang for the buck.
    What do you think about those two things? The last thing 
is, I would like to echo something that somebody else said. 
What I got more than anything this weekend when I went home was 
that charitable tax deduction. You explained it very well. But 
for us, it is a nonstarter. I wish that it would go back 
because I would like to think that people give out of the 
goodness of their hearts. But that tax deduction helps a lot to 
loosen up their heart strings. With that, what do you have to 
say about this?
    Secretary GEITHNER. I have heard the two specific ideas 
from you privately, and I would be happy to reflect on them. 
Don't know if it is possible. I understand why it would be 
important to a State like yours.
    Ms. BERKLEY. Florida and New York and a whole lot of 
others.
    Secretary GEITHNER. Many, many States across the country.
    Ms. BERKLEY. In conclusion, I put a call in to your office 
on a totally separate subject. I know you are really busy. Can 
you have somebody return the call?
    Secretary GEITHNER. Absolutely.
    Ms. BERKLEY. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Roskam of 
Illinois.
    Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Secretary, one of 
the things that you spoke about had to do with transparency 
with the banks. I think there is a lot of wisdom to that. One 
of the things that Ms. Berkley just said that she found 
attractive about the budget was the transparency element. I 
think there is near unanimity that that is a good approach. One 
of the things that I heard on the break last week when we were 
back home was your own experience--and you dealt with this in 
the Senate. But it is going to be coming up--with your own 
personal tax liability situation. I had people sort of in 
business meetings with me referring to, you know, in a joking 
fashion, the Geithner rule, hoping that they would get the same 
treatment that the Secretary got. Yes, you pay the taxes. Yes, 
you pay the interest. But no, you don't pay the penalty.
    I asked the question--and I am not suggesting that you were 
assessed a penalty. I asked a question of the Deputy 
Commissioner of the Internal Revenue Service last week during 
an oversight hearing. She essentially waived off because she 
was forced to, I believe because she is not allowed to discuss 
the matrix of an individual decision on an individual taxpayer. 
So, you sort of got the sense that she wanted to explain how it 
was that you were not assessed a penalty, but that she was 
prohibited from doing so.
    In the interest of transparency, are you willing to waive 
that so that the Internal Revenue Service can discuss with us 
publicly their decisionmaking process on not assessing you a 
penalty based on your tax situation?
    Secretary GEITHNER. Let me just say a few things in 
response to this. I disclosed my full tax records not just to 
the Administration vetting team, but also to the Senate Finance 
Committee at the earliest stage in this process. They disclosed 
very comprehensively the full results of their review of my 
taxing. You can find what is in the public record already very 
detailed documentation of why the IRS not just first assessed 
the penalty, but then encouraged me and a whole range of other 
people to apply for a waiver of that penalty and waive that 
penalty.
    I think that there is a bunch of informing in the public 
domain, but I will be happy to make sure that you have a chance 
to hear more detail about this issue, in general what their 
overall policy is in this case, consistent with whatever 
constraints they operate with. I would be happy to follow up 
with you on that.
    Mr. ROSKAM. To the extent that you have control over that, 
and I am sure you do as an individual taxpayer, in the interest 
of transparency, I assume that you are telling the Committee 
today that you are willing to waive that and allow the IRS to 
disclose to us----
    Secretary GEITHNER. I will do whatever is appropriate.
    Mr. ROSKAM. Let me finish the question. We are deciding 
what is appropriate. I am asking you, are you willing to waive 
that so that the Internal Revenue Service can have the public 
conversation with us about how it applies. I am not trying to 
drag you through this again. But when I am asked questions, 
does the Geithner rule apply to me, Congressman?
    Secretary GEITHNER. Let me just say, there is no Geithner 
rule. I would be happy to come talk to you about this in as 
much detail as you would like and absolutely willing to talk to 
my colleagues at the IRS and to figure out how to best to help 
you respond to your concern. But I was fully open and 
transparent, as was the Committee on this issue. It is hugely 
important to me that that is out in the public record in the 
fairest--in the complete possible light. So, I would be happy 
to try to be responsive. But I need to talk to them a little 
bit about what constraints they face on dealing with individual 
cases.
    Mr. ROSKAM. Okay. I realize my time has expired. It was a 
complete unwillingness to engage.
    Chairman RANGEL. The Chair recognizes the gentleman, Mr. 
Crowley from New York.
    Mr. CROWLEY. Thank you, Mr. Chair. Welcome to the 
Committee, Secretary Geithner, and thank you for your responses 
thus far.
    It never ceases to amaze me the level of apparent amnesia 
some of my colleagues on the other side of the aisle have had 
about how we got to this problem in the first place. I thank 
you for answering Mr. Heller's question, in particular. By the 
line of questioning, you are almost led to believe that because 
of the last month and a few days of the presidency, we have the 
problems we have today. Thank you for setting the record 
straight. This didn't happen overnight. This took 8 years in 
the making of stagnant, at best, growth. But yesterday, Mr. 
Secretary, the Treasury and the Federal Reserve announced a new 
fourth plan to rescue troubled financial services giant AIG. I 
do agree that AIG's sustainability is the linchpin for some of 
our recovery efforts. It is important for the Federal 
Government to work to keep it afloat. However, I must demand 
for AIG increased accountability and transparency, something 
that was not done during the previous Administration. For 
example, just last month, AIG paid 343 employees of AIG FP, 
their financial products division, that created the financial 
hole that AIG is in, and in turn, a multibillion dollar bill 
for American taxpayers of $56 million in bonuses. Are slated to 
pay an additional $162 million in bonuses to 393 participants 
in the coming weeks.
    There is more. Further bonus payments totaling 
approximately $230 million are due to 407 participants at AIG's 
financial products division in March 2010. This makes no sense 
to my constituency. I am not here to bash compensation. We can 
go a little overboard as well. But this company claims to be on 
the brink of disaster, and it is handing out bonuses. I would 
like to work with you in structuring tough commonsense 
compensation limits at AIG in this new government loan, which 
would include voiding these bonuses to AIG FP employees as well 
as claw back $56 million in bonuses already paid to AIG FP 
employees December 2008 and 2009, some of whom are not even 
American citizens but who are living large on taxpayer funds. 
Can you please share with us, the Committee, your thoughts on 
taking these actions.
    Secretary GEITHNER. Congressman, thank you. I just want to 
point out that compensation practice across the financial 
services industry over the last years and decades just got out 
of whack with basic fundamentals and people were paid for risks 
that were encaptioned in compensation. Part of what we do to 
make sure this crisis doesn't happen in the future is to change 
those basic incentives. There is going to be a role for 
government in doing that.
    Now, it is very important that we make sure that we are 
providing exceptional assistance to these firms, that that 
assistance is going again to achieve the objectives of these 
programs. Not to reward the kind of executives that got us in 
this mess. I am deeply committed to that objective. The 
President laid out some very comprehensive conditions in his 
proposals last month. Congress passed, as part of the Recovery 
Act, a set of additional provisions. We are now in the process 
of designing regulations, guidelines to apply those provisions. 
We are going to be as careful and responsive as we can to the 
concerns you have, so many Americans have about how these 
resources have been used.
    I just want to say that the judgments made by these boards 
of directors and senior executives across parts of the 
financial system have just caused a lot of damage to public 
confidence in the quality of their judgment and they have a 
deep responsibility, an obligation, to make more careful 
judgments going forward. But we are not going to be able to 
depend on them to do it. We are going to make sure that there 
are conditions that come with our assistance to assure that. 
So, we are going to figure out how to apply these new 
provisions in a way that is as carefully designed as possible.
    Obviously we want to achieve the objectives of what we did 
in AIG. We want them to be able to run their business and 
restructure so that we are in a better position going forward. 
That is why this is sort of hard to do. But we are going to be 
very careful in doing it and very much hear your concerns.
    Mr. CROWLEY. Thank you.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Maryland, Mr. Van Hollen.
    Mr. VAN HOLLEN. Thank you Mr. Chair. Thank you, Mr. 
Secretary, for your testimony. As we move as a nation to reduce 
our reliance on foreign oil and our reliance on fossil fuels, 
we clearly need to make sure that the clean energy companies 
get the credit and the financing they need to move forward. 
There are lots of projects, as you know, that are frozen right 
now. We got a good start on some of that in the economic 
recovery plan. Congressman Zach Wamp and I wrote to the 
President early on proposing the idea of creating a green bank, 
modelled after OPEC, XM whatever model you want to look at, for 
the domestic energy market. We are pleased that the seed money 
for that kind of idea was in there, about $6 billion, primarily 
there for loan guarantees. We would like to look at expanding 
that to some debt financing as we go forward.
    But I want to pursue that conversation with you in the days 
ahead, especially as we move toward trying to put some kind of 
cap on carbon emissions as we move toward, you know, reducing 
our reliance on foreign fuel. Again, on that point, I was 
pleased that the President's plan talks about returning most of 
the money to the U.S. taxpayer. I think we also need to have a 
conversation on exactly what form that will take and what 
mechanism we use to make sure people understand that they are 
going to be compensated for some of the increased costs they 
will face.
    The question I have for you relates to making sure we get 
the economic recovery plan, the housing foreclosure prevention 
plan and your plan to get credit flowing again. How they can 
all work together in a synergistic manner. As you and the 
President have said, we need to click on all cylinders. Each 
one of these things alone will not get us out of this ditch. We 
need them all going. I think we are moving forward on economic 
recovery. I think you guys have put forward a solid plan on 
home foreclosure prevention. I think we are all still working 
on this third piece, on getting the credit flowing again.
    If you could just talk a little bit more. You said in your 
earlier testimony we have to do more. If you could talk a 
little bit more about your schedule for completing the stress 
tests on banks and getting ourselves out of a defensive posture 
or reactive posture in a proactive manner and what your 
schedule will be and when you intend I think to unveil more 
details in term of your proposals.
    Secretary GEITHNER. Absolutely right these things have to 
go together. Each will be less effective unless they are done 
together and we are trying to move as quickly as we can across 
all of those fronts. You saw we already announced that the new 
housing tax credit will be able to be applied against 2008 
income. There is a whole range of provisions of stimulus we are 
moving very quickly on. Tomorrow we announce the more detailed 
provision of our housing plan, at least on the affordability 
front.
    So, let me just come back to the financial piece of this. 
This is absolutely central, vital. Last week we laid out a 
timeframe, it is now in the public domain, for how this health 
assessment, this assessment of the additional capital buffer, 
these institutions may need to withstand a more severe 
recession. The timeframe which that assessment is going to be 
concluded. We want that to happen as quickly as possible. It is 
going to take several weeks because you want them to do it 
right. But we also announced at that point--and this is very 
important--that there is going to be a program of capital 
available for those institutions that need some additional 
buffer. Some will need some additional capital to get through 
this. They are going to have 6 months to go to the markets to 
raise that capital early on if they choose or they can take it 
up front, the government up front. That will help resolve this 
basic cloud over the institutions in a relatively quick period 
of time.
    We also announced this morning the first stage of this new 
lending program to help get credit markets flowing again for 
small businesses auto financing et cetera. In there, too, there 
is a timeline for when these programs start to take effect and 
get traction and when we are going to start to expand them to 
other markets that are also affected by this. So, we are 
doing--we are trying to lay out a path with concrete timelines 
on each of these fronts again so that we are moving quickly. 
You are absolutely right. The small business that would 
otherwise benefit substantially from the type of investments 
you are seeing in recovery will not be a benefit unless they 
can borrow to get credit for that. That is why you need to move 
on those fronts together.
    Mr. VAN HOLLEN. Thank you. Thank you, Mr. Secretary.
    Chairman RANGEL. Thank you. The Chair recognizes Mr. Nunes.
    Mr. NUNES. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for coming to the Committee. I want to make sure, at least 
for the record--we have had several comments from many of my 
colleagues, but the TARP, the first bailout, the stimulus 
package, the last omnibus bill, the President's Budget, the 
latest budget, and the AIG latest bailout was all supported by 
President Obama and his Administration and your office, either 
as President or as a U.S. Senator.
    Secretary GEITHNER. Let me just make sure I understand. You 
are saying the stimulus package, absolutely.
    Mr. NUNES. Omnibus.
    Secretary GEITHNER. Omnibus bill, yeah. So, that is still 
working its way.
    Mr. NUNES. The current budget.
    Secretary GEITHNER. The current budget is designed by the 
President's economic team.
    Mr. NUNES. The AIG bailout over the weekend.
    Secretary GEITHNER. All of the actions we are taking to try 
to stabilize this financial system to make sure that there is 
credit flowing again are going to be done with the full support 
of the President and the broad financial agencies of the 
country, including the Federal Reserve and the FDIC.
    Mr. NUNES. I understand. But with the support of the 
President, as was the first bailout, the first TARP was also 
supported by the U.S. Senator at the time and yourself when you 
were at the Treasury back in September.
    Secretary GEITHNER. I was not the Secretary of the Treasury 
then. I was the President of the New York Fed.
    Mr. NUNES. I was at a meeting where you came and did ask 
for the support of the Congress for that provision if I recall. 
But let's get on to----
    Secretary GEITHNER. I just want to point out, this is very 
important to do. The action the Congress authorized at that 
point was absolutely essential to preventing catastrophic 
failure of our financial----
    Mr. NUNES. Well understood, Mr. Secretary. But here is the 
issue. We have thrown this all at the wall. You stated earlier 
to one of the earlier questions that, you know, it is possible 
that GDP could be lower than what--even what you are predicting 
and what others are predicting.
    Secretary GEITHNER. I think I said that our budget presents 
a forecast for what the economy is likely to do.
    Mr. NUNES. Understood. But here is the concern I think that 
a lot of us have, is that right now under your budget or the 
President's budget, we are looking at a $12 trillion Federal 
debt in 5 years. If we are slightly off on GDP or we are 
slightly off on what revenue is going to be or we are slightly 
off on how this economy responds, I mean, we could be at an 
unsustainable level of Federal debt. I think that is the 
concern you are seeing. It is a legitimate concern for Members 
of Congress here from both sides of the aisle that this level 
of debt is unsustainable in the long term.
    Secretary GEITHNER. Congressman, you are absolutely right. 
But just remember where we are starting. We are starting with--
we are starting before anything happens, a $1.2 trillion 
deficit. We are starting with a set of costs.
    Mr. NUNES. Well, we are starting with about $6 or $7 
trillion in debt and we could be in the 5 years at $12 or $14 
trillion.
    Secretary GEITHNER. So, it built up over the last 8 years, 
magnified by the cost of this crisis.
    Mr. NUNES. Built up over the last 220 years.
    Secretary GEITHNER. True. But with a substantial increase 
in that path over the last 8 years. With a crisis we are 
inheriting that is going to require very substantial additional 
action to fix the financial system and get the economy back on 
track. That is what causes this temporary increase in deficits. 
Now this program the President laid out in the budget is a 
very, very responsible fiscal program. I don't--again, I do not 
believe that you have seen a budget presented any time in 
recent history with this level of candor and honesty and 
ambition to try to bring those deficits down over a period of 
time. That is very important for us to do. But remember, the 
bulk of what you are referring to, overwhelming bulk is the 
result of--not just the cumulative policies of the last 
immediate period, but the damage caused by this recession and 
the cost that imposes on the economy as a whole.
    Mr. NUNES. I understand. I just want to make sure--and I 
will close with this, Mr. Secretary: It is not a partisan 
attack on you when you hear some of us, including myself, up 
here saying that we are very concerned about where we are going 
to be at with the level of Federal debt in the next 5 years and 
whether or not that is sustainable or not. A lot of that hinges 
on how successful the plans that you are putting out there are. 
So far the market is not responding well to these plans that 
have been put out there. That is our concern. It is a 
legitimate concern. It is not an attack.
    Secretary GEITHNER. Congressman, I completely share your 
concern that it is absolutely important that we get this 
economy back on the track to growth and that we leave this 
economy, commit to bring the economy to the point where our 
deficits are at a sustainable level at the end of 5 years. That 
is really important and that is what this budget does. We need 
to do both together, as you said. You are right that 
overwhelmingly it is important we get the economy back on 
track, even though temporarily that does increase the deficits 
we are going to have to live with. But most of those deficits 
are driven by the inherited cost of the crisis.
    Mr. NUNES. Well, thank you, Mr. Chairman. Thank you for 
indulging with me extended time. Thank you.
    Chairman RANGEL. I recognize the gentleman from New York, 
Mr. Higgins.
    Mr. HIGGINS. Thank you, Mr. Chairman. Just a comment and 
then a question. First of all, what is clear here is that the 
new Administration inherited an unmitigated financial disaster 
from the previous Administration. Record deficits, record debt, 
a doubling of the national debt, a crumbling of our roads and 
infrastructure, a health care system that is in need of serious 
reform and an education system that is also in need of serious 
reform. I think that context is important here because an 
Administration that is 6 weeks old both directly and indirectly 
is being blamed for the financial situation we find ourselves 
in. You have a budget document here, not a budget but a 
proposal that is transparent, that is honest and does not 
propose off-budget financing of war. I think that is very, very 
important. My question, my question is, the 2004 Securities and 
Exchange Commission net capital rule, which basically allowed 
these investment banks to over-leverage 33 to 1, debt to asset. 
The agreement as I understood it at the time--and I know that 
SEC is a separate agency but still vitally important to this 
economy--was that they would allow the additional debt in 
exchange for greater transparency. The investment banks were 
allowed to accumulate more debt and there was very, very little 
transparency. What is the plan of this Administration to ensure 
that that never happens again?
    Secretary GEITHNER. Very important question. The President 
is going to be proposing to the Congress a comprehensive set of 
financial reforms. A core part of those reforms will be to put 
in place better design, more conservative capital requirements 
across the institutions that play a critical role in our 
financial system. Those institutions are now bank holding 
companies. We need to bring a tougher more uniform framework 
over all those institutions. Part of that is going to require, 
as I said, more conservative, more carefully designed capital 
requirements. Banks, as you know, live with a crude leverage 
ratio as well a risk-based capital ratio and that was applied 
on a consolidated basis. We are going to have to bring--that 
framework needs to be improved too. But it is a very important 
part of the reforms we are going to bring. Those are things--a 
bunch of those things we can do with regulation. But we are 
going to have to try to reform, streamline consolidate the 
overall architecture of oversight over the system as a whole.
    Mr. HIGGINS. I look forward to working with you and I yield 
back. Thank you.
    Chairman RANGEL. Thank you. The Chair recognizes Mr. 
Becerra of California.
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Secretary, I 
think you get to close with me, so I hope that these last 3 
minutes won't be painful. First, congratulations again. It is a 
pleasure to be able to work with you and some of your staff. 
You have got very capable people onboard with you. I would like 
to focus, if I might, just briefly on this tax gap that we have 
between the revenues that we collect that are owed and the 
revenues that we know that are owed but are never collected 
because for any number of reasons we don't collect them. Either 
people try to avoid paying those taxes or they underpay, et 
cetera, et cetera. There are some rough estimates about how 
much is out there. Some people say over $300 billion annually 
is not collected as a result of this inability to enforce 
completely the laws.
    I would add that most of this underpayment by taxpayers who 
owe the money or lack of collection on the part of the IRS, 
whichever way you wish to look at it, involves not average 
Americans who get a paycheck every month or every week. It is 
very easy for us to make sure they are paying their taxes 
because there is a payroll deduction from their paycheck every 
time they get paid. So very few Americans who have a salaried 
job where they depend on getting the check were work, are not 
paying their fair share. Now, Nina Olson, who is the Taxpayer 
Advocate within the IRS, has said that for most taxpayers, this 
lack of collection of money amounts to a surcharge of some 
$2,000 per American taxpayer. In other words, because we are 
unable to collect from those who owe it, Americans who do pay 
and are responsible are paying perhaps up to $2,000 more any 
given year in what they pay in taxes. Other estimates have at 
about 17 percent more in taxes that are covered by people as a 
result of having to subsidize those who aren't paying their 
fair share.
    In the time that I have remaining, which isn't much, I 
would love to hear your response about how we are going to 
become more aggressive in doing the right thing. Not going out 
there and being hostile toward people but doing the right thing 
of trying to get people to voluntarily pay what they owe to the 
government, to the people of the United States so we can have a 
functioning government.
    Secretary GEITHNER. Thank you, Congressman. I think it is 
going to require better reporting. There is an important 
provision in the budget that will do that for people who 
provide services to rental property. That is a small case. But 
it is in the same vein of better reporting on those things, and 
it is going to require, frankly, better, stronger enforcement 
resources for the IRS, more carefully deployed. We are going to 
work very closely with the IRS, of course, and with you and 
your colleagues on how best to do that. But I think you said it 
right. It is fair to try to solve this. We need to do a better 
job. We think we can do a better job. We think there is 
substantial room to improve in this area, but it is going to 
require at least those two things. This is important alongside 
what we do on the international tax evasion front as well.
    Mr. BECERRA. Well, thank you for the testimony. Mr. 
Chairman, I appreciate the time. I look forward to working with 
you on the disclosure issue. Because it is an issue of just 
having people be transparent with the way they pay their taxes. 
So, we look forward to working with you to get that money 
collected. Thank you, Mr. Chairman. Thank you Mr. Secretary.
    Secretary GEITHNER. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Ryan for 3 
minutes.
    Mr. RYAN. Thank you, Mr. Chairman.
    Secretary, nice to meet you for the first time. I look 
forward to discussions in the future. I have got a number of 
questions. But first I just want to say something. You said 
something that kind of caught me by surprise, that this budget 
has the most candor and most ambition to bring the deficit 
down. If you just did nothing, if you just didn't pass this 
budget, the deficit would drop faster than passing this budget. 
The CBO baseline says that the deficit would go down by \3/4\ 
in 4 years alone. I think we could do a little bit better. If 
you actually applied the blue chip consensus forecast and their 
projections versus the Administration's projections, your 
deficit would never even reach the 3 percent of GDP. It would 
always be higher than that. We believe that you could be more 
ambitious on deficit reduction.
    With respect to candor, saying in the baseline that we are 
going to have a surge for 10 years in Iraq and then having a 
draw-down and counting that as a $1.6 trillion savings is 
honestly the biggest budget gimmick I have ever seen. I serve 
as Ranking Member of the Budget Committee. I have been reading 
budgets for most of my adult life. This is the biggest budget 
gimmick I have ever seen. I am not asking for a comment from 
you.
    Secretary GEITHNER. Could I comment, though, on this?
    Mr. RYAN. Sure.
    Secretary GEITHNER. This is really important.
    Mr. RYAN. Do it quickly because I have some real questions 
on Treasury I want to ask you.
    Secretary GEITHNER. I just want to point out that if you 
look at the combined effect and the things we are accounting 
for and putting in this budget, we are doing things you have 
not seen in a very long time. What is really important is that 
we honestly account for the cost of current policies, and most 
importantly we are going to bring these down over time.
    Mr. RYAN. Agreed. Put in AMT, good move. Good budgeting. 
Suggesting we are going to have a surge for 10 years and then a 
draw-down to create savings, not a good move, not good 
accounting. Let's disagree on that and let me ask you further 
because I only have 3 minutes. In the budget, $210 billion in 
savings from the corporate tax side of the ledger book. Where 
does all of that come from? Obviously you are repealing 
deferral. I understand that. But that doesn't get you anywhere 
near the $210 billion of savings by just eliminating deferral. 
Honestly, where does the rest of this savings come from? Or the 
tax increase come from?
    Secretary GEITHNER. I have to look more carefully at the 
number you are actually using for corporate taxes. But you see, 
there is a high level of detail in there about exactly what is 
going to happen to tax policy over this period of time. I don't 
think that is a number that is fair to the truth and the 
policies. But I would be happy to look at the details.
    Mr. RYAN. Yeah. Your line is $210 over 10 years for 
international tax reform.
    Secretary GEITHNER. You are referring to international tax?
    Mr. RYAN. Yeah. So, I know deferral is repealed.
    Secretary GEITHNER. As we said, we said in the budget that 
we are going to come to Congress with a broad set of provisions 
to help address these international tax evasion things. We did 
not identify, you are right, all the specific measures that we 
are going to adopt to do that. But we think this is a realistic 
number, and we take on the obligation to lay out the details 
for you, how you could it. But that is what we said in the 
budget. We said we are going to come to you with a set of 
proposals.
    Mr. RYAN. But beyond repealing deferral, where are you 
thinking?
    Secretary GEITHNER. It is very important, as some of your 
colleagues said before you came in, that we work to address the 
problem posed by international tax havens. There is a range of 
other things we think we can do to get a look at this stuff. 
But we are going to come to you and walk you through it.
    Mr. RYAN. Just quickly, the TARP. Actually I think this is 
an innovative idea, combining the TARP with the TALF and going 
after the toxic assets. I am very intrigued with how you are 
proposing to do this to leverage private sector capital. It 
sounds like a pretty intriguing idea. The Wall Street Journal 
had an article that kind of gave us a little bit of detail on 
how you planned on deploying this. Can you further add to that?
    Secretary GEITHNER. We put out a lot of detail this morning 
on how the first stage of this thing we called--the Fed calls 
the Term Asset-backed Lending Facility. You see a timeframe and 
detail in there. On this broader proposal we put out to provide 
government financing alongside private capital in an investment 
fund to help provide liquidity and financing for these legacy 
assets, we are going to lay out in there relatively quickly, 
the next couple of weeks how we--sort of the basic structure of 
that arrangement so that people can start to see how it is 
going to work and decide whether they want to put money to work 
in that structure.
    Mr. RYAN. But the basic structure is TALF, TARP and private 
money?
    Secretary GEITHNER. The basic structure in that context is 
government financing. In this case, it will be through some 
combination of the Fed and the FDIC alongside government 
capital with private capital in there. That is the sort of 
common structure we use in the market and we think that is the 
best way to protect the taxpayer but still get liquidity to 
help get these markets going again.
    Mr. RYAN. I would like to get a more detailed briefing in 
more than 3 minutes in the future if you could. Thanks.
    Chairman RANGEL. The Chair recognizes the gentleman from 
Florida, Mr. Meek.
    Mr. MEEK. Thank you, Mr. Chairman. Mr. Secretary, thank you 
for coming before the Committee. You heard concerns from States 
similar such as mine like Nevada. But I can say in Florida 
while we have been hit very hard by home foreclosures, we pay 
very close attention to when the Treasury comes out or the 
White House comes out with a new proposal on how we bounce 
back. I think that when we start looking not only at TARP--and 
I am glad that there was some representation of being putting 
the screws in as it relate to companies like AIG and others 
that are making everyone else look bad, who are receiving these 
Federal dollars. I think--or taxpayers dollars. I think it is 
important for us to pay attention to that. It seems like you 
are on target as it relates to that. I want to know, States 
like Florida, there is different recoveries for different 
States. In the Midwest, you may have an automotive recovery 
that will help that economy come back.
    My State is it is tourism, it is agriculture, it is 
housing, home building. Making sure the people are able to keep 
their homes. There is a lot of programs out there. There is a 
lot of assistance out there that I personally voted for. I just 
want to know who at Treasury is going to be that person that is 
going to catch any abuse, waste, you know, flexing of the rules 
that may end up falling on the desk of the auditor general? 
Because I think when that happens, it is a little bit too late. 
We know we have to have corrections. We know that you will have 
a minority report to that. But how do we protect the taxpayers' 
dollars in those categories? I was also pleased to hear you 
say, especially as it relates to tax reform, as this Committee 
looks at it following this recession track, if we are on the 
upswing, we can start dealing with some of these tax issues. If 
we are not, then we may want to put them on hold. Mr. 
Secretary.
    Secretary GEITHNER. Thank you, Congressman. On your basic 
question about how we ensure that the money is going where it 
needs to be, that people who are eligible are getting 
assistance, people who aren't, aren't. Let me just describe a 
couple of things. First of all, we took a very careful look at 
all the basic reports of the congressional oversight body, the 
Treasury Inspector General and the GAO. One of the first 
meetings I had at the Treasury was to get them in a room 
together and have them brief me on their recommendations, try 
to make sure there are strong safeguards in place. We are 
adopting those recommendations. Two, we have this pretty good 
process of transparency.
    So, by making much more clear what the terms of the 
assistance are, putting on the Web site, having people report 
what they are doing with the assistance, that will help too in 
that area. Obviously, the existing oversight boards are all 
over this. They are looking at it very carefully. So, you see 
from them independently an assessment of how good we are doing. 
In the announcements we are making tomorrow on housing, caring 
for the housing plan, you are going to see I think a pretty 
good level of detail around safeguards for protections on 
eligibility and how we are going to enforce those. But we are 
very committed to this. You are right, it is very important to 
the integrity of the program.
    Mr. MEEK. Mr. Secretary, when we passed TARP--and this is 
before your tenure when Paulson was there, we passed TARP and 
then the enforcer came in when half of the money was given out. 
When will the enforcement person be in place as it relates to 
the housing program, who is going to be in charge, not only 
enforcement but making sure that every, you know, sentence has 
a period at the end of it?
    Secretary GEITHNER. You are right. It is very important to 
get this right. You want to do it at the beginning, not after 
the money is out. We will give you as much detail as we can as 
quickly as we can about what that safeguard is going to entail. 
But we are being very careful and we are going to make sure 
that people in charge of administering this program, which in 
this case are largely Fannie and Freddie have very strong 
protections in place.
    Mr. MEEK. Well, we want to make sure that there is a police 
officer there at the beginning versus several months into it. I 
think that is key and paramount. Thank you.
    Chairman RANGEL. The Chair recognizes the gentlewoman from 
Pennsylvania, Ms. Schwartz.
    Ms. SCHWARTZ. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for indulging the entire Committee and on being here 
for as long as you have. I do want to just start out by saying, 
having heard from the other side of the aisle that they have 
deep concern about the national debt and the deficit. The fact 
is that we are concerned about the deficit. I want to make that 
very, very clear. If I hadn't been here for 4 years already 
where I was only hearing this for the first time from the other 
side of the aisle, we might actually be in a little bit better 
situation if, in fact, they had cared about it last year and 
the year before and the year before that, and not doubled the 
national debt in the last 8 years and not left the deficit that 
you have inherited and we all have.
    So, let me say that I want to acknowledge that this is the 
way you have--this honest budget that there are expenditures 
that have never been put in before. I think that is really 
important. That you also have cut programs that don't work and 
that is a hard thing to do in government. You have looked at 
that. But what I wanted to ask you about is what is equally 
important and that is the investments we are making in critical 
areas that are going to create a greater economic 
competitiveness for this country. Because ultimately--and I 
think all of us would agree with this--ultimately the way we 
get out of this economic crisis both for our budget on the 
Federal level but for families and businesses is to grow the 
economy. The area that I wanted to ask about--and I don't think 
was addressed specifically--is in the area of innovation and 
technology. One of the things I was very pleased about seeing 
is that the budget makes permanent the extension of the 
research and development tax credit.
    I don't know if that has been mentioned. But I think that 
it is so important for us to be building on technology and 
innovation. Could you just really briefly talk about--
particularly in the small business area, particularly in 
energy, in biotech, in health, in the health area--my district 
represents all of that. I think that we have to make sure that 
the tax provisions that you have put in really do address that 
and incentivize that investment in technology, in innovation, 
and that those businesses know it, which is the second part of 
my question. You have used a lot of different tools, tax 
provisions, grants, loans, all sorts of ways to do this.
    How is a small entrepreneur to even have some idea of how 
to access all of those provisions that are really cut across 
both the recovery and the package on the and the budget? I look 
forward to your comments.
    Secretary GEITHNER. Excellent question. You are 
highlighting a really important thing. It is that kind of 
commitment to supporting research and development, to providing 
support for basic research for innovation and technology is 
present across the budget. It is not just in the extent of the 
R&D tax credit. It is across the budget. I think it is very 
important that there be visible detail in the public domain 
quickly on exactly how these programs are going to operate. It 
is very important that you bring it together so that people see 
in one place all the things that might be relevant to their 
particular business. The President, as you know, has asked the 
Vice President to run a process where he is bringing together 
the principal agencies responsible for implementing these 
programs and frankly forcing them to work together and make 
this stuff happen as quickly as possible. I would be happy to 
walk you and your staff through in as much detail as we can all 
the provisions in this stuff. But you are right to be 
highlighting them. They are a critical part of----
    Ms. SCHWARTZ. I appreciate that, because I think all of us 
are being asked by our communities, our business community in 
particular, how do I know this, and we are trying to have it 
all put together. It would be really great to have that 
information in a very accessible way for our small businesses. 
Thank you Mr. Secretary.
    Secretary GEITHNER. Thank you.
    Mr. CAMP. Again, thank you Mr. Secretary for being here. I 
look forward to those other meetings in furthering our 
discussions. It was tough to make much headway with 3 minutes 
per person, but everybody got a chance to have a talk with you.
    Secretary GEITHNER. I did hear you. I will always listen 
and I will tell you when I disagree. But I will always listen 
and I will work with you.
    Mr. CAMP. Thank you very much. Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you again.
    [Whereupon, at 3:17 p.m., the hearing was adjourned.]
    [Submission for the Record follows:]
                       Statement of Liz Claiborne
    As a designer and marketer of several retail-based premium fashion 
brands and department store-based fashion brands with more than 16,000 
employees, Liz Claiborne, Inc., applauds the economic stimulus 
legislation that included business tax provisions. The support of 
Congress in helping companies weather the current economic conditions 
while retaining jobs is truly appreciated. However, recent data has 
shown that our economy has suffered and continues to suffer at an 
alarming rate. Additional action by Congress is necessary in order to 
preserve jobs and to avoid a further deterioration of our economy.
    Based on limited information recently released concerning the 
President's 2010 budget, particularly helpful is the increase in the 
net operating loss (NOL) carryback from two years to five years. We 
strongly support the provision that would allow businesses (big and 
small) to carry back losses from two years to five years. Such a 
provision would provide the necessary alternative financing that U.S. 
businesses needed to weather this unprecedented storm of economic 
events. We have no doubt that the American Recovery and Reinvestment 
Tax Act of 2009 will put people back to work or help avoid additional 
workforce reductions however, such Stimulus will undoubtedly take time 
to work through the system. Businesses, both big and small, need the 
government to take action to bridge the gap between now and when the 
economy returns to some sense of normalcy over the next twelve to 
eighteen months.
    We, and others in our industry, were disappointed that the Stimulus 
package did not include the NOL carry back provision for all 
businesses. We strongly urge you to reconsider as part of this budget 
or in a separate act a provision that would allow companies (big and 
small) to carry back losses from two to five years starting with the 
tax year end 2008.
    As stated in the Congressional Research Service (CRS) Report for 
Congress, ``the intent of the NOL carryback/carryforward provision is 
to give taxpayers the ability to smooth out changes in business income, 
and therefore taxes, over the business cycle. Extending the carryback 
period would enhance the ability of firms to smooth income by allowing 
losses to be offset against a longer period of past profits rather than 
having them carried forward.'' Allowing taxpayers to fully recover 
current losses now, as opposed to in the future, will have a positive 
effect on our economy. It will allow businesses to meet payroll, retain 
their workforce, help avoid additional layoffs and stabilize the 
business environment. NOL carrybacks are more valuable than 
carryforwards due to the time value of money. It is quite evident that 
the clock is ticking on many businesses. Most economists agree that an 
NOL carryback period must be long enough to allow for adequate income 
smoothing over a business cycle. Since World War II the average 
business cycle has been six years.
    The Congressional Research Service (CRS) Report for Congress also 
went on to state,

      ``economists believe that extending the NOL carryback 
period during an economic downturn could stimulate business investment, 
an important component of economic growth. Along the same line, an 
extended NOL carryback period may increase the stimulus effect of more 
targeted tax related investment incentives such as bonus 
depreciation;''
      ``businesses experiencing large current losses could 
apply their losses over a longer profitable period in the past, 
resulting in a more immediate refund of taxes paid than would have 
otherwise been possible. The refund could provide businesses that are 
unable to raise capital in the financial markets with enough extra cash 
to pursue profitable investment opportunities. The current lack of 
available credit stemming from the events in the sub-prime mortgage 
market that have spilled over into other segments of the financial 
markets could be one reason why it may be difficult for some to secure 
investment financing,'' and finally
      ``businesses that lack profitable investment projects may 
choose to instead use the cash inflow resulting from a larger NOL 
carryback refund to cover operating expenses such as employee wages. As 
a result extending the carryback period could have a positive effect on 
employment.''

    With the banks virtually broke and broken, businesses are relying 
on the government's wisdom to provide alternative financing while the 
spending portion of the bill takes effect. Despite testimony on the 
Hill, banks are simply not allowing for credit to flow properly to 
businesses and the traffic from consumers due to lack of consumer 
confidence has been reduced. The NOL provision can provided needed cash 
to businesses, especially retailers, to weather this unprecedented 
storm of negative economic events. Businesses were counting on the 
government to help with a solution.
    We would strongly support the NOL legislation that would allow for 
a carryback for five years. We also urge that such provision start with 
tax year 2008 so that taxpayers can immediately apply for refunds they 
need today rather than a refund that may be received in 2010.

                                  
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