[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 4, 2009

                               __________

                            Serial No. 111-4

                               __________

         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

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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 25, 2009 announcing the hearing.............     2

                                WITNESS

The Honorable Peter R. Orszag, Director of the Office of 
  Management and Budget..........................................     5

                       SUBMISSION FOR THE RECORD

Matt Lykken, statement...........................................    82


                      PRESIDENT'S FISCAL YEAR 2010
                            BUDGET OVERVIEW

                              ----------                              


                        WEDNESDAY, MARCH 4, 2009

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

    The Committee met, pursuant to notice, at 2:00 p.m., in 
room 1100, Longworth House Office Building, Hon. 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 25, 2009
FC-3

               Chairman Rangel Announces a Hearing on the

           President's Fiscal Year 2010 Budget Overview with

                      OMB Director Peter R. Orszag

    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 Wednesday, March 4, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be limited to the invited witness, the 
Honorable Peter R. Orszag, Director of the Office of Management and 
Budget. 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 Administration's tax and spending proposals 
for the coming year, many of which fall under the jurisdiction of the 
Committee on Ways and Means.
      
    In announcing the hearing, Chairman Rangel said, ``Director Orszag 
has testified before the Committee on numerous occasions in other 
capacities. I have enjoyed hearing from and working with him in the 
past and look forward to his testimony. This year's budget will provide 
an important roadmap as Congress works, on a bipartisan basis, with the 
President to develop new fiscal policies to address the challenges 
facing American families.''
      

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    Chairman RANGEL. The Committee will come to order, as we 
have the opportunity to review and ask questions of the 
President's budget.
    And most of you know Peter Orszag, who has served with us 
as Director of the Congressional Budget Office. And he has the 
experience, the background. And, from what I have seen of his 
performance in the Budget Committee, not intimidated but 
willing to give you an honest answer and, also, to take 
criticism where Members on either side think that is warranted, 
or even if it is not warranted.
    Having said that, I want to welcome you, Mr. Orszag, and 
thank you first for your willingness to serve your Congress and 
your country at a time when we have one of the most serious 
problems in our Nation's history. And we know that you, like so 
many other people, have options, but your country and your 
President needed you, and I wanted to thank you and your family 
for being willing to help us to negotiate out of this very 
serious problem that we face.
    Quite frankly, I find it difficult for me to find any 
criticism, but, indeed, a lot of political courage for the 
President to actually say that he is willing to have the 
country know that war is hell. It is not just a question of 
losing lives and careers, but also we should at least have the 
political courage to say how much does it cost and to put this 
in the budget, as you have done.
    We have treated the alternative minimum tax and paying 
doctors an appropriate reimbursement as though these expenses 
were never in the budget. And the President has put these 
things in the budget, and we have to have the political courage 
to wrestle with it and to get rid of this debt.
    It just seemed to me that, on the question of a strong 
America, even as it relates to our National security, that no 
Nation that ignores the health needs of its poor and aged or 
fails to educate our children so that they can have a better 
than average chance to succeed in terms of trade and our 
presence internationally--and then, of course, anybody will 
tell you that, in terms of climate control, a complex, 
expensive pioneer type of venture that we can't run away from 
if we want to maintain our position of leadership in the world, 
especially among developing countries, that they depend on the 
United States, whether they want to talk about it or not.
    So, these things--nothing is free. You have to have a 
budget. Someone has to pay for it. And I wouldn't think about 
taxing the rich, as so many people might suggest. It just seems 
to me that a nation has to be guided by what is right and moral 
for the majority of its people. And as long as you convince me 
that 95 percent of working people are going to get a tax cut, 
it is going to be very hard for me to believe that this is not 
the equitable way to go.
    In any event, it is not going to be easy. And we want to 
cooperate and get the input of the minority because I, for one, 
know and care for them enough to know that they are not just 
here to complain, they want to be a part of the solution.
    And even if we don't get as much as we wish we would have, 
again, I would say to you, as I said to the Secretary 
yesterday, this is a Committee who would want to be known for 
what it has attempted to do even if we can't achieve all of our 
goals. And we all will admit that we can disagree without being 
disagreeable.
    And I am just so pleased that I will have the opportunity 
of working with David Camp for what is good for the Committee, 
what is good for the Congress, and what is good for the 
country. And we don't have Republican answers or Democratic 
answers, but you don't have to worry about us competing against 
you. It will be us trying to convince you that we think we have 
a better way.
    With that said, I welcome the opening statement of my 
friend, David Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman. Thank you for 
those remarks. We trying to find American solutions to these 
problems. And I very much appreciate your comments and 
appreciate you yielding.
    Mr. Director, as I noted yesterday with Secretary Geithner, 
your budget places a new $646 billion energy tax on the 
American people. Or, at least that is the most your budget 
admitted to in plain type. Upon closer inspection, I found that 
footnote 3 to Table S-2 in the President's budget states that 
they are assumed revenues beyond the $646 billion. So much for 
a return to honest budgeting.
    Honesty is the best policy, and the American people should 
know what is included in the Federal budget. However, telling 
only half the story, as you have done, is not the same as being 
honest.
    I trust you are aware that when you were heading the 
Congressional Budget Office you scored the Lieberman-Warner 
bill limiting CO2 emissions as raising nearly $1 
trillion. And that legislation had less ambitious emission 
targets and did not auction 100 percent of allowances, as the 
President proposes to do.
    How much revenue beyond the initial $646 billion do you 
really expect the American public to pay? How much of a burden 
will you put on American employers and job creators to raise 
these new moneys? And why is the true cost of this tax hidden 
from the public and the media?
    Beyond this new massive tax, I hope we can get the chance 
to talk about the President's approach to health care reform. 
Per-capita health care spending in the U.S. is already twice as 
high as the spending rates in Canada and two and a half times 
higher than those in the United Kingdom.
    While health care is expensive, the issue is not that we 
aren't spending enough today, it is that we are spending it 
inefficiently. Yet the President's budget proposes a $634 
billion, quote, ``health reform reserve fund'' to serve as a 
partial downpayment. First and foremost, I worry that you have 
confused increased spending with real reform that delivers 
enhanced care. Second, half of this money will come from a 
massive tax increase, the rest from drastic changes in Medicare 
and Medicaid.
    But yet, again, you have not told the whole story to the 
American public. If $634 billion is a downpayment, what is the 
full cost, and why is that number not in this budget. Given 
that most estimates place the cost of your health reform plans 
at more than $1 trillion, I assume you have hidden somewhere 
another $400 billion in tax increases and Medicare cuts you 
will be sharing with this Committee.
    Mr. Director, to honor the passing this week of Paul 
Harvey, I hope you will tell this Committee and the American 
public the rest of the story.
    And, with that, I yield back the balance of my time.
    Chairman RANGEL. I hope you don't have to go to Paul to get 
the answer. But I am glad that these questions have been 
raised, because if this is going to be the most difficult part 
of getting the budget passed, then I think it will be 
relatively easy. Because the fact that he found something that 
was hidden means that we don't have to concern ourselves with 
what is not there.
    And, really, I appreciate the fact that it appears as 
though the opposition is not going to be toward the objective 
but how do we pay for it. And that is a legitimate question, 
because Republicans and Democrats are going to have to face our 
constituents. It is easy to provide better service and better 
education; it is difficult to pay for it. So the tax-raising 
part is something I join in with my colleague in hoping that 
you will be able believe to respond to that.
    So we are prepared to take your testimony. Thank you, 
again, for coming. And proceed as you would care.

    STATEMENT OF HON. PETER R. ORSZAG, DIRECTOR, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. ORSZAG. Chairman Rangel, Mr. Camp, Members of the 
Committee, I come before you at a time of great consequence for 
our economy and for our fiscal future.
    When the President took office on January 20th, he 
inherited an economic crisis more severe than any since the 
Great Depression. Over the past 13 months, 3.5 million jobs 
have been lost, the greatest since World War II. In December 
and January alone, 1.2 million jobs were lost. The economy 
contracted by more than 6 percent in the final quarter of last 
year. And trillions of dollars in wealth have disappeared, 
harming retirement accounts and other assets for America's 
working families.
    Why has this happened? A central cause is the collapse in 
credit in capital markets, itself fueled by inadequate 
oversight, insufficient disclosure, distorted incentives, and 
excessive conflicts of interest.
    But the roots run much deeper than just that. They reflect 
an era of irresponsibility in which we have failed to address 
the deep, underlying problems and challenges we face in 
education, in energy, and in health care. And they reflect a 
theory of the case in which the only factor that was deemed to 
drive economic performance is the top one or two marginal tax 
rates, and the way of being in favor of the market was to 
funnel billions and billions of dollars of subsidies to 
corporations. I reject that theory. I don't think it worked 
very well.
    The result is a pair of trillion-dollar deficits. The first 
is a trillion-dollar gap between how much the economy is 
producing each year and how much it could produce. That is 
shown on this first chart. The purpose of the Recovery Act was 
to start filling in that hole, again, between how much the 
economy is producing and how much it could produce, which is 
just lost income, $12,000 on average per year for a family of 
four each year.
    The second trillion-dollar deficit is the budget deficit. 
When the Obama Administration took office, it faced a $1.3 
trillion deficit for fiscal year 2009 and trillions of dollars 
of deficits out into the future. Indeed, if you look at just 
this year and next year, the impact of the economic downturn 
that we inherited and the steps that have been necessary to 
start combating it total $2 trillion in terms of deficit costs: 
$600 billion because the weaker economy drives down revenue; 
$650 billion for potential financial stabilization efforts; and 
$787 billion for the Recovery Act, which was necessary to get 
the economy back on the road to economic growth.
    Looking forward, we must change course. If we don't adopt 
the policies that have been put forward in the President's 
budget, the deficit over the next decade will be $2 trillion 
higher, and we will not have addressed those underlying 
problems that we face in education, energy, and health care.
    Let me be more specific.
    First, we have to be honest about the deficits that we 
face. This budget does not assume, as past budgets did, that 
there would never be another hurricane. It does not assume, as 
past budgets did, that the alternative minimum tax would take 
over the Tax Code. It does not assume that we will slash 
Medicare physician payments in a way that would undermine 
access to doctors for Medicare beneficiaries, as past budgets 
did. All in, the budget includes $2.7 trillion in budget impact 
that would have been excluded from previous budgets.
    I will come back to the point that Mr. Camp raised later 
on.
    With the scope of the problem recognized, deficit reduction 
occurs in several areas, while also investing in those key 
priorities: education, energy, and health care. In particular, 
the President's budget cuts the deficit in half by the end of 
his first term, which reflects several forces, including 
eventual economic recovery, a winding down of the war, 
restoring some balance to the Tax Code while providing a net 
tax cut to 95 percent of working families, and, importantly, 
improving the efficiency of government.
    The budget includes, for example, $100 billion in savings 
both for making sure that the right person gets the right 
benefit at the right time so that we are not making erroneous 
payments, for example, to Medicare providers and by eliminating 
inefficient subsidies to the middlemen on educational loans. 
Those two things right there, $100 billion over the next 
decade.
    Contrary to the analysis of some pundits, this budget marks 
a dramatic change in that it pays for new initiatives--
something that has not been done in the past--and it also 
reduces discretionary spending; that is, the basic operations 
of government as a share of the economy and over time, as this 
next chart shows.
    Nondefense discretionary spending in 2009 will be about 4.1 
percent of GDP. Over the next decade, under the President's 
budget, it will be 3.6 percent of GDP. And by the end of the 
budget window, 3.1 percent of GDP, the lowest on record since 
1962. I think it is very hard to look at this graph, which is 
embodied in the numbers in the budget, and assert that it is a 
big-spending budget.
    At the same time, we do reorient priorities toward long-
term economic efficiency and productivity in energy, education, 
and health care. These are the areas that business leaders and 
others have long identified as key to our long-term economic 
performance.
    In energy, we include $15 billion a year in energy-
efficiency investments; for example, to move wind power from 
the Dakotas to population centers in a way that is not 
currently possible because the electricity superhighway does 
not exist between where the wind occurs and where the 
electricity is needed. To finance that, along with tax relief, 
in a fiscally responsible way, we do include a market-friendly 
cap-and-trade program to address climate change.
    Now, let me address quite directly Mr. Camp's quotation 
from footnote 3 in Table S-2. The last sentence of that 
footnote states very clearly, ``All additional net proceeds 
will be used to further compensate the public.'' In other 
words, to the extent that cap-and-trade raises any additional 
revenue, it will be returned to the public fully.
    In the second area, education, we have historic investments 
in early education and in higher education, including shoring 
up funding for Pell grants and simplifying the application 
process to obtain such grants.
    But let me spend most of the remainder of my time on health 
care, because I think that is not only the key to our fiscal 
future but also essential to helping workers, since workers' 
take-home pay is being reduced to a degree that is 
unnecessarily large and under-appreciated because of rising 
health care costs. It is also burdening State governments that 
are having trouble financing support for higher education 
because of rising health care costs.
    If you look out over the future, it is clear from this 
graph that Medicare and Medicaid are the dominant forces 
driving Federal spending up over time. The rate at which health 
care costs grow is the single most important factor in our 
long-term fiscal gap. The Administration wants to adopt and 
enact health care reform this year to reduce the growth rate of 
health care costs and thereby address the key to our fiscal 
future.
    There are substantial opportunities to reduce health care 
costs while potentially even improving quality, or at least not 
harming quality, as is evident from the very substantial 
variation that we see across parts of the United States, with 
the darker areas of the country having higher costs per 
beneficiary for reasons that cannot be explained by the 
sickness of the patients in those areas or the cost of building 
a hospital or the salaries paid to doctors in those areas, but 
rather is explained by the intensity of treatment; that is, if 
you have a certain diagnosis and you are in one of those darker 
areas of the country, you will have more tests administered to 
you, you will spend more days in the hospital, you will see 
more specialists.
    And here is the kicker: All of the evidence suggests none 
of that actually improves health outcomes. Those lower-cost, 
less-intensive areas of the country not only have lower health 
care costs but the same, if not better, outcomes than the more-
intense approaches. We need to be fixing that.
    Dartmouth College researchers suggest that as much as $700 
billion a year in health care expenditures could be reduced or 
eliminated from the system if we could move the practice norms 
in the darker parts of the country toward those in the lighter 
parts of the country.
    How to do that? We need health information technology, 
which is already embodied in the Recovery Act. We need more 
research on what works and what doesn't; already funded in the 
Recovery Act. We need an emphasis on prevention and disease 
management; significant downpayment in the Recovery Act. And we 
need to reorient the payment incentives for providers, embodied 
in the budget proposals. The budget includes very significant 
changes so that we are no longer just paying for more care, we 
are paying for better care.
    We can do this this year. We can bend the curve on long-
term health care costs, improve the efficiency of the health 
system, and thereby not only help the Federal Government but 
help American families at the same time.
    Now, as the chairman already said, none of this is going to 
be easy. But as the country music singer Montgomery Gentry put 
it, it ain't about easy, it is about tough. We need to make the 
tough choices that will put this country back on the right 
course. And that means being honest about what kinds of fiscal 
problems we face. It means reducing our medium-term deficit, as 
this budget does. It means investing in education and energy. 
And, finally, it means reforming our health care system to make 
it much more efficient, which is what we want to do this year.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Orszag follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman RANGEL. Thank you.
    There has been some questioning by the Ranking Member as to 
you not requesting the full amount but merely suggesting a 
downpayment, as it relates to the cost of health reform. I 
would have considered it to be an affront if you were to tell 
us how much it is going to cost before you even start the 
program.
    How could you more effectively give us a heads-up as to the 
direction in which you are going?
    Mr. ORSZAG. Well, again, the whole theory there, the 
purpose was to put a significant downpayment on the table, 
which we have done, $634 billion, to get the process started 
and avoid the mistake that has sometimes occurred in the past 
in which we come to the Congress with, you know, ``Here is the 
health care plan; please pass it.'' We want to work with you 
both on the benefit design side and on any additional funding 
that will be required, which we fully admitted and clearly 
stated in the budget document.
    Chairman RANGEL. And it would seem to me that it would be 
an affront to this Committee, whether we had Republicans or 
Democrats, if the Administration would just come and give us a 
guesstimate as to what we have to do. In a sense, you have to 
work with us in order to achieve these national goals, don't 
you?
    Mr. ORSZAG. Not only do we have to, we want to.
    Chairman RANGEL. So there may be a lot of questions that we 
have to help provide answers to in the future. But I personally 
think that you are going about it in a way that is more 
comfortable for us as a Committee and as a Congress.
    Tell me this. There has been serious accusations made that 
you intend to raise more money from the Tax Code than we have 
been able to see in recent history. How is that statement 
consistent with the Administration's claim, and I will support, 
that you intend to reduce the taxes for 95 percent of the 
taxpayers?
    Mr. ORSZAG. Well, there has been a lot of confusion sown 
over the revenue proposals, so let's just discuss them very 
frankly.
    There are a set of revenue changes that take effect in 2011 
and thereafter. For 95 percent of working families, they would 
experience a net tax cut. For the top 2 percent of American 
households, they would experience a return to the marginal tax 
rates that they experienced during the nineties, which I don't 
think I need to remind you was a very good decade for economic 
growth, the stock market, and overall performance.
    So we are talking about some rebalancing. There is some 
shared sacrifice that is required. But it occurs after 2011. 
Ninety-five percent of families get a net tax cut. And the 2 
percent of top earners, who have done very, very well over the 
past several decades, are asked to pitch in a bit more, like 
they did in the nineties.
    Chairman RANGEL. Well, we would not be raising their taxes. 
Those who provided the extreme beneficial tax relief for them, 
they were the ones that decided that those provisions should 
expire in 2011. I assume that was intelligently made because it 
would depend on the state of the economy in 2011. So I don't 
see how we can be accused of a tax increase, even on this small 
number of people, if all we are doing is extending the 
consideration of those who

gave them the benefit to say, now let's see where we are. And, 
as you pointed out, we certainly are nowhere near where we were 
during the times that they got the benefit.
    So I would like to believe that we are not talking about 
raising taxes for the rich, but what we are doing is providing 
tax decreases for the rest of the taxpayers. Is that a correct 
assumption?
    Mr. ORSZAG. We are providing a net tax cut for 95 percent 
of working families, yes.
    Chairman RANGEL. I yield to Mr. Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman.
    Director Orszag, when you were before the Committee on 
September 18, 2008, you stated in your testimony, and I quote, 
that ``decreasing emissions would impose costs on the economy. 
Much of those costs will be passed along to consumers in the 
form of higher prices for energy and energy-intensive goods,'' 
end quote. And in your written testimony at that time, you said 
that, for a 15 percent cut in CO2, the average 
annual household cost was roughly $1,300.
    And since the President's budget assumes an 83 percent cut 
in CO2, five times the 15 percent cut you testified 
to, what is your estimate of the average annual cost to 
families of this energy tax?
    Mr. ORSZAG. I think you are doing an apples-to-oranges 
comparison. I believe the 15 percent probably was off 1990 
levels. The 83 percent that is in the President's budget is off 
of 2005 levels, and it is by 2050. So I think those are very 
different concepts.
    Mr. CAMP. What would be the average cost to families of the 
83 percent cut in CO2 in the President's budget?
    Mr. ORSZAG. I don't have an answer to that because it is 
going to depend on how much we do in energy-efficiency 
investments, and it is also going to depend on the exact path 
that is adopted. We don't have a fully fleshed out cap-and-
trade program, market-friendly cap-and-trade program. There are 
many different ways of hitting that carbon concentration by 
2050.
    Mr. CAMP. Well, I would just point out that the maximum 
amount received by anybody under the Make Work Pay is $800. So, 
at least under your old numbers, that is a minimum of a $500 
tax increase. And, obviously, for seniors, college students, 
and the unemployed, they don't qualify for Make Work Pay, do 
they?
    Mr. ORSZAG. They don't. I want to point out again----
    Mr. CAMP. So they would receive the full effect of the 
energy tax.
    Mr. ORSZAG. To the extent that there is additional revenue 
generated from the cap-and-trade program, as I noted in that 
footnote that you referenced, it would be returned to the 
American public as compensation. That could well include the 
folks who are not covered by Making Work Pay.
    Mr. CAMP. Well, then I would ask that you get to this 
Committee in writing at a later time then what your estimate is 
of the increased cost to families of the energy taxes contained 
in this proposal.
    Also, last summer, when there was a lot of concern that, as 
a candidate, President Obama then would propose a massive tax 
increase, and so two of his senior advisers then went to the 
Wall Street Journal and said that his tax plan would reduce 
revenues to less than 18.2 percent of GDP, or of our economy. 
That is the level of taxes that basically prevailed under 
President Reagan, and, I might add, that is roughly the 40-year 
historical average.
    So then I was a little surprised when I saw this budget 
would drive revenues up to 19 percent of our economy by 2013 
and all the way up to 19.5 by 2019. So, in the face of a 
recession, why would we have taxes be a greater amount of the 
economy when we are trying to create jobs and grow our economy?
    Mr. ORSZAG. Well, we are not. Again, the revenue changes 
don't take effect until 2011 and thereafter, after the economy 
should be back on its feet----
    Mr. CAMP. Do you really believe the economy will grow 3 
percent in 2011?
    Mr. ORSZAG. The vast majority--look, there is a lot of 
uncertainty about the economic outlook, but the vast majority 
of professional forecasters, Chairman Bernanke, the 
Congressional Budget Office itself, all suggest that the 
economy will be recovering by 2011.
    Mr. CAMP. I don't believe Chairman Bernanke has made that 
statement that directly.
    Mr. ORSZAG. We can check the transcript. I will stand 
corrected. But I believe that the Federal Reserve's economic 
forecasts reflect a recovery before 2011.
    With regard to your underlying question, though, we have to 
remember, the fiscal condition of the Nation deteriorated 
dramatically relative to even when the President was 
campaigning. So, in the face of the deficits that we are 
inheriting, we are doing lots of things, including reducing 
spending, but also some revenue changes after 2011. And that 
will generate additional revenue coming from the top 2 percent 
of taxpayers and from corporations, while providing a net tax 
cut to 95 percent of families, after 2011.
    Mr. CAMP. So you would agree that the 19.5 percent of our 
economy is higher than historical averages over the last 40-
year period?
    Mr. ORSZAG. I just don't think historical averages are that 
informative, given the situation that we currently face and an 
aging population. Yes, it is factually correct that, if you 
want to look at the historical average, the revenue share is 
somewhat higher than it was then. But then again, you know, we 
have rising Medicaid and Medicare costs which we are trying to 
address, we have rising Social Security costs which we are 
trying to address. The situation is much different than it was 
in 1960.
    Mr. CAMP. And that certainly is a contradiction to what 
those senior advisers said would happen before Mr. Obama was 
elected President.
    Mr. ORSZAG. The situation has changed, and we have had to 
just adjust.
    Mr. CAMP. All right.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you.
    There are three votes on the floor. We will adjourn until 
then. It should be about 20 minutes. And Members will be 
recognized based on their return to the Committee to ask 
questions.
    We won't be that long.
    Mr. ORSZAG. Okay, I will be here.
    [Recess.]
    Chairman RANGEL. The Committee will resume. I apologize for 
the interruption, and recognize my dear friend from Michigan, 
Mr. Levin.
    Mr. LEVIN. Thank you, Mr. Chairman.
    Dr. Orszag, I thought the back-and-forth between you and 
the Ranking Member and others was a constructive discussion, 
the kind we need. And I must say, I thought the earlier remarks 
that talked about, on the part of the witness or those you 
represent, in terms of dishonesty or not telling the whole 
truth, was not constructive. And I don't think it is helpful to 
use those terms if we are going to try to build some bipartisan 
support.
    The facts do matter. And I wanted to ask you, one of the 
facts that came up related to the estimate as to the percentage 
of gross domestic product represented by taxes. And there is a 
reference to a figure of, I think, 19.3 percent. The CBO has 
estimated and I think we estimated President Bush's last 
budget.
    Do you know offhand what the figure was that was estimated 
that revenues would be the percentage of gross domestic 
product? Do you know that figure?
    Mr. ORSZAG. Yes, sir. In the CBO re-estimate of President 
Bush's final budget, the revenue as a share of GDP in fiscal 
year 2018 was 19.2 percent.
    Mr. LEVIN. And what is the estimated figure for the budget 
that you had presented?
    Mr. ORSZAG. 19.3 percent.
    Mr. LEVIN. So there is a difference of one-tenth of 1 
percent.
    Let me just ask you, if I might, about health, energy, 
education and those investments, because there isn't, I think, 
enough focus. And sometimes you or others have been asked, why 
are we investing in energy and education and health care rather 
than simply seeing about a recovery and the immediate impact on 
jobs? And I think that question becomes all the more salient 
because of the report today that came out from Families USA 
that says that, at some point in the years 2007 and 2008, 86.7 
million Americans were uninsured at some point.
    So, you know, take it on directly so that our constituents, 
so this whole Committee and, really, America understand, why 
these investments proposed by the President in areas of health, 
education, and energy?
    Mr. ORSZAG. Let's take health care for example. Health care 
is not only the key to our long-term fiscal future, as 
illustrated by the graph showing that it is the key driver of 
our long-term fiscal gap, but the effects are much more 
immediate. Workers are experiencing much lower take-home pay 
today because of the cost of their employer-provided health 
insurance, which reflects an inefficient system.
    They are paying higher tuition for their kids to go to 
college because State government budgets have to accommodate 
rising health care costs. As a result, State governments have 
cut back on support for higher education, and the result has 
been upward pressure on tuition and painful cutbacks at State 
universities.
    We need to act this year to start bending the curve on 
health care costs, not just for the Federal Government, but for 
our businesses and our families and our State governments also.
    Mr. LEVIN. And do the same with education, because there is 
a major investment in education.
    Mr. ORSZAG. There is. All of the evidence suggests, in 
terms of life opportunities, the best thing that we can provide 
our kids is a good education. That means well-qualified 
teachers, it means access--I am sorry, I should back up. It 
means access to a high-quality set of early education. The 
budget doubles Early Head Start. It means high-quality primary 
and secondary school. And it means allowing kids to go to 
college.
    Mr. LEVIN. And there is immense, I mean, there is 
considerable funding for training and retraining, is there not?
    Mr. ORSZAG. There is. I mean, let me just take higher 
education for a moment. The budget proposes to make secure the 
funding for Pell grants, in part so that--and also, by the way, 
to simplify the process of applying for financial assistance. 
Right now, to apply for a Pell grant, you have to fill out a 
form that is more complicated than a tax return. That shouldn't 
be the case. We can dramatically simplify the forms.
    And we can also provide secure funding for Pell grants so 
that low- and moderate-income kids in 9th grade or in 10th 
grade can aspire to go to college, knowing that that assistance 
will be there for them. And that will provide a strong 
incentive to stay in school, work hard, and enroll and then 
stay in college.
    Mr. LEVIN. Thank you.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Okay, the Chair recognizes Mr. Herger.
    Mr. HERGER. Thank you, Mr. Chairman.
    Thank you, Mr. Director, for appearing.
    I want to preface my remarks by saying that, as 
Republicans, we very much share the President's goal of 
ensuring that every American has access to affordable, high-
quality health care. And I hope that we can work together to 
achieve this objective in a way that recognizes the unique 
ability of markets to bring about cost savings innovations.
    Having said that, I have serious concerns with the proposed 
$634 billion health reform fund. As Senate Budget Chairman Kent 
Conrad recently observed, quote, ``With the amount of money our 
country is already spending on health care, it is very hard for 
me to understand why the answer is to put more money into the 
system,'' close quote.
    Mr. Director, the budget contains virtually no details 
about what the $634 billion will be used for but proposes to 
take $283 billion in savings from Medicare to fund it. This is 
particularly troubling given that recent estimates place the 
bankruptcy date of Medicare's hospital insurance trust funds as 
soon as 2016, 3 years earlier than last year's projection.
    We need to shore up the trust fund now. And I hope this 
proposal is not an indication that the Administration will make 
a habit of raiding the Medicare trust funds to pay for non-
Medicare initiatives.
    So my question to you is, given the dire condition of the 
Medicare trust fund, shouldn't any savings resulting from 
Medicare reform be used to either protect or improve this 
critical program?
    Mr. ORSZAG. Congressman, our proposals would extend the 
life of the trust fund by 2 years.
    Secondly, let's talk about where those savings come from. 
The bulk of the savings comes from taking an existing system in 
which you have fixed prices for private insurers to offer 
Medicare coverage that is estimated to cost the Federal 
Government $1,000 more per beneficiary than enrolling those 
same beneficiaries in traditional Medicare and replacing that 
system of fixed benchmarks with subsidies to providers with a 
competitive bidding process in which private firms would bid 
for Medicare business.
    I think that is very pro-market. And so, to your first 
point, I view that as being an enhancement of the market in 
health care. The way to promote competition and capitalism is 
not to funnel billions and billions of dollars in subsidies 
that are not consistent with market competition.
    And then, finally, I would say, there are a variety of 
proposals included in here that will strengthen Medicare and 
make the program, in addition to extending the trust fund by 2 
years, make it a more efficient and effective provider for 
beneficiaries so that they get higher-quality health care.
    I will give you an example. We have incentives for 
hospitals to take better care of beneficiaries after they are 
discharged from hospitals. Right now, almost 18 percent of 
Medicare beneficiaries are readmitted to the hospitals within 
30 days of being discharged. Many of those readmissions could 
be avoided if hospitals took proper care of beneficiaries after 
discharge.
    I don't think any of us, having gone through a hospital 
episode, want to be readmitted to the hospital within 30 days. 
So, to the extent that we can provide incentives for higher-
quality care, reduce those readmissions, we not only strengthen 
the finances of Medicare but I think we also help beneficiaries 
and patients.
    Mr. HERGER. Mr. Director, again, how do we lengthen and 
strengthen Medicare so it is not going bankrupt so quickly, 3 
years sooner, if we are using that money that we are saving in 
another area outside of Medicare, is my question?
    Mr. ORSZAG. When we reduce----
    Mr. HERGER. In other words, shouldn't we be saving? If we 
are going to save $283 billion, shouldn't we keep it in a trust 
fund that is already going broke?
    Mr. ORSZAG. And we do. Again, the trust fund is extended by 
2 years.
    Let's take the $177 billion--$177 billion--in subsidies to 
private insurance companies--those are subsidies that are 
generated by this fixed-price approach to paying private 
insurers to cover Medicare beneficiaries. When we save that 
money, that extends the life of the trust fund. So that money 
will help to restore solvency to Medicare.
    We will also drive down premiums through the Part B program 
for all other beneficiaries. We pay for those subsidies both 
through a trust fund that would be exhausted sooner than 
otherwise and through the rest of elderly beneficiaries paying 
higher part B premiums than would be the case without that kind 
of subsidy.
    Mr. HERGER. So you are saying this $285 billion is not 
coming out of Medicare? It will be used in other programs?
    Mr. ORSZAG. It will extend the life of the trust fund.
    Mr. HERGER. Taking it out will extend the life, $285 
billion?
    Mr. ORSZAG. Reducing Medicare expenditures--and, in fact, 
not to get too wonky here, but----
    Mr. HERGER. But, again, we are taking it out, as I 
understand it. Are you not taking that out?
    Mr. ORSZAG. We are saving money. Reducing expenditures 
extends the life of the trust fund. And, in fact, not to get 
too wonky about it, but if we were to take that same money and 
put it all back into the Medicare Program, then there would be 
no effect on the trust fund, as opposed to extending it as this 
proposal does.
    Chairman RANGEL. Thank you.
    The Chair recognizes Dr. McDermott and thanks him so much 
for negotiating us through this complicated but necessary 
budget.
    Mr. MCDERMOTT. All right, thank you.
    Thank you, Dr. Orszag.
    I wanted to thank you for that chart that you put up and 
brought in here. On page 11 of your testimony, you said what 
many of us from the Northwest have always said, and that is 
that we need to look at more cost-efficient areas of the United 
States and implement the practices at a national level. I think 
if we brought the rest of the system down to where we are in 
Oregon and Washington, there would be no problem with the trust 
fund. So I think that it is important that you point that out.
    But there is an issue I want to raise with you, which I 
think ought to be considered in any further proposals you make 
to the Congress. The Administration needs to address the 
serious crisis in the primary care health care workforce. And I 
would like to see the Administration propose a comprehensive 
strategy for creating primary care physicians. We need a 
steady, predictable stream of primary care providers if we are 
going to meet the challenges of providing health care to the 
entire population. We can't do it with our present workforce.
    We need to get medical students committed to primary care 
before they are overwhelmed with debt and start making 
decisions based on debt at the end of their training. Health 
Service Corps and all those things are good, but we need to get 
them before they get into the debt. We need them to think about 
primary care throughout their entire medical training, not just 
as an afterthought.
    Now, today, we have 45,000 medical students currently 
attending public universities and medical colleges. The average 
cost of tuition at these schools is $20,000. Now, that means, 
for $1 billion a year, you could guarantee a steady stream by 
making medical school free. Let medical students sign up at the 
beginning, they accept 4 years of tuition, and at the end they 
owe 4 years of work in the primary care fields. If you did 
that, you would see a dramatic change in what is going on in 
medical care today.
    I am a physician. I was trained in medical school when 
medical school was almost free in the State of Illinois, $800 a 
semester. Today, medical students come out $150,000 or more in 
debt. And they make decisions on how to pay off their that 
debt, not to go to an underserved area in rural North Dakota or 
in central-city New York.
    And it seems to me that, if you are going to do this--and 
you say that we want to get a lot of savings out prevention and 
coordinated care and comparative effectiveness and integrated 
care, all those things, you are not going to get it if it is 
all delivered by specialists. If you come out of medical school 
$150,000 in debt and you say, should I go to a primary care 
place or should I go become a specialist--people go to 
specialists, they overutilize, which is why you have the 
situations across this country.
    And I wonder if you have even considered where you are 
going to get the physicians to deliver this universal health 
care system across the country. I would like to see a billion 
dollars a year put into a program like this. And I would like 
to hear your comments on it.
    Mr. ORSZAG. Well, first, thank you very much for raising 
it.
    That variation that you see is highly correlated with the 
ratio of specialists to primary care physicians, with the 
higher-cost areas having much higher ratios of specialists to 
primary care physicians.
    There are many things that can be done to encourage more 
primary care physicians. For example, I would hope that, as we 
work to reform the sustainable growth rate formula and the way 
that we reimburse physicians under Medicare, one of the things 
that might result from that is stronger incentives for doctors 
to enter primary care in the first place.
    And I also agree, beyond that, with you that there is a lot 
more that can be done at the first stage of things, when 
students are in medical school, to encourage primary care 
physicians. Because you are absolutely right, that has been 
shown to be one of the more effective ways of delivering high-
quality, lower-cost care.
    Mr. MCDERMOTT. I think if you consider an average kid--and 
I came from a family where my family didn't have any money to 
help me through medical school. And if you put somebody like 
that, a poor kid, a middle-class kid, into school and begin the 
process of loading him down with debt and offer him a way out 
at the end, you change his or her thinking. Doing it at the 
beginning makes much better sense, because then he is thinking 
or she is thinking, ``I am going to spend my time in rural 
Illinois, not in Chicago,'' and it basically changes his 
mindset or her mindset and makes them a much better primary 
care doc when they get out there.
    I hope you will look at it, because it is only $1 billion 
out of the $634 billion you are setting aside. I would like to 
have it considered.
    I yield back the balance of my time.
    Chairman RANGEL. How much does it cost to train an 
infantryman, you know, for 3 or 4 years?
    Mr. ORSZAG. To train--I am sorry?
    Chairman RANGEL. A Marine or a serviceman a combat person, 
how much does it cost to train them to defend their country? Do 
you have any idea?
    Mr. ORSZAG. I could guess, but I would rather not do that.
    Chairman RANGEL. Well, I want to join with my colleague 
here. It just seems to me that if we are talking about saving 
lives, we are also talking about saving money. And if people 
can't afford to provide the service we need, then we have to 
make certain that they don't owe us, that we owe them for what 
they are doing.
    It just seems to me that we are doing the same thing for 
teachers and all of those that are going to make this a 
healthier, better-educated America. So having to have a person 
that is trained to decide whether they are going to service the 
poor or whether they have to pay their tuition, to me, doesn't 
make a lot of economic sense.
    So I would like to join with my colleague from Washington 
and see what we can work out, so that a person might get paid 
for doing the right thing. Okay?
    To my veteran friend from Texas, Mr. Johnson.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Director Orszag, hi.
    Mr. ORSZAG. Hi.
    Mr. JOHNSON. One line in the President's budget is an issue 
you and I have talked about a number of times, physician-owned 
hospitals.
    Mr. ORSZAG. I remember.
    Mr. JOHNSON. So do I. The chairman knows I strongly believe 
these facilities play an integral role in our health system by 
providing high-quality, efficient care. But the Administration 
needs to realize their opposition to these facilities comes at 
a time when we need them more than ever. They employ highly 
skilled workers and are engines in their local economies. This 
policy would have a devastating effect on these facilities that 
employ, invest in, and serve their communities when we need 
them the most.
    What I find most interesting about this policy in your 
budget is the score for this provision. There is an asterisk 
next to this policy change in the budget; what does that mean?
    Mr. ORSZAG. That means that the actuaries are still 
evaluating the literature that you and I have spent so much 
time reading and discussing. And we will come back to you when 
that review is complete.
    Mr. JOHNSON. Well, I think you have put something out there 
that it is less than $50 million, is that true?
    Mr. ORSZAG. I would not necessarily say that, at this 
point. Again, the Congressional Budget Office has conducted a 
review of the relevant literature. The actuaries are doing the 
same thing. We will be back in touch. We will have many more of 
those meetings----
    Mr. JOHNSON. What you are telling me is you put the budget 
out without knowing the numbers.
    Mr. ORSZAG. No. What I am saying is we had 5 weeks to put 
together this budget, and this is a proposal that the 
Administration supports. But, as you know from our discussions, 
there is a complicated literature about the impact. I think it 
is fairly clear there will be some savings, but the actuaries 
wanted to conduct their own analysis of what those savings 
would be.
    Mr. JOHNSON. Well, we were told $50 million or less. And, 
you know, you sent me letters in the last Congress when you 
were in CBO that you assigned a score of $2.9 billion to that. 
Can you tell me which number is correct?
    Mr. ORSZAG. Again, I want to defer--I want to allow the 
actuaries to do their work. You and I have been through that 
literature in painstaking detail. So I have my own personal 
view, but let's let the actuaries do the work that they are 
supposed to do.
    Mr. JOHNSON. Okay. So you don't know at this time, is that 
what you are saying?
    Mr. ORSZAG. That is what I am saying.
    Mr. JOHNSON. Okay. I think that we ought to treat all 
workers fairly, and I know you do too. And, you know, the 
President's proposal requiring State and local governments to 
report on those receiving pensions from work outside of Social 
Security----
    Mr. ORSZAG. Yes, sir.
    Mr. JOHNSON [continuing] In January, I joined Congresswoman 
Eddie Bernice Johnson to host a meeting in Dallas of Texas 
teacher retirement organizations, my constituents and folks 
from Social Security. There we talked about the complex 
business of integrating Social Security benefits and retirement 
plans from work outside of Social Security.
    I hope we can do more work together to increase fairness, 
like, for instance, pass Kevin Brady's bill affecting the 
windfall elimination provision. Do you have any comments on 
that, where you all stand on that issue?
    Mr. ORSZAG. I look forward to working with you on any 
potential changes, but what I want to make clear is, while 
there are laws on the books, we are going to try to implement 
them as effectively as possible. So if the law says X, we are 
going to try to make sure that X is what happens, which is the 
intention of the provisions that you are referring to.
    Mr. JOHNSON. Okay. Turning to Medicare and Social Security, 
we applaud the President's commitment to securing the future of 
those two programs. However, while the President's budget 
proposal asserts the President is committed to ensuring Social 
Security is solvent and viable for American people now and in 
the future, it proposes no significant steps toward achieving 
that goal.
    Similarly, the President's budget proposes some significant 
reforms to Medicare which would provide a small Band-Aid but 
then reverses course by proposing to spend the Medicare 
savings.
    I think we have to protect both of those programs. And I 
want to know what you think about how and when we are going to 
resolve the Social Security problem. And please be specific, if 
you can.
    Mr. ORSZAG. Sure. If I can pull up my penultimate graph, I 
think what we are tying to do is first address the key problem 
for our long-term fiscal future, which is the rising cost of 
health care. That is what we are trying to get done this year.
    It is also the case that Social Security faces a long-term 
actuarial deficit. That should be addressed.
    We want to tackle the bigger problem first. And then, once 
we do that--and we hope that we will work together to get that 
done this year. But I think it is clear from that graph, if you 
were going to do one thing first, deal with the light blue 
area. The dark blue area is also an issue that needs to be 
addressed, but we want to do that in order, just looking at the 
map, deal with the bigger problem first.
    Mr. JOHNSON. They are both broke.
    Mr. ORSZAG. There are differing degrees of problems in the 
two programs. I think, again, the graph sort of speaks for 
itself.
    Mr. JOHNSON. Okay. Thank you, sir.
    Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair now would like to recognize the 
gentleman from Georgia, Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Thank you very much, Mr. Director, for being here.
    I want to follow the line of Dr. McDermott, dealing with 
the whole question of health care. You may have heard me say 
before that I believe that health care is a right and not a 
privilege. People should not have to choose between paying 
their rent and taking their sick child to a doctor. But this is 
the choice that is being made every day. And I am so pleased 
that the President's budget includes a reserve fund to make 
health care available to all Americans.
    Can you please, this afternoon, share with us some of the 
ways in which the President intends to make coverage more 
affordable? Can you please tell us why it is so important to be 
sure that all Americans are covered?
    And I ask for you, Mr. Director, for a moment, for just a 
brief moment, take off your budget cap, and I don't want you to 
talk to me about numbers. I know, in your position as budget 
director--I want you to just speak from your gut, why health 
care is so important. Is it something good in itself, that 
every Americans should have access to health care?
    Mr. ORSZAG. I actually relish the opportunity to take off 
my green eyeshades, so thank you for giving that to me.
    I think in all of our lives, including in mine, we have had 
experiences in which either a family member or we, ourselves, 
have experienced a problem in our health, and the whole world 
changes at that moment. If your parent or your sibling or your 
child, especially, faces a life-threatening disease, your 
entire perspective instantaneously changes and your priorities 
become very clear.
    Without access to health care, too many people face the 
risk, not only of financial harm, but also of incurring 
unnecessary diseases and threats to their lives that wouldn't 
be the case if they just had a simple visit to the doctor or a 
vaccination or all the steps that we can already take to help 
them lead healthier lives.
    You had asked, why is moving toward expanded coverage 
essential? It is essential not only for the moral reason and 
the, sort of, personal reasons that are clear, but also just--
now I am putting my green eyeshades back on--if we don't move 
to a more universal system of health care, we are going to 
continue shifting costs around the health system, pushing on 
one part of the balloon here and having it come out over there, 
and unintended consequences.
    So it is not only the beneficiaries themselves or the 
people themselves that would benefit from having improved 
access to a high-performing health care system, but it is also 
the functioning of that health care system itself would be 
better if we had universal coverage, so that we wouldn't be 
playing this hot-potato game of shifting costs around all the 
time and trying to move it to some other part of the system. 
That is inefficient, and it just leads to problems in the 
health care system itself. Mr. Lewis. Mr. Director, as director 
of the OMB, are you prepared to give it all you have got to 
push to make health care available for all of our citizens on 
your watch during this time?
    Mr. ORSZAG. Let me be very clear. I want and the 
Administration wants and the President wants to get health care 
reform done this year. We absolutely should act now. Some 
people say this is a luxury, that we are facing economic 
difficulties, and health reform is a luxury. I believe that it 
is a necessity. If you are going to not only get more people 
into the system but also start to raise workers' take-home pay 
and lift the burden of excessively high health care costs, 
address this key, the key to our fiscal future, rising cost per 
beneficiary, the time to act is now. So absolutely is the 
answer.
    Mr. LEWIS. I thank you, Mr. Director.
    I yield back.
    Chairman RANGEL. Thank you, Mr. Lewis.
    I now want to recognize Richard Neal.
    In putting together the tax reform package and making it 
revenue-neutral, you were very careful to cut out of the Code 
those uneconomic credits and preferential treatment that was 
there. It looks like the Administration has indirectly 
applauded your effort, except what we used for the pay-fors 
they are using themselves, so you might want to see how we can 
work tax reform with health care reform.
    Mr. NEAL. Thank you, Mr. Chairman. Thank you for your nice 
words as well.
    The President's budget proposal addresses the issue of the 
automatic IRA.
    Mr. ORSZAG. Yes, sir.
    Mr. NEAL. Phil English and I did that bill, well met, well 
accepted. The Heritage Foundation and the Brookings 
Institution, they all offered their support. Why is it so 
important?
    Mr. ORSZAG. This is a great example of, on a bipartisan 
basis--it is not only David John at the Heritage Foundation, 
and Mark Iwry at the Brookings Institution; it is also Marty 
Feldstein at Harvard and Rahm Emanuel now at the White House--
it is agreement that we can help American workers save by 
making it easy and simple. That is exactly what the automatic 
IRA does. It creates an easy payroll deduction IRA, no 
fiduciary liability for the employer, an easy way for workers 
to save if they want to. They can opt out. But for many of us, 
we have busy lives and young kids, whatever, and being 
presented this massive book by your employer, and here is what 
you need to do to sign up, does not work. If you want to read 
through the book, great. But I think a lot of us just want 
something that is good for us, i.e., some money being set 
aside, to happen in a simple and automatic way.
    Mr. NEAL. And helping to create demand as well?
    Mr. ORSZAG. It will lead to better financial security for 
American families.
    Mr. NEAL. As Chairman Rangel duly noted, you are proposing 
some major changes in the Code. In terms of an agenda timeline, 
what would it do in terms of including fundamental tax reform?
    Mr. ORSZAG. Obviously, there are many important things that 
we need to get done. As I mentioned, we want to get health care 
reform done this year. Tax reform is also important, but at 
least in terms of initial focus, we are trying to focus on 
health care, energy and education. Tax reform is crucially 
important. But we would like to get those things done first.
    Mr. NEAL. The budget embraces the philosophy of rewarding 
and encouraging work by reducing the tax burden on working 
families, and over the last few years, we have encountered a 
number of proposals that would not have lessened the burden on 
labor income but rather lowered it on investment income with 
the argument that some tax cuts pay for themselves.
    Mr. Orszag, is it your position or do you agree with the 
assertion that a tax cut can pay for itself?
    Mr. ORSZAG. No, I don't believe there is any credible 
economist from either political party who has claimed that tax 
cuts pay for themselves. In certain situations, tax cuts can 
generate, as can investments in education or energy or health 
care, some additional economic activity, and that can offset 
part of the cost, both for the tax cut or for investments in 
something like education. But it is nowhere near complete. Tax 
cuts do not pay for themselves.
    Mr. NEAL. So, at some time, there is one tax cut that might 
be better than another?
    Mr. ORSZAG. Yes.
    Mr. NEAL. But they don't pay for themselves?
    Mr. ORSZAG. Correct, but there needs to be symmetry. 
Investments in education also generate economic activity, which 
then generates revenue and offsets some of the initial costs of 
investing in education.
    Mr. NEAL. Thank you very much.
    Chairman RANGEL. Thank you.
    And now the Chair looks forward to hearing Mr. Ryan explain 
to me again why a 95 percent tax cut should be considered for 
purposes of the budget as a tax increase.
    I yield to Mr. Ryan.
    Mr. RYAN. Isn't Mr. Brady ahead of me?
    Mr. BRADY. I think so, but go right ahead.
    Mr. RYAN. I would be happy to answer the question, but I 
don't want to pass over Kevin.
    Chairman RANGEL. I am so sorry.
    Mr. BRADY. The chairman is going by good looks, apparently. 
I hate when he does that.
    The foundation of this budget is the economic forecast for 
the next 2 years, especially the next 2 years. It appears to me 
that this budget is giddily optimistic with projections that 
really mask what I believe will be a $2 trillion deficit this 
year, much higher burdens of debt in future years. I hope that 
you would revise them to more realistic numbers that we can all 
deal with because we all share the need for an honest budget.
    Second, this budget declares an all-out war on American 
energy companies, both traditional companies which invest 
billions of dollars into our deep ocean waters and the mom-and-
pop independents that drill 90 percent of all of the wells here 
in the United States. And the result of that is we are certain 
to outsource American energy jobs and grow dangerously more 
dependent on foreign oil. The tax increases in this budget, I 
know for a fact, will punish companies who produce energy jobs 
in the United States. It will starve capital for independent 
companies, those who are producing 80 percent of all of the 
natural gas in the United States.
    I think you will see that drilling shrink by 25 percent as 
a result of this budget, should it pass. It is actually going 
to harm our bridge to renewable energy because wind and solar 
can't meets its potential without natural gas as its backstop, 
and it is going to drive up the cost of manufacturing. I don't 
think that it makes sense to shoot holes in the traditional 
energy boat in which we are riding as a country in the hopes 
that a renewable boat will come along in 10 years. We need to 
be encouraging both.
    But the question I have came from your testimony. You have 
said, and so did Treasury Department Secretary Geithner, that 
this Administration has inherited a $1.2 trillion deficit. That 
is accurate. The question is, from whom have you inherited it? 
It seems to me, last year, the President could only spend the 
money Congress sent him. We hold the purse strings. This 
Congress didn't even send the President spending, most of the 
spending bills, because they were afraid he would spend too 
little.
    The first financial rescue plan, bailout one, as commonly 
called, was proposed by the President, but Democrats provided 
two-thirds of the votes for that. Democratic leadership begged 
the President to do the auto bailout, and then the Obama 
transition team requested bailout number two, you were there, 
and he readily did that.
    So isn't it more accurate to say that you have inherited a 
$1.2 trillion deficit from President Bush and the Democrat-led 
Congress?
    Mr. ORSZAG. I think most of the cause of that expanded 
deficit reflects the economic crisis and steps taken to try to 
address it. So we are inheriting it, yes, from policymakers.
    Mr. BRADY. But the economy doesn't send the President 
spending bills, does it? This Congress sends the President 
spending bills.
    Mr. ORSZAG. The majority of the Federal budget is not 
determined by that annual appropriations bill. Instead, that 
deficit is driven mostly by what is happening, especially on 
the revenue side, which responds directly to the economy. The 
reason that revenues are only 15 or 15 and a half percent of 
GDP this year is because the economy is so weak.
    Mr. BRADY. So you are saying it is inaccurate that you have 
inherited this deficit from both President Bush and the 
Democratic Congress? That it is not true?
    Mr. ORSZAG. That is true to some degree, but I am saying 
that it is the economic crisis that has caused the bulk of the 
increase in the deficit.
    Mr. BRADY. But the spending, the bills that the President 
spends himself come from this Congress, and then this Democrat-
led Congress provided a number of the votes for the key drivers 
of the extra costs in our deficit, is that fair?
    Mr. ORSZAG. Well, that is true, but again, nondefense 
discretionary spending in 2009 will be 4.1 of the economy. The 
deficit we are inheriting is 9 percent. The differences on 
nondefense discretionary may have been 0.1 or 0.2 percent of 
GDP, so the point is that the bulk of that deficit is coming 
because revenue has declined sharply as the economy has slowed 
down and because other forms of spending, unemployment 
insurance, what have you, automatically go up, and because 
there have been interventions, including for financial 
stabilization, that were necessary to help mitigate the crisis. 
Very little of it has to do with any disagreement over the 
level of nondiscretionary spending.
    Mr. BRADY. Thank you, Director.
    Chairman RANGEL. Mr. Tanner is recognized for 5 minutes.
    Mr. TANNER. Thank you very much, Mr. Chairman.
    I have one quick question, Director, which has to do with 
Social Security. As the chairman of the Social Security 
Subcommittee, we are concerned about the backlog. You have some 
money, 10 percent or so, in there for that. Do you have 
estimates on how that will reduce the backlog? And also we have 
problems with adequate resources for the periodic review of 
people who are on it. Could you address that?
    Mr. ORSZAG. The budget includes significant funding for 
program integrity and other efforts at the Social Security 
Administration to work that backlog down. I don't have specific 
estimates for you as to how much it will work it down, but 
there is a very significant investment to do so, and we can get 
back to you with a quantitative estimate of what the impact 
would be.
    Chairman RANGEL. Thank you.
    In order to bring some balance to the Members here by 
party, I will, with the consent of the Ranking Member, start 
calling two Democrats, based on their attendance, to 
Republicans.
    And so I would like to yield to Mr. Lloyd Doggett of Texas.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    And thank you, Dr. Orszag, for your important work on this 
budget.
    I am pleased to see that you have included a recommendation 
to make the American Opportunity Tax Credit, which I authored 
in the economic recovery legislation, to make that permanent. I 
do think that the Administration understands that, to get 
economic recovery, we need educational advancement.
    I am also pleased that a bill that I first testified on 
from where you are sitting a decade ago almost to the day to 
codify the economic substance rule is in your recommendations 
so that these deals that are done solely to dodge taxes are no 
longer countenanced.
    And yesterday afternoon, I asked you about this in the 
morning, but I was very pleased that Secretary Geithner 
endorsed the Stop Tax Havens Abuse Act that Senator Levin and a 
majority of the Members, the Democratic Members, of this 
Committee have introduced because this whole question of 
international tax dodging is extremely important.
    The question of climate change and global warming, it seems 
to me that some of our folks have been focused not so much on 
Paul Harvey but another radio commentator named Rush Limbaugh 
in wanting the President to fail on this issue, and that has 
been characterized in every hearing we have had on the subject 
here.
    Yesterday in the Budget Committee, in response to a 
question I had, you described climate change and global warming 
as ``the key threat to our planet.'' And you have just said in 
response to Mr. Lewis that that, along with health care, is one 
of the issues that you want to address this year. Why can't we 
just wait and do it later?
    Mr. ORSZAG. As in most difficulties in life, the longer you 
wait, the harder it becomes. This is a problem that just grows 
steadily more severe over time. And the longer we wait, the 
harder it will be for us to have the technologies in place to 
improve energy efficiency. Again, let me step back and just 
emphasize that, in our proposal, we have $15 billion a year in 
investments in energy technology, in completing the electricity 
superhighway that will move clean sources of energy to our 
population centers, in new ways of harnessing wind, solar, 
biomass and other forms of energy. To finance that, along with 
tax relief for American families, we have a market-friendly 
cap-and-trade program. So it is not only that we would fail to 
start addressing this growing threat to the planet; we would 
also not have the funding available to finance energy 
efficiency investments and the tax relief that we are proposing 
in a fiscally responsible way.
    Mr. DOGGETT. There was a suggestion that you were not being 
sufficiently forthcoming in describing all of the costs and 
revenues to be had through a cap-and-trade system and all of 
the costs associated with this. Isn't it also accurate that 
those who basically propose to do nothing about climate change 
will bring to the economy very significant costs from failing 
to address what you have described as the key threat to our 
planet?
    Mr. ORSZAG. Yes. If we don't act, we are going to 
perpetuate a dependence on foreign oil, a degree of energy 
inefficiency that is unnecessarily large because we are not 
making the investments in new energy technologies and a growing 
threat to the planet from rising greenhouse gas emissions which 
the National Academy of Science and other respected bodies have 
identified as something that needs to be addressed before it is 
too late.
    Mr. DOGGETT. I know that your plans, and this is so 
different; in fact, it is a total reversal of the last 8 years 
because you have a plan that is based on science rather than 
just based on rhetoric and ideology, and we will be looking 
into your cap-and-trade system, as we have in the legislation 
that a number of us have introduced from the Committee, and 
continually reevaluating and checking it to be sure that it is 
science-based, not ideologically based.
    Mr. ORSZAG. Absolutely.
    Mr. DOGGETT. And let me touch on one last area, and that is 
the area of tax expenditures. I know that you will be 
submitting a more complete budget next month. One of the 
neglected areas that you focused on in some of your prior 
testimony, I believe to the Budget Committee, in your capacity 
at CBO previously, is that there are a few pages in there that 
are mandated to address tax expenditures.
    Each year there is a focus, appropriately, on how much a 
given agency is spending. There is almost no focus and the 
Treasury Department has not fulfilled its responsibilities in 
the past to report to us in detail on tax expenditures. There 
is a tremendous amount of money, often for the same purpose; 
the American opportunity tax credit is a tax expenditure that I 
support, but I think it has to be continually evaluated, and 
that when we do our extenders here, we need more than the 
advice of two or three lobbyists and the staff of this 
Committee to look at that.
    And I would just urge you both when you present the budget 
next month and then in the followup to that to continue to look 
at the tax expenditure side, not just the direct appropriations 
side.
    Mr. ORSZAG. I agree wholeheartedly.
    Chairman RANGEL. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Dr. Orszag, thank you very much. It is good to have you 
here in Committee.
    I would like to focus on some of the components of the 
budget because I want to give you a great deal of credit for 
something that I know you did, but we need to give the 
President for it, and that is for being as honest as I think we 
can ask for anyone trying to put forward a budget of this size, 
this magnitude, with the conditions economically that we are 
facing. I know that some have said that this isn't necessarily 
an honest budget. I think it is as absolutely as honest as I 
have seen a budget in my 16 and a half years in Congress.
    For example, you were honest enough to include the cost of 
the Iraq and Afghanistan wars in your budget which consumes a 
lot of money in the budget that, if you didn't include it, 
could be used to pay for something else. What is the cost that 
you have down for the Iraq and Afghanistan military operations?
    Mr. ORSZAG. This year it will be $140 billion, and in 2010, 
it will $130 billion. Thereafter we have a placeholder of $50 
billion a year.
    Mr. BECERRA. So that is $100-plus billion on a yearly basis 
that we could use on a health care reform and other things if 
you didn't have it. You used to be the director of the 
Congressional Budget Office, CBO, which used to track budgets 
for the Congress. In previous Congresses before Democrats 
became the majority, and actually during the time of the 
previous Administration in office, did you ever find a budget 
that included the costs in the budget of the Iraq war?
    Mr. ORSZAG. Not out in the outyears like this budget does.
    Mr. BECERRA. The alternative minimum tax, which all of us 
agree, to a person, that it should not be hitting middle 
America because it was meant as a tax to avoid very wealthy 
people or corporations from avoiding any taxation. That, 
because of some quirks, no adjustment for inflation, now crept 
has down to the point where it is hitting a lot of middle-class 
Americans. How much does it cost in your budget to ensure that 
middle-class Americans are not hit by the AMT?
    Mr. ORSZAG. More than $500 billion.
    Mr. BECERRA. Was the AMT included in the budget in the long 
forecast?
    Mr. ORSZAG. No.
    Mr. BECERRA. So we are talking about half a trillion 
dollars that everyone agrees should not be allowed to occur 
because it would be a hit on middle-class America?
    Mr. ORSZAG. All in, we include $2.7 trillion that previous 
budgets would have just assumed did not occur even though 
everyone knows, if we are going to have a grownup conversation 
about the budget, everyone knows that we are not going to let 
the alternative minimum tax take over the Tax Code.
    So I am very confident that this is the most honest budget 
that has been presented to the Congress in a very long time.
    Mr. BECERRA. So you include the costs of the wars and you 
include the cost of relief for middle class taxpayers, and you 
include something that is very important and that is the 
reimbursement under Medicare for physicians and hospitals so we 
don't cut them dramatically and they start to say it may not be 
worth it for me to provide Medicare services. That is several 
hundred billion dollars?
    Mr. ORSZAG. Yes, sir.
    Mr. BECERRA. And you do it in ways that make it more 
difficult for you to do the other things, including health care 
reform and all of the rest, so I want to applaud you for that.
    We also hear that, on top of this tax cut that you are 
giving 95 percent of working Americans, tell me how you treat 
small businesses because there are a lot of folks who say we 
should be very concerned that this budget does not help a 
certain class of people? My understanding from reading over the 
budget is that small businesses in America, small business men 
and women in America, are going to benefit from your budget. I 
hope you can explain that.
    Mr. ORSZAG. Absolutely. Let's be clear, because there has 
been a lot of conclusion that has arisen. In 2011 and 
thereafter, 98 percent of small businesses would not be 
affected by any of the revenue increases that we have. We do 
ask the top 2 percent of small business owners to contribute a 
bit more in order to rectify the course that we are on.
    But the more important point--I started and ran and sold a 
small business--the more important point is the key thing for 
small businesses right now is to promote economic activity so 
that they have demand for what they want to sell and free up 
credit so that they can have the liquidity that they need to 
run their operations.
    We are trying to promote economic activity through the 
historic Recovery Act that was enacted last month and that will 
help get the economy back on its feet, and we are trying $28 
billion in loan guarantees for small businesses in this budget 
in order to start the process of getting credit flowing back to 
small business because if you go out and ask small 
businessowners, they are saying that they are starved of credit 
today.
    Mr. BECERRA. That is my understanding, that most small 
businessowners make a $100,000 or $200,000, but not a lot more 
than that. So, therefore, the more we get this economy going 
again, the more we create the activity that requires them to 
sell more and buy more and employ more people. It is also good 
to know that you are protecting them as you are protecting 
workers when it comes to the tax treatment that you provide in 
this budget.
    Thank you for that explanation.
    I yield back the balance of my time.
    Chairman RANGEL. The Chair recognizes Mr. Ryan for 6 
minutes so he can take 1 minute to answer my question.
    Mr. RYAN. I appreciate the indulgence.
    Chairman RANGEL. It is always interesting to listen to you.
    Mr. RYAN. A few points and then some questions. Let's talk 
honesty here.
    Chairman RANGEL. How much more time will you need?
    Mr. RYAN. Six minutes, I can bang this out.
    It is honest that they are putting the AMT in the baseline 
because they are saying it is really the policy intention that 
we keep doing the patch. Okay, so let me ask you this: Using 
that same logic, is it honest to say we are going to have a 
surge in Iraq for 10 years? Did George Bush or Barack Obama 
say, we are going to have a surge for 10 years in Iraq? No, 
that is not honest. No one has said that, but that is what this 
budget baseline does.
    Mr. BECERRA. Would the gentleman yield?
    Mr. RYAN. No. I only have 6 minutes.
    Mr. BECERRA. That is more than we had.
    Mr. RYAN. And the notion that we are going to have a 
drawdown that creates some mythical $1.6 trillion savings is 
not honest. It is actually the biggest budget gimmick I have 
ever seen in a budget.
    Now to the chairman's question, why do we say that this is 
not a tax cut for 95 percent of the American people? I want to 
answer your question. First, you have to pay taxes to get them 
cut in the first place, and the bulk of this money goes to 
people for whom it is a check in excess of their payroll and 
their income tax liability. According to the Joint Tax 
Committee.
    Chairman RANGEL. The bulk of what?
    Mr. RYAN. The bulk of that payment, the Make Work Pay tax 
credit goes in excess of your payroll and your income tax 
liability, so it is a net check from the government. It is a 
payment from the government in excess of your tax liability; 
therefore, it is not a tax cut, because if you get a tax cut, 
you have to pay taxes in the first place to get them cut.
    Chairman RANGEL. And so the payroll tax----
    Mr. RYAN. Exactly, payroll and income, according to the 
Joint Tax Committee, in testimony we had here during the 
stimulus legislation, 22 million households will now receive a 
net check from the government in excess of their payroll tax 
and income taxes. So this is not a tax cut. The bulk of it is 
spending.
    Let me just make another point----
    Mr. ORSZAG. Can I just----
    Mr. RYAN. I will come to you, Peter. I am studying the 
joint tax spreadsheet.
    This is my 10th year here. I have spent every year working 
on writing and trying to pass budgets. And I just want to sort 
of see if we can appreciate the enormity of the task before 
you, Peter, and just how huge this budget is.
    Last year, the Congressional Progressive Caucus brought a 
budget on behalf of I think Congresswomen Lee and Waters to the 
floor of the House. The Congressional Progressive Caucus budget 
was defeated 98-322; 132 Democrats voted against it. This 
budget is so far to the left of the Congressional Progressive 
Caucus budget that, on an apples-to-apples comparison, the 9 
versus 10 years, the Obama plan spends $2.8 trillion more than 
the Congressional Progressive Caucus budget. The Obama plan 
results in deficits that are $14.7 trillion higher than the 
Congressional Progressive Caucus budget, and I won't even get 
into the debt because the debt left to our children and 
grandchildren under this budget is so much larger than even the 
Progressive Caucus budget that you probably wouldn't believe me 
even if I gave you the numbers.
    The question I want to ask you, Dr. Orszag, is with respect 
to your economic assumptions, using OMB's rule of thumb, if you 
took the Blue Chip consensus forecast instead of the OMB 
economic assumptions, which are the highest of any that we have 
seen, that would add an additional $758 billion to the deficit 
under your deficit stream. We are told that the Treasury 
Department says that, to have credibility in the credit 
markets, to keep investment concerns at bay, we need to bring 
the budget deficit down to 3 percent of gross domestic product. 
But if we take the Blue Chip consensus forecast, which is the 
consensus of most private forecasters, which these were 
released before we had this massive sell off in the stock 
market, which is a fairly ominous sign of things to come, we 
would never even get to 4 percent of GDP with our deficit; we 
would never even get close to 3 percent of GDP.
    Let me ask you this: Do you have a plan B? If these rosy 
economic scenarios that you have in your projections don't pan 
out and if the private forecasters are correct, do you have a 
plan B? What are you going to do to get your deficit targets 
down and mop up this $758 billion in extra deficits that the 
Blue Chip consensus thinks your budget presents?
    Mr. ORSZAG. Mr. Chairman, do I have 6 minutes to respond?
    I will try to be more succinct than that. We need to get 
some facts straight first. That is just not how it is.
    Mr. RYAN. What is not exactly how it is?
    Mr. ORSZAG. Let's take, first--several things that were 
said. Let me just go through them point by point.
    First, with regard to the Making Work Pay tax credit, table 
S-6 in the document shows, let's take 2013. The revenue impact 
is $64 billion. The impact on outlays, that is the refundable 
component, is $22 billion, and for some of those folks, they 
will owe payroll taxes. That is only the income tax impact.
    Mr. RYAN. Can I ask you a quick question there? Are you not 
just extending the Make Work Pay tax credit as it passed in the 
stimulus package, or are you modifying it?
    Mr. ORSZAG. We are extending it as it was in the stimulus 
package.
    Mr. RYAN. Okay, in the stimulus package, the majority of 
the outlay was outlays, not--it was, and I can't remember the 
number off the top of my head, but it was I believe about $68 
billion of the $147 billion was outlays according to Joint Tax. 
According to Joint Tax, the majority were outlay effects and 
not revenue losses. So there is a problem between your numbers 
and Joint Tax's.
    Mr. ORSZAG. I would be happy to look at whatever numbers 
the Joint Tax Committee ultimately produces for this proposal. 
But, again, roughly a third or so is refundable, and I note, 
again, that doesn't take into account payroll taxes.
    Mr. RYAN. It still makes the point that, therefore, it is 
not 95 percent of the American people.
    Mr. ORSZAG. I would still count the Earned Income Tax 
Credit and other components of the Tax Code as providing a tax 
cut. So we can get into this semantic debate.
    Let's now turn to the economic assumptions. Our assumptions 
were put together at the same time roughly that the 
Congressional Budget Office put together its assumptions. CBO's 
assumptions do not include the effects of the Recovery Act. 
Since that time, however, CBO has released an analysis of the 
Recovery Act. If you do an apples-to-apples comparison where 
you add the impact that CBO estimated for the Recovery Act to 
their forecast without the Recovery Act, you get numbers that 
are right in line with our numbers. So we are right in line 
with the CBO figures once you include the Recovery Act in the 
analysis.
    Mr. RYAN. In your table S-8, if you see the Blue Chip 
consensus forecast, it says growth will be about 1 percentage 
point less over the next 5 years.
    Chairman RANGEL. With all due respect, this is very 
exciting and entertaining, but Members are waiting.
    Mr. RYAN. Did I blow through the 6 minutes already?
    Chairman RANGEL. But I would suggest to you that where you 
have technical difficulties, if you get them to the Chair, I 
will get them to the Members, because it is always good to 
believe that you have a better hand when you are dealing with 
someone as dedicated to the process as you are, and I think 
allowing you this extra opportunity----
    Mr. RYAN. I very much appreciate it, Mr. Chairman.
    Chairman RANGEL. No, I think it is good for the Committee, 
but even more importantly for those trying who are trying to 
figure out a very complex bill. So I promise you, and I 
apologize to the rest of the Members, you get your debate 
before us, and we will make certain that it gets out there.
    Mr. RYAN. I welcome the opportunity.
    Chairman RANGEL. I look forward to it.
    Do you think you have given--and you don't have to compare 
your budget----
    Mr. ORSZAG. I look forward to working with Mr. Ryan.
    Chairman RANGEL. Good. I am very sincere that we ought to 
really get in as many views as we can, and two 5-minutes 
doesn't really allow it. Before we pass this budget, you will 
have plenty of time to debate it.
    Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman.
    Just a couple of comments in response to my friend's 
questions, Mr. Ryan's questions. Having sat in this Committee 
for the same length of time Mr. Ryan has, I find myself 
absolutely staggered by some of his questions. He wants to 
accuse the Administration of using rosy scenarios to put a 
phony budget forward. Well, I would remind my friend Mr. Ryan 
about the rosy scenarios that undergirded the 2001 tax cut, a 
tax cut that played a principal role in reversing surpluses 
into steep deficits. We know that 9/11 followed that. We know 
that a recession was in the middle of that. And so it was 
completely staggering when 2003 comes around and they pass yet 
another massive tax cut, driving the deficits even deeper. And 
then they have Mr. Ryan talk about the calculation of troop 
numbers in Iraq as a budget gimmick, and he said, in fact, it 
was the biggest budget gimmick I have ever seen; I would just 
respond to the gentleman that I have seen a bigger budget 
gimmick, and that is fighting the war in Iraq without putting a 
nickel in the budget.
    Mr. RYAN. Would you----
    Mr. POMEROY. Oh, no I am not yielding to anything.
    Not a nickel. We had a budget director sit at that table 
and say they couldn't project. They didn't know how much the 
war was going to cost, so nothing went in the budget for it.
    Mr. RYAN. Would you----
    Mr. POMEROY. No, I will not yield.
    That was countenanced by the Member in his capacity as a 
Member of the Budget Committee, and it was countenanced by him 
as a Member of this Ways and Means Committee. That, I would 
suggest, putting nothing, not a plug nickel, in the budget for 
the war was a bigger budget gimmick.
    Mr. RYAN. The Republican budgets did put the war in the 
budget.
    Mr. POMEROY. I am not yielding time to the gentleman.
    All right, now that I have that off my chest, let me get to 
the question before us.
    Health care costs. It seems to me that core to this budget 
is a concept that these out-of-control health care costs are 
eating us alive. How does the budget propose to tackle them, 
and how would you assess the imperative of tackling them if we 
are going to try to get a handle on these staggering deficits?
    Mr. ORSZAG. I think it is very clear that if we don't 
tackle rising health care costs, we are on an utterly 
unsustainable fiscal course over the long term. Period.
    The way that the budget proposes to tackle them is to 
buildupon the Recovery Act. Again, I want to focus attention on 
this map. I don't think it has gotten enough attention.
    There are large geographic areas of the United States that 
are delivering health care at much lower cost and higher 
quality than lots of other areas.
    If you look across our leading medical centers, the Mayo 
Clinic, the last 6 months of life for Medicare beneficiaries 
costs $25,000 a year. At many other medical centers, it costs 
$50,000 or $60,000 a year on average. And quality, if anything, 
is higher at the Mayo Clinic. All that we seem to be getting in 
exchange for the additional cost that you are paying today 
through your Medicare tax is more tests, more days in the 
hospital, more visits to specialists, none of which actually 
seems to make the beneficiaries healthier.
    We need to get at the heart of this variation, improve the 
efficiency of the health system, and that means health 
information technology. It means measuring what works and what 
doesn't. And it means greater attention to prevention and 
disease management. And it means altering incentives for 
providers, so they are not incented to provide more care; they 
are provided with incentives for better care.
    Mr. POMEROY. So I think this is a critical point with the 
map on the disparity with expenditure out; we are seeing vast 
differences in where the spending is occurring, but we are not 
seeing people healthier in any particular way.
    Mr. ORSZAG. Actually, if anything, the correlation goes the 
wrong way. That is to say, the higher cost areas have worst 
health outcomes than the lower cost areas.
    Mr. POMEROY. So we can save considerable money, shore up 
Medicare for the long haul with impacting the health of people 
other than possibly improving it?
    Mr. ORSZAG. That is right. Our key challenge is how to move 
forward to capture that opportunity. This budget, I think, is 
the most forward-leaning set of proposals. I am a member of the 
Institute of Medicine at the National Academies of Sciences. 
There has been a series of work that they have done trying to 
put forward pathways to a more efficient health care system. We 
are doing it. This budget embodies all of those 
recommendations, and if anyone else has other ideas, bring them 
to us because we want to move to a more efficient system that 
will reduce those disparities, reduce cost and improve quality 
and simultaneously put the Nation on a sounder fiscal course 
while also making workers better off. I don't see how we can 
possibly wait another year in starting that process.
    Mr. POMEROY. I yield back, Mr. Chairman.
    Chairman RANGEL. Mr. Thompson from California.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Orszag, I want to thank you for being here and for 
addressing some issues that I think are critically important 
for everyone in our country, specifically the attention that 
you have paid to health care, renewable energy, education and 
innovation. These are all job creators, and they are very 
important for the future of our country. It is, I think, high 
time that these were addressed in our country, and this budget 
does a good job at doing that.
    I want to second my friend from Los Angeles Mr. Becerra's 
comments on the honesty and transparency of this budget. He 
mentioned the war funding that has not been in there in the 
past, the AMT that has not been in there in the past, and there 
are even smaller items, such as doctor reimbursement payments, 
that have always been absent, and everyone knew we were never 
going to cut doctors' payments by 21 percent, and yet those 
budgets didn't say anything at all about that.
    On the area of health care and specifically the doctor 
reimbursement payments, you mentioned the longer we wait, the 
more expensive it is. If we roll back the clock, we could have 
done it for $50 million, and I think it is about a $300 million 
item in your budget, on that issue, along with rural and 
underserved areas and how we address health care in those areas 
and how we further improve preventive health care, something 
that I think is critically important, and there is a lot of 
room in Medicare and Medicaid programs to address those issues, 
and also the expansion of telemedicine. I would like to be 
certain that we can work closely together in making sure these 
address not only the issues, the health care issues, but also 
are reasonably understanding of the different areas that we all 
represent. I hope we can work together on that.
    I want to mention, Mr. Doggett, I think, was eloquent in 
his compliments of you and the issue of global climate change 
and how we deal with the carbon capping issues. I want to point 
out that I was at a breakfast meeting today with various 
captains of industry and not the people that you would think 
that would be overly excited dealing with this. And I wrote 
down two interesting quotes.
    One was: ``I believe global warming is real, and it is 
caused by man.'' That was the CEO of General Electric.
    The second one I thought was interesting, and, again, I 
quote: ``We believe regulated carbon is the right answer.'' And 
that was the CEO of Duke Energy who also pointed out they are 
the third largest emitter of carbon. And so even they get it 
and understand we have to work on that. So your effort in this 
regard is very, very important.
    In closing, the President's budget puts us on a path toward 
fiscal responsibility by cutting the deficit in half by 2013. I 
would like to hear from you. I would like you to explain the 
importance of cutting that deficit in half during President 
Obama's first term in office and why a small increase in 
spending as a measure of the GDP is appropriate in our current 
environment and how, in the end, it will come back to help us a 
great deal.
    Mr. ORSZAG. Sure. The difficulty is that what is good for 
the next year or two while the economy is weaker is exactly the 
opposite of what is good over the medium term.
    When we are facing the output gap, and remember I started 
with this trillion dollar gap between how much the economy 
could produce and how much it is producing each year, the key 
impediment to economic growth in that scenario is demand for 
the goods and services that firms could produce with their 
existing capacity. That is the whole point of the Recovery Act, 
jump start that aggregate demand, get the job machine back on 
track, which will take some time but we will help to start 
filling in that gap.
    As the economy starts to recover, the key impediment to 
economic growth shifts from demand for how much firms could 
produce with their existing capacity to how rapidly we are 
expanding that capacity. And the problem with large budget 
deficits is they crowd out other investments that could be made 
to expand that capacity.
    So we need to get our deficits down both to raise our 
future national income as the economy recovers. And one of the 
benefits that we enjoy in the current environment is we are 
able to issue significant amount of debt to deal with this 
crisis, to deal aggressively with this crisis. If we don't 
start tackling these rising health care costs and put the 
Nation on a sounder fiscal footing and go out 15 or 20 years, 
if we ever suffered from another economic crisis, we would have 
much less maneuvering room to respond at that point because 
creditors would not be willing to let us have that maneuvering 
room. It is a good thing that we have it, or the economic 
crisis would be much more severe than it already is.
    Chairman RANGEL. The Chair respectfully recognizes Mr. 
Linder.
    Mr. LINDER. Thank you, Mr. Chairman.
    Dr. Orszag, nice to you see you again. You have said twice 
earlier in response to questions that any excess cap-and-trade 
revenues will be returned to the public fully. How?
    Mr. ORSZAG. There are various mechanisms that could be put 
in place. The Tax Code could be used. The Social Security 
system could be used. There are a variety of ways in which 
compensation could be provided.
    Mr. LINDER. You don't have any plan yet?
    Mr. ORSZAG. We don't have any fully specified cap-and-trade 
plan, and so, therefore, we also don't have the fully specified 
compensation scheme.
    Mr. LINDER. Is that revenue in excess of the $634 billion?
    Mr. ORSZAG. The $634 billion is the Health Reserve Fund.
    Mr. LINDER. Where is the rest of the cap-and-trade revenue 
going?
    Mr. ORSZAG. I think we are mixing and matching. We have $15 
billion a year for energy efficiency investments. We have the 
Making Work Pay tax credits. Those two things are financed by a 
Cap and Trade program.
    Cap and trade may well raise more money, as we were 
forthright about in this budget. To the extent it does, those 
additional funds would be returned to American households 
through a variety of mechanisms that would need to be 
determined as we work with you on the legislative details of a 
cap-and-trade program.
    Mr. LINDER. A year or so ago you were recorded as saying a 
carbon tax would be more efficient and effective than cap-and-
trade. Do you still believe that?
    Mr. ORSZAG. A carbon tax has certain efficiency aspects. 
Cap-and-trade could be made to be, as I think that document 
pointed out, can be made to have the same efficiency aspects, 
so it all depends on how you do cap-and-trade.
    One of the key efficiency effects is to make sure that 
permits under cap-and-trade are auctioned, and the President is 
committed to a 100 percent auction of the permits. That is 
perhaps the most important efficiency impact from a cap-and-
trade program because that gives you resources that can be used 
to either cushion the blow for consumers or do other beneficial 
things like these energy efficiency investments that under our 
budget would be funded out of the cap-and-trade revenue.
    Mr. LINDER. Yesterday Secretary Geithner was here, and he 
said any tax hikes built into this budget will not take effect 
until the economy has fully recovered. You said earlier in your 
testimony that you believe the economy will be recovering in 
2011, and so did Secretary Geithner. Yet, in your proposal, you 
say that the unemployment rate then would be 7.1 percent. The 
CBO says it would be 8 percent. Is 7.1 and 8 percent 
unemployment a full recovery? What kind of metrics are you 
using for full recovery?
    Mr. ORSZAG. Well, you need to realize the labor market 
traditionally lags behind the end of a recession. That is to 
say, even after the recovery begins, the labor market remains 
weak and unemployment remains elevated and may even continue to 
increase for some period of time.
    I think you can use a variety of markers. The National 
Bureau of Economic Research is the official arbiter of 
recessions, for example. An unofficial definition is the change 
in GDP growth, whether it is negative or not. They use, 
actually, a wider variety of indicators to demarcate the end of 
a recession, looking at industrial production and monthly 
income flows and a variety of other factors. But you can look 
to, for example, the NBER business cycle dating Committee as 
one arbiter as to when a recession ends.
    Mr. LINDER. That says a recession hasn't ended. Would the 
repeal of the tax cuts still go through----
    Mr. ORSZAG. Well, I don't think it is constructive for me 
to start playing hypothetical games. Chairman Bernanke expects 
and the Federal Reserve Board expects recovery either later 
this year or early next year. The Blue Chip expects recovery 
either later this year or early next year. That is also what 
our budget is predicated on. The whole purpose of the Recovery 
Act, by the way, was to maximize the odds that that happened.
    Mr. LINDER. But what you are saying is that the tax 
circumstances will not be changed by whether or not we are in a 
recovery?
    Mr. ORSZAG. I don't think that it is constructive right now 
to start playing out all of the hypotheticals. Obviously, as 
the world evolves, so will policy. I would hope that we would 
all expect that to occur.
    Mr. LINDER. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman.
    I want to thank the director for your time and patience and 
testimony here today and also for your service. Coming from CBO 
to OMB has not been the easiest task for any individual to have 
to assume under the challenges we are facing.
    But let me just flesh out one area of your health care 
reform proposal that you and the President and the economic 
team are making, and I am absolutely delighted the 
Administration has focused so much time and attention on health 
care reform, which is long overdue, as you have stated here 
previously.
    But some of the feedback that I am getting from back home 
is a rising concern that the talk about health care reform is 
just about expansion of coverage, making sure that every 
individual has access to affordable and quality health care. 
But what I see in your plan and what I hear from your testimony 
and what the President is also talking about is that a major 
portion of this is dealing with the exploding costs that we are 
going to face in future years.
    When I am talking to my small businessowners or large 
businesses or family farmers or individuals, they want to talk 
about rising health care costs and what can be done on that 
front. In the recovery and investment package that we passed, 
there is a $1.1 billion program for a comparative effectiveness 
study, and I want you to explain a little more about why this 
is crucial in regards to health care reform because obviously a 
lot of aspersions have been cast on it, that this is going to 
be a form of rationing, that it is going to lead to socialized 
medicine and that it is only about cost rather than quality of 
outcomes. And I wonder if you can elaborate on the role that 
comparative effectiveness can provide in the reform proposal.
    Mr. ORSZAG. Well, let me actually give you an example from 
my own life. I am a runner. When running the Marine Corps 
marathon a few years ago, I hurt my knee. The doctor suggested 
an X-ray, which was taken. And the doctor then suggested an 
MRI. I said, well, what is the likelihood that the MRI will 
affect your diagnosis, and he could not tell me because the 
evidence on the effectiveness or what the benefit is of 
applying an MRI to a, unfortunately, middle-aged male running 
marathons who hurts his knee does not exist. It might be a good 
idea; it might not be a good idea. Who knows? Repeat that time 
after time after time again, and we have a lot of services 
delivered in the United States that are not backed by any 
evidence that they work. Period.
    The whole purpose of comparative effectiveness research is 
the simple thought that we should evaluate what works and what 
doesn't and then let the medical profession decide the best way 
of treating patients based on that evidence rather than 
guessing or simply perpetuating systems in which that is the 
way we have always done it here.
    Too much of the medical care delivered in the United States 
is based on, that is what we have always done here or that is 
what the guy down the hallway does, rather than we know for 
your kind of condition and given the other characteristics that 
you have, the evidence suggests this is a good thing for you to 
do.
    Mr. KIND. I think you will find a lot of support and a lot 
of kindred spirits, not only on this Committee but throughout 
the country, on this approach because it is already happening.
    I hail from an area of the country in western Wisconsin 
where we are one of the lowest reimbursed places in the Nation 
but also one of the highest quality of care. The providers in 
that region have moved down this road in their day-to-day 
practices. To me, comparative effectiveness and moving to an 
outcomes-based reimbursed system isn't about cost or rationing; 
it is about rewarding what works and let us stop rewarding what 
doesn't work in health care. I think you have acknowledged in 
your testimony here today and in previous testimony that so 
much of health care funding right now is going to just 
utilization and consumption rather than what quality of care we 
are ending up with at the end of the day.
    I happen to believe, and your numbers reflect this, too, 
there are huge cost savings in moving to that simple concept of 
rewarding what works in health care and stop throwing away so 
much that doesn't work. That, to me, is what comparative 
effectiveness and moving from a fee-for-service basis to an 
outcome-and-performance system is all about. If we are going to 
get a grip on these exploding costs, which is the name of the 
game for fiscal responsibility, this is the road that we have 
to go down. So I applaud you and the Administration for the 
initiative that you are taking, and I look forward to working 
with you on this concept.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman RANGEL. Mr. Blumenauer, I overlooked you earlier, 
but you are now recognized for 5 minutes.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. It is a little 
hard to see, I know, on the extreme right wing here.
    Mr. Orszag, I notice you start each of your testimonies 
with an appropriate country music reference. Yesterday I was 
pleased to hear you indicate that there is no right way to do 
the wrong thing. I thought that that was a very appropriate 
tenor to deal with the introduction of the budget. I join my 
colleagues in expressing appreciation for what you have put in 
the budget and how you and the President have advanced it. I 
think it gives us a much firmer footing.
    We can quibble about details and argue about elements, but 
no one can disagree that this is a fuller, fairer, more 
comprehensive picture that gives us more running room. I 
appreciate it.
    I want to reference one thing that we did that I spent a 
lot of time working on in the last Congress, a carbon audit of 
the Tax Code. As we are moving forward with climate change 
legislation, we are looking at tax reform; I hope that there is 
some way for OMB to be involved in this directive that we 
established last session to be able to make sure that we are 
able to coax out the information to give us guidance for 
looking at the big picture in terms of the impact as we are 
changing taxes. I wanted to footnote that if I could.
    I have listened to my colleagues in this hearing and in 
prior hearings who are finding things that are hidden by being 
unable or unwilling to look at the big picture in the budget, 
trying to pull one element out that is a tax or a potential 
cost and somehow missing the big picture.
    I am wondering if you could take a moment to reflect, and 
you have done this in reference to a couple of answers, but if 
you could think a little more comprehensively with us now and 
work with us in the future to look at the total effect of the 
budget proposal on not just tax reductions but health care, 
energy security, a potential carbon dividend, stability in 
energy costs for families, or small businesses, the vast 
majority of whom, 97 percent we think are under the $250,000 
threshold, would see no change or a cut, with favorable tax 
treatment for small business tax, their energy costs and health 
care costs. Could you take a minute and talk about the big 
picture and how we might work with you so that the Committee 
gets the benefit of the big picture rather than trying to 
target one little sliver that sadly is misleading?
    Mr. ORSZAG. Well, let me just first say, I want to speak 
directly to the footnote and honesty and forthrightness, 
because it is not just clarity in the numbers but also, even on 
page 21, where we were very clear about the way this proposal 
would work. So I actually disagree with the notion that there 
is anything hidden. It is very up front and clear, as it should 
be.
    Now, with regard to the bigger picture, we are tackling the 
key problems that the Nation faces, not only in terms of a weak 
economy, but over the longer term in terms of education, 
energy, and health care.
    If you are a working family, this budget will help your 
kids go to college through an expanded and easier Pell grant 
process and the American Opportunity Tax Credit; your home will 
be more energy-efficient because of the dramatic increase in 
weatherization efforts; your health care costs will be reduced, 
and therefore your take-home pay will be increased. And the 
Nation will be on a sounder long-term path. This is what 
business leaders, think tanks, everyone has long said we need 
to do. The time to do it is now.
    Mr. BLUMENAUER. Thank you.
    Finally, I wonder if you could elaborate on your Medicare 
Advantage competitive bidding proposal and how it will bend the 
curve. Can we, under your proposal, hold some of these Medicare 
Advantage programs more accountable, set standards, make sure 
that we realize that promise while we bend the curve?
    Mr. ORSZAG. Absolutely. And let's actually focus that for a 
moment, because I think this really does illustrate the theory 
of the case that has been pervasive for many years now.
    Medicare Advantage plans were given a fixed price that was 
14 percent higher than covering the same beneficiaries under 
Medicare. They didn't have to compete for the business. They 
were given a benchmark that was set, by law basically, that was 
$1,000 per beneficiary higher.
    There had been concerns about the way, if you put that much 
subsidy on the table, not surprisingly, problems arise. There 
have been concerns about the marketing techniques that 
insurance companies have used to enroll beneficiaries in 
Medicare Advantage--not surprising when that much money is on 
the table. There is no evidence that Medicare Advantage, for 
all that extra money, produces any better outcomes than 
traditional Medicare.
    So we really come down to this question, what kind of a 
market economy are we talking about? Is it one in which 
billions and billions, $177 billion over the next 10 years, is 
funneled to insurance companies? Or should they be forced to 
compete for the business of providing coverage to Medicare?
    That is exactly what we are proposing, competitive bidding 
for Medicare Advantage plans. Put in a bid, see if it is 
competitive, get paid that, and then let the market work to the 
extent it can.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    And I appreciate your reaction, Mr. Orszag. I would like to 
work with you, because I think there is some evidence that 
there are some Medicare Advantage programs that actually are 
delivering. They are in low-cost, high-efficiency areas. I 
would like to reward that and not penalize the efficiency that 
might play an important role in the----
    Mr. ORSZAG. That is exactly what we should be doing.
    Mr. BLUMENAUER. Thank you very much.
    Chairman RANGEL. The Chair recognizes Mr. Nunes and 
apologizes for the awkwardness of the delay.
    Mr. NUNES. Thank you, Mr. Chairman. I appreciate that.
    Mr. Orszag, yesterday before the Budget Committee, you 
talked about distortions in the energy markets, specifically 
related to oil and gas subsidies in tax treatment. I did some 
calculations overnight and came up that natural gas and 
petroleum subsidies are about 25 cents a megawatt--this is from 
the Energy Information Agency--and coal is 44 cents a megawatt.
    Currently, solar, under the new Obama plan, stimulus 
package, has now skyrocketed to $24 per megawatt in subsidies 
and tax treatment, and wind is at $23 a megawatt. Are these 
market-distorting?
    Mr. ORSZAG. I would first like to see the numbers, 
obviously. I would like to see the information upon which you 
are basing those calculations.
    But, more importantly, every economist will tell you there 
is an externality from--there is a positive benefit to cleaner 
energy, which is that it avoids the externality associated with 
carbon emissions, sulfur dioxide emissions, all the other 
emissions that are associated with, in particular, coal but 
other forms of energy.
    So an economist will tell you what we need to be doing is 
moving toward solar, wind, and other forms of energy that don't 
have those externalities associated with them.
    Mr. NUNES. At $24 a megawatt.
    Mr. ORSZAG. Again, I want to see the numbers before----
    Mr. NUNES. I will be glad to provide those for you.
    You know, in California, we have tried many of these, as 
you guys are now saying in the Administration, what you guys 
are calling ``market-friendly cap-and-trade systems.'' I have 
heard you say that several times today. We tried these in 
California, and the current price per kilowatt in California is 
14 cents a kilowatt. And I don't know if you know the 
unemployment today in California is over 10 percent--in my 
district, it is going to be close to 20 percent--largely 
because people are leaving the State in droves because of a 
number of things, but, most importantly, this energy cost, I 
think, is contributing to it.
    My friend, Mr. Tiberi, here was telling me that in Ohio 
they are paying 3 cents a kilowatt, and they primarily get most 
of their energy from coal.
    So, under this system--you know, California has tried these 
so-called market-friendly green policies--should Ohio look 
forward to paying closer to California's rate of electricity, 
or is Ohio going to stay the same, at 3 cents a kilowatt?
    Mr. ORSZAG. Well, let me first say that the best example 
that we have on a national basis with a market-friendly cap-
and-trade program is the one for acid rain, for sulfur dioxide 
emissions. It has worked very well. The costs are much lower 
than were initially projected when the program was adopted.
    And so I think, if we are talking about a national cap-and-
trade program, we should look at the examples that we have of 
national cap-and-trade programs like the acid rain program.
    Mr. NUNES. Well, that one may be a better one to look at 
than the California system, because we have watched our price 
per kilowatt double in the last 6 years. And, you know, I am 
afraid of what is going to happen under this system that has 
already been implemented in California that I think is a living 
example: 40 million people, lots of problems, high 
unemployment, 14 cents a kilowatt for electricity.
    Mr. ORSZAG. You have had a carbon cap-and-trade program in 
California for 6 years?
    Mr. NUNES. Well, what we have had is we have had the 
renewable portfolio standard that is, I think, at 15 percent.
    Mr. ORSZAG. That is a different thing.
    Mr. NUNES. But it is all the same thing. It is all trying 
to cut down on greenhouse gasses. So what I am concerned about 
with here is--you said something earlier about hypothetical 
games and you don't want to play hypothetical games, but, you 
know, this is not hypothetical, what has happened in 
California. I mean, there are serious problems out there.
    In fact, I would love to invite you out to my district so 
that you can witness what 20 percent unemployment looks like. 
My friend in Ohio has suffered from high unemployment also, but 
California is really a trendsetter in how to drive business out 
of the State. And it is largely due to these green policies 
that have been enacted in California, that, quite frankly, I 
don't see a lot of difference between what the Obama 
Administration is trying to do at the national level compared 
to what has been done in California.
    Mr. ORSZAG. Again, I am going to just come back and say, I 
think if we invest in energy efficiency and we do this in a 
smart way, which we can, there is no tension between moving to 
reduce our dependence on foreign oil and improve energy 
efficiency and a highly efficient and high-performing economy.
    Mr. CAMP. Would the gentleman from California yield for a 
second?
    Mr. NUNES. Absolutely, Mr. Camp.
    Mr. CAMP. Just for 1 second.
    You know, sulfur dioxide is very different than carbon 
dioxide. It was a successful program because that is a U.S.-
based problem, and a U.S.-based solution can impact that 
problem. Carbon dioxide is worldwide. A U.S.-based solution 
will not impact carbon dioxide worldwide.
    Mr. ORSZAG. Well, it will have some impact, but I agree 
that the solution has to be global. I agree with that.
    Mr. NUNES. I think, Mr. Orszag, that I will go on the 
record today that I think my friend from Ohio will be being 
more cents per kilowatt after this Obama plan is implemented. I 
will bet you dinner over that, a non-greenhouse-gas-polluting 
dinner, of course.
    Mr. ORSZAG. I think, again, what we are trying to 
accomplish is reduced dependence on foreign oil, improved 
energy efficiency; and, part of that, to finance it in a 
fiscally responsible way while also dealing with what 
scientists have said is one of the biggest threats to our 
planet using a market-friendly----
    Mr. NUNES. But will result in higher energy costs, as we 
have seen in California.
    Chairman RANGEL. Well, let me say this to the gentleman. 
The inconvenience and, indeed, increase in cost to the consumer 
will not be considered by the Chair to be a Democratic-
Republican issue. I am very concerned about what is happening 
in your State. And, therefore, we would be very interested to 
see how the program is working. So that, we will have enough 
time to discuss these things not by party label, but in doing 
the right thing, who is going to pay for it?
    Mr. NUNES. Mr. Chairman, if I may, I would really encourage 
you to bring in some folks from California to testify before 
this Committee on some of----
    Chairman RANGEL. I have a breathing problem, so I may have 
to pass on that, but we will work it out.
    Mr. NUNES. Thank you, Mr. Chairman.
    Chairman RANGEL. No, no. We intend to have informative--we 
are going to disagree with the Administration, we are going to 
disagree on facts and then do what you have to do politically. 
So the Administration has agreed to discuss with us, not for 
purposes of necessarily picking up a vote, but in trying to 
persuade you that what they are doing is the right thing. And 
we are going to take advantage of it, not necessarily in formal 
hearings, but for those who have an interest we will have an 
opportunity to discuss it. These are really serious national 
issues.
    Mr. NUNES. Thank you, Mr. Chairman.
    Chairman RANGEL. Okay. Ms. Schwartz isn't--the gentleman 
from--oh, Ms. Schwartz is here. You see my vision really is 
getting bad here. The Chair recognizes Ms. Schwartz of 
Pennsylvania.
    Ms. SCHWARTZ. Thank you very much, Mr. Chairman.
    I wanted to follow up on--I know my colleague asked a bit 
about comparative effectiveness, and I wanted to follow up on 
the health care issue. And let me first start by saying that I 
think this is a budget that does take very seriously concerns 
about our debt and about the deficit and really makes a clear 
statement about the kind of investments we have to make in the 
future, including in health care.
    I don't think that we have yet, and I have heard most of 
this hearing, talked about the degree to which we are taking 
steps in this budget and building on the work we did on the 
Recovery Act to improve quality and effectiveness and to really 
move forward that debate about how we can spend public dollars 
more wisely and get more bang for the buck, so to speak. I know 
you talk about ``bending the curve.'' I am trying to get used 
to that language a little bit too.
    But the fact is that we have a commitment to Medicare. We 
are concerned about that; we want to meet that commitment to 
all of our seniors. But could you speak a bit more about, 
particularly, how you envision the health IT provisions and the 
$19 million playing out, in the sense of being able to enable 
the health care system to deliver health care in a better way, 
to be able to get that information to patients and to doctors 
and to hospitals so that they are providing the best possible 
care?
    I know you spoke to comparative effectiveness, but if you 
could speak to that and also speak to other areas that you 
envision going forward under Medicare, other policy changes you 
think we might need to be making, whether it is in medical home 
primary care providers, other ways we might want to do some 
reimbursement changes to improve the effectiveness of the 
dollars that we spend, save those dollars and maybe be able to 
reinvest them in other ways.
    Mr. ORSZAG. Sure. Let's start with health information 
technology.
    Even before we get to quality and cost considerations, I 
think just the hassle factor needs to be taken into account. I 
think all of us, as patients, find it annoying, might be the 
right word, to have to continue to fill out form after form 
every time you go to a new doctor of information that you have 
already filled out somewhere else. And if it would be easier to 
make sure that all that information was accessible by 
authorized doctors, check the box, I would, for one, as a 
patient, love that.
    In terms of the quality of health care delivered, we have 
roughly 100,000 people who die each year because of medical 
errors. We have significant problems in prescription dosages 
and other issues that arise.
    Ms. SCHWARTZ. E-prescribing was something we did here.
    Mr. ORSZAG. A lot of those quality problems can only start 
to be addressed if we actually have a modern system.
    In every other sector of the economy, we have moved forward 
with information technology, and it has improved our lives, or 
at least it has made the aspect--I don't know that every 
advancement in information technology improves our lives, but 
it has certainly added to efficiency and made other sectors of 
the economy work a lot better.
    That has not occurred in health care. It must. And the 
Recovery Act provides us a pathway to getting there.
    Ms. SCHWARTZ. So do you want to give us any hints about 
what else you might be seeing? Things have been sort of broadly 
outlined in the budget that we can anticipate, in terms of 
changes that we might see either under Medicare or more 
broadly, as we look to be more efficient in health care.
    And I would ask you to maybe--I think you did this a bit in 
answer to the comparative effectiveness--maybe some reassurance 
for both doctors and for patients that we are not looking--at 
least, certainly, speaking for myself, I am not looking for 
denial of care or limiting care. The idea is to get the best 
possible appropriate care in a timely fashion. I think there 
needs to be an understanding that that is what we are talking 
about, not necessarily denying care--or absolutely not denying 
care, going forward. I think that would be helpful, as we go 
into what is a change in the way we do some things.
    Representing Philadelphia, we have some fantastic health 
care, but it is very fragmented. So your notion that it is 
really just repeating your vital statistics, but it is also 
making sure that--you may not be able to articulate exactly 
what your doctor said to you 6 months ago, but actually being 
able to have another doctor read that information might 
actually help you get the kind of health care you need that 
could well save your life or get a better treatment for you.
    Mr. ORSZAG. I think that is absolutely right. We are not 
talking about cutting off treatments or preventing people from 
obtaining the medical care that they and their doctor decide 
upon. What we are talking about is making sure that doctor has 
the evidence to evaluate what is in the patient's best 
interest.
    I think at heart, in too many cases, what the health care 
system delivers is, again, just either a sort of social norm 
that develops or inertia or based on history, rather than 
having the doctor have the ability to know more precisely what 
is in the patient's best interest. And that is the kind of 
system we need to be moving toward, while also providing the 
doctor or hospital a strong incentive to provide that high-
quality care.
    Ms. SCHWARTZ. Well, I look forward to working with you on 
all of this going forward, and I know the Committee does, as 
well. Thank you.
    Chairman RANGEL. I call on Mr. Davis, the distinguished 
gentleman from Alabama.
    Mr. DAVIS OF ALABAMA. Thank you, Mr. Chairman.
    Dr. Orszag, I wanted to pick up on a conversation that was 
raging earlier before I actually came over here, the whole 
question of tax cuts.
    I have been in the House for 7 years, not a terribly long 
period, and on this Committee for 3 years now, and I always 
hear a lot of passion extended from my friends on the 
Republican side on the question of tax cuts. But I always find 
that it is worth looking underneath that passion and getting a 
better sense of exactly what it is they really get angry about. 
So I wanted to spend some time doing that with my questions.
    Focusing on people making less than $200,000 a year, which 
is the overwhelming majority of people who are part of the Tax 
Code right now in virtually every district in the House of 
Representatives, compare the amount of disposable income that 
people making under $200,000 a year were spending on taxes 
post-Bush tax cuts in 2001 and 2003 and prior to that.
    Can you make that comparison, essentially--or, if it is not 
disposable income, whatever other metrics you think really gets 
to the heart of what I am driving at right now, essentially the 
tax burden on individuals of that level before Bush, after 
Bush. Can you make that comparison?
    Mr. ORSZAG. Well, what I can say is the Making Work Pay 
credit will provide for 95 percent of working families a tax 
cut, which goes up to $800 per family. So, in terms of their 
disposable income, it is another $800 in their pocket, in 
addition to the other effects that will come through lower 
health care costs, a better education system, and what have 
you.
    Mr. DAVIS OF ALABAMA. Well, let me get at the number this 
way. And I recognize you may not have the data, but I have seen 
it and want to see if you disagree with what I remember from 
the data.
    I have seen data that indicates that, prior to the 2001, 
2003 tax cuts, if you compare that timeframe to post-2001, 2003 
tax cuts, there has been, if anything, almost no movement, 
static, flat line, between what families making----
    Mr. ORSZAG. Oh, I am sorry, yeah. Their after-tax income--
let me put it this way: After-tax income for the middle segment 
of the population has been roughly stagnant for too long now. 
Their income growth, their disposable income has not kept pace 
with the potential productivity of the economy, in no small 
part because--well, for several reasons.
    One is health care costs have been eating into their take-
home pay. But, more important than that, a disproportion and 
growing share of the income has been flowing to the very top. 
The top 1 percent of the population, 20 years ago, accrued 10 
percent of the total income. It is now almost 25 percent.
    Mr. DAVIS OF ALABAMA. And then let me add one other aspect 
to that. The effect of the 2001 and 2003 Bush tax cuts, in my 
district, something like 95 percent of the people living in my 
district get an average tax cut from the 2001 and 2003 cycle of 
somewhere between $45 and $50 a month. That number repeats 
itself in many districts around the country. So whenever I hear 
this very strong argument about the impact of the Bush tax cuts 
and how central they are to the economy, the health of the 
economy, I am always reminded of that fact.
    Now, let me turn to carried interest. One of the things 
that this budget does is to restore carried interest to 
ordinary income levels, correct?
    Mr. ORSZAG. Correct.
    Mr. DAVIS OF ALABAMA. I always hear a lot of passion, 
again, extended on the other side of the aisle around the 
importance of taxing carried interest at a lower level. Just by 
way of reference, give me a ballpark estimate of what 
percentage of people who filed taxes last year took a carried 
interest deduction.
    Mr. ORSZAG. Oh, my goodness, well under 1 percent. I mean, 
I don't have the exact figure, but a very small sliver of the 
population has carried interest. Think private equity managers, 
hedge fund managers----
    Mr. DAVIS OF ALABAMA. And then, just to put that in 
perspective, people who do those things, manage private equity 
accounts and hedge funds, they are working, right? I mean, they 
are performing a service on behalf of others and engaging in 
some form of labor.
    Mr. ORSZAG. Absolutely. And let's be clear about this. To 
the extent that those people invest capital in their business, 
the tax treatment is very clear: They will be taxed as capital 
income. Carried interest is all about compensation for labor 
services provided----
    Mr. DAVIS OF ALABAMA. Compensation for giving advice.
    Mr. ORSZAG. For giving advice or managing a portfolio.
    Now, people say, well, it is performance-based. But the 
fact of the matter is, if you are a movie actor and you get 
paid a bonus based on how what the sales of the movie are, it 
is performance-based, you are taxed as ordinary income. If you 
are a worker at a firm, you do a great job, you get a bonus; 
taxed as ordinary income.
    In time after time after time, even performance-based labor 
compensation is taxed at ordinary income. There is no tax 
justification for the tax break given to carried interest.
    Mr. DAVIS OF ALABAMA. Dr. Orszag, my time has run out, but 
I would just end with this observation, that it is always 
fascinating to me, this enormous amount of passion extended 
every time we go to the floor on these debates about the Tax 
Code. In reality, it seems it is really passion on what effect 
the Tax Code has on a very, very narrow slice of Americans and 
constituents of the people who serve here.
    Chairman RANGEL. The Chair recognizes Mr. Reichert from 
Washington.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Thank you for your patience all day, taking our questions. 
I want to follow up on a couple of things.
    I think we do all have a passion to make sure that 
Americans today take home more money, are able to provide for 
their families and continue to operate their businesses.
    And you made a comment earlier about businesses, that there 
were two things that you wanted to do. One of those was to 
promote economic activity, and the other one was to promote 
this line of credit. And there is another $28 billion, I think 
you mentioned----
    Mr. ORSZAG. Well, access to credit more broadly. That is 
one mechanism. Right.
    Mr. REICHERT. Access to credit, right. So it just seems to 
me--and I am, you know, just speaking on behalf of the average 
American person who is not an economist--that if you have less 
taxes, you take home more money. If you are a business man or 
woman and you have less taxes, you take home more money, you 
put it into your business, or you put it into your family, or 
you put it in your pocket, you put it into savings.
    So I just have a question about the capital gains language 
in the budget proposed. President Clinton acknowledged the 
importance of encouraging investment by signing into law a 
significant reduction in the capital gains rate in 1997--I am 
sure you know this--28 to 20 percent. But this budget moves it 
from 15 percent to 20 percent. And, as a result of that, you 
are increasing it, people take home less money, they are paying 
more taxes in their business.
    Are you concerned that this proposal to raise the capital 
gains tax will discourage investment and, therefore, your first 
proposal here to promote economic activity will be slowed?
    Mr. ORSZAG. Well, again, those tax changes don't take 
effect until 2011 and thereafter, first.
    Second, we were proposing on the capital gains rate to 
return it precisely to the level that you referenced with 
regard to President Clinton, which, by the way, was a period of 
strong economic performance and strong market performance.
    And then, finally, since you mentioned small businesses, 
the budget includes a proposal on capital gains for section 
1202 businesses that would eliminate capital gains on stocks 
held in certain small businesses. So, to the extent that you 
are focused on small businesses, I wanted to emphasize that, 
not only are there no tax provisions that would affect small 
businesses in a negative way while we are trying to get the 
economy back on its feet and credit flowing again, but there is 
actually a proposal that will help small businesses through a 
zero percent capital gains rate.
    Mr. REICHERT. Right. And that new zero capital gains rate, 
that is only applying to a small portion of the business world?
    Mr. ORSZAG. It applies to small businesses that qualify 
under section 1202, correct.
    Mr. REICHERT. Okay. And why do we carve out just this 
limited number of small businesses?
    Mr. ORSZAG. Well, I think, more broadly, let's return to 
the basic question that was raised before, which is, how do we 
promote economic growth, and how do we do so in a fiscally 
responsible way in 2012 and thereafter?
    I want to come back to the point that was raised earlier. 
All we are going is returning to the tax rates that applied 
during the nineties. When those tax rates were put in place, 
for example in 1993, there were predictions of economic 
catastrophe. Those predictions turned out to be quite wrong, if 
you look at what happened thereafter.
    So the same rhetoric that is being applied to modest 
changes in the top two marginal tax rates was applied in the 
early nineties, and it did not--the facts did not serve the 
people who were making those assertions well.
    Mr. REICHERT. Well, we are still raising taxes on 
businesses, though, and it seems to me that that would not 
promote economic activity but slow it down.
    Mr. ORSZAG. Again, we are not affecting the vast majority 
of----
    Mr. REICHERT. Let me move on to my second point. The $28 
billion that you talked about--I mentioned this to the 
Secretary yesterday. I met a family, a husband and wife, Candy 
and Doug, who owned a business in the Tacoma, Seattle, area 
that went bankrupt here a few weeks ago. They went to their 
bank and wanted to get a loan, and this bank received $310 
million of bailout money. They wouldn't loan the money to this 
family to continue their business.
    This $28 billion and other moneys included in the budget 
for a second mortgage and credit incentive, would this help 
Doug and Candy, this budget? Are they going to be able to get 
some help here, now that they have already filed for 
bankruptcy, they have lost their business?
    Mr. ORSZAG. Well, I think, again, the purpose of the 
Recovery Act to get that economy back on its feet and the 
purpose of getting credit flowing----
    Mr. REICHERT. What can we do for Doug and Candy? That is 
what I want to know. They are out there. They are lost. They 
have lost their business, and they are going to lose their 
home. What can we do for Doug and Candy?
    Mr. ORSZAG. What I was trying to say is to avoid that 
situation in the first place. Now, obviously, people are 
suffering. That is why we have acted so quickly to get the 
Recovery Act in place, to not only jump-start the economy but 
also to provide some assistance during that hard time.
    But let's hope that Doug and Candy have the opportunity to 
start a new business, to go into some other field. But the best 
outcome would be to have avoided that in the first place, and, 
again, that is the purpose of the Recovery Act and getting 
credit flowing again.
    Mr. REICHERT. I appreciate your answers.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Also, I am very anxious to get a reduction 
of the corporate tax rates so that we can be competitive. Our 
major problem has been that we find very few people that are 
willing to go after those corporations, Republican or Democrat, 
that are taking unfair advantage of the tax system.
    And if we can, as I tried to do with the last 
Administration, identify those corporations and industries, we 
can have a revenue-neutral corporate tax cut that can go from 
30.5 to 30, 29, depending on how many people we are willing to 
drop, not as revenue losers, but--revenue losers, rather than 
that we are raising their taxes. So I will be anxious to work 
with you and see whether we can get some agreement.
    We have back with us--we had Bob Etheridge, who has been 
with us all along. And we welcome you back for 5 minutes.
    Mr. ETHERIDGE. Thank you, Mr. Chairman.
    And, Dr. Orszag, thank you for being here for this long 
afternoon. We really appreciate it.
    I have privilege, as you know, of being on the Budget 
Committee and had the opportunity to listen to your testimony 
yesterday. And, as I mentioned then, the budget is more than 
just a document. It really is a statement of priorities, and I 
think, to a large degree, it is a moral document when we look 
at the investments we make. And I am very pleased that in this 
budget we are investing in education and energy and in health 
care and making those a top priority, because I think those are 
issues that the average person deals with. And you just touched 
on the issues of small business. That is sort of a backbone.
    But let me ask you to comment a little more, because all 
these things we talk about, it is going to be very difficult to 
get there unless we have a well-educated citizenry. And the 
foundation of that starts, really, before those children show 
up at school, in a lot of cases, and preschool is critical. And 
once we get them through, they have to know they have an 
opportunity to go on to education beyond high school. Today, we 
are competing with the world, and, without those opportunities, 
they will never make it, and we will not be the leader that we 
want to be in the 21st century.
    I thought when the Prime Minister spoke today, from Great 
Britain, he said something that I think we all ought to 
embrace. He said, ``We are building tomorrow today.'' I would 
be interested in your comments, if you want to add to that.
    Mr. ORSZAG. I could not agree more. The whole purpose of 
this budget is not only to deal with today's problems but to 
start building tomorrow today, in health care, in education, 
and in moving to clean energy.
    Mr. ETHERIDGE. All right. In that regard, in building 
tomorrow today, we have to lay the foundation tomorrow to get 
there, and we are going to do that today.
    Will you share with me and with the Committee and with 
others--I think the statement that this budget makes in Pell 
grants is a real step forward in how we are treating Pell 
grants for youngsters, and saying to them, ``Not only are you 
important, but we are going to invest in you for years to 
come.''
    Mr. ORSZAG. Absolutely.
    There have been two main problems in the Pell grant 
program, which, by the way, has helped millions and millions 
and millions of Americans go to college. But the two main 
problems have been that the funding is erratic from year to 
year, with last-minute changes in the amount and the 
eligibility and what have you, and that the form that one uses 
to apply for that aid, the so-called FAFSA form, is more 
complicated than the Tax Code. I think it has something like 
120 or 130 items on it, which is particularly intimidating and 
unnecessary.
    We want to do two things. We want to make the funding for 
Pell grants assured, so that someone in 8th grade or 9th grade 
will know that it will be there and, therefore, continue 
working hard in school and do the things that get you on the 
path to a college education. And then there is no reason that 
the application forms need to be intimidating and confusing. We 
wants to simplify them, again, to help moderate- and low- and 
middle-income kids aspire to college without unnecessary 
complexity.
    I think a lot of kids today hear college costs $40,000 a 
year, there is no way I am ever going to be able to afford 
that, what is the point of even trying hard in high school? We 
need to change that dynamic so that those kids work hard, go on 
to college, and then stay in college.
    Mr. ETHERIDGE. Mr. Chairman, the key, I think, in this is 
we are moving that from discretionary to mandatory. Let me tell 
you why I think that is important. Because, having served as 
superintendent of schools, a lot of youngsters drop out 
mentally before they drop out physically. And they drop out of 
school mentally because they really don't see where they can 
get to.
    And I think this is a real step forward to say to 
youngsters even before they get in high school, because they 
make that decision maybe in the 7th or 8th grade, but all of a 
sudden now I am a counselor or teacher and I can say to a young 
person, ``Here is what you can do.'' I think this will have 
real impacts if we follow this through, if we work with 
counselors, do what we ought to do. I can see a teacher right 
now working youngsters in 7th, 8th grade and say, ``Listen, you 
have a chance. Now you straighten up, and here is where you can 
go.'' I think that is a real step forward.
    I thank you for your time.
    And I yield back, Mr. Chairman.
    Chairman RANGEL. Thank you.
    The Chair recognizes the gentleman from New York, Mr. 
Higgins.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    Dr. Orszag, I just want to talk to you about cancer funding 
to the National Institutes of Health and the National Cancer 
Institute for research, prevention, and early detection.
    A couple of things. One is, about 10 percent of cancer 
deaths are attributed to the original tumor. It is when cancer 
advances, when it moves, when it metastasizes that it becomes 
deadly. And that is why early detection is very, very 
important. Economically, it is a lot less costly to the Nation 
to treat cancer in its early stages than it is in later stages.
    We have made incredible progress in the past 30 years. 
Thirty years ago, 50 percent of those who were diagnosed with 
cancer did not live beyond 5 years of their diagnosis. Today it 
is 65 percent for adults and 80 percent for kids.
    Funding is critically important. Funding for cancer 
research spiked between the years 1998 and 2003 and has since 
stalled. And when you factor in inflation, we have lot about 17 
percent for cancer research, prevention, and early detection in 
this Nation.
    The President has rhetorically and in reality, based on his 
budget document and his comments and his address to the Nation, 
reaffirmed this Nation's commitment to the fight against 
cancer.
    I can remember when I first came to serve in Congress, the 
American Cancer Society and the National Cancer Institute 
converged on Washington. And they were wearing these buttons 
that said ``2015,'' and I inquired as to what it was. The goal 
of those two organizations was to eliminate--eliminate--all 
human suffering and death due to cancer by the year 2015. I 
know that there was some controversy within the cancer 
community as to whether or not that goal was achievable. And, 
obviously, it is not. But what is important, what is important, 
is that we are making progress toward that goal.
    Can you talk about the President's commitment to 
eliminating or reducing cancer deaths and suffering in our 
time, as he has said? And specifically, what kinds of 
translational research will this new funding finance?
    Mr. ORSZAG. Well, let me first say that estimates suggest 
that, by 2010, cancer will surpass heart disease as the leading 
cause of death globally. We need to address it.
    The President is committed to substantially increasing 
funding for cancer research. The budget includes $6 billion for 
cancer research at the National Institutes of Health, which 
builds upon the $10 billion, a part of which will be 
undoubtedly dedicated to cancer research, that was provided to 
NIH as part of the Recovery Act.
    So we have very substantial funding in this budget to try 
to attack the growing problem of cancer. And we are on a path 
to fulfilling the President's multi-year commitment to double 
cancer research.
    Mr. HIGGINS. Great.
    With that, I will yield back. Thank you.
    Chairman RANGEL. Thank you.
    I really want to thank the Members for your patience and 
the Administration for really sharing this information with us 
here.
    And is Mr. Yarmuth here?
    Mr. Meek from Florida?
    Mr. MEEK. Thank you, Mr. Chairman.
    And, Dr. Orszag, I want to thank you for being here today.
    And I want to commend the Administration for doing 
something that we haven't done in a very long time here in 
Washington, D.C., especially from the executive branch, and 
that is to share with the American people the truth. And 
sometimes the truth, in some circles, may not feel as good to 
some Americans, as they start to look at what the budget was 
truly all about. When you have two wars going on and you have a 
number of other issues and emergency supplementals that are not 
in the document that we started off with at the beginning of 
the year, then they don't necessarily know how much money the 
Federal Government is actually doling out and how mismanaged it 
is.
    I just want to point out one case, especially as it relates 
to the President's budget, in permanently extending and 
enhancing the child tax credit, which was in the Recovery Act 
but which you have put in your budget. Taking it down to $3,000 
has included 20 percent of Floridians, I mean 20 percent of 
children that weren't covered or families that weren't covered. 
And this child tax credit is now covered by the very poor in 
Florida.
    And I am very excited that the Administration has moved in 
that direction, because especially now in these very hard 
times, families that know what it means to punch in and punch 
out every day, some individuals that are really struggling in 
rural Florida, they need that tax credit, they need that 
assistance.
    One of the things, Director, I want to talk to you about 
today, or ask you questions about, is accountability. We had 
the Treasury Secretary here yesterday. And one of my concerns 
was to make sure that, even though we have all of this vision, 
all of this change, all of this leadership, all of this hope 
that we have put out there on behalf of Americans, that we have 
the accountability tools in place.
    As you know--and you have been in Washington, as we say in 
south Florida, for more than five or six mango seasons. I want 
to ask you, have we looked at how we can head off possible 
mismanagement, overspending in areas outside of the budget 
because of mistakes of a very few that will end up blossoming 
into something that we don't want, an auditor general's report 
that may come out and say that there has been an oversight of 
millions of taxpayers' dollars?
    Point to the parts of the budget where the vision is there 
to make sure that we have the accountability measures in place 
before it reaches the auditor general's office.
    Mr. ORSZAG. Sure. Let me first deal with the Recovery Act. 
The Administration has appointed Earl Devaney, a very well-
known and tough inspector general, to head the accountability 
oversight board created as part of the Recovery Act.
    We are also putting out the message, not only to the 
Cabinet but, more importantly, to Governors and Mayors--I spoke 
to the Governors when they were in town last week--that we need 
to make sure this money goes out not only quickly but wisely. 
And that means paying attention to accountability and 
transparency.
    We have also launched a Web site, recovery.gov, that has 
been receiving--or, at least at the beginning, was receiving at 
least 3,000 hits a second. When the President mentioned it 
during the State of the Union, it again had a spike in 
activity. That underscores the interest in precisely what you 
were talking about, accountability.
    Now, within this budget, I will point you--I think the most 
important thing that we are doing, in addition to the 
contracting reform the President talked about earlier today, we 
are investing significant sums in making sure that, for 
example, under Medicare, we don't pay money to a provider 
unless they are actually a provider providing that service to a 
beneficiary. There has been too much Medicare fraud that has 
occurred.
    We are investing resources in the Social Security 
Administration to make sure that the right benefit goes to the 
right person at the right time.
    All in, based on credible evidence in terms of how program 
integrity funds will work, the budget saves $50 billion in 
erroneous payments or erroneous tax credits that would 
otherwise have occurred, because we are paying so much 
attention to accountability and transparency.
    Mr. MEEK. I think you are 110 percent right. And thank you. 
I will see an auditor general, inspector general. And it is 
very, very important before we get to the point of saying that 
there is a lot of waste that has taken place, it is usually a 
minority report by the Department, saying, ``Well, this is our 
version of what took place,'' and we know that will happen 
under what we call regular order.
    But I think the accountability end is what I am hearing 
back in Florida. Folks are saying, ``Kendrick, you all are 
doing a good job responding to the emergency. It is not your 
emergency; you didn't create the fire.'' But they don't want 
the fire to spread into other areas.
    And if you feel very comfortable or satisfied, as it 
relates to the approach, at the beginning--because, with the 
TARP funds, for instance, Mr. Paulson sat where you sat and 
assured this Committee and everyone else that we need these 
dollars, that we need the flexibility to be able to deal with 
the financial community, same thing that this Administration 
called for too, that it is important--I am closing, Mr. 
Chairman--that it is important that we have those police 
officers in place to, kind of, break it down to everyday talk, 
to make sure on a monthly basis they are checking in on these 
programs, they are checking in on things that we are doing. And 
I am glad that the Administration is going in and looking at 
the books of many of these individuals that are companies that 
are receiving these dollars.
    I think the American people appreciate that just as much as 
they appreciate the response to the emergency.
    Mr. ORSZAG. I agree.
    Mr. MEEK. So I want to thank you for coming before the 
Committee. Looking forward to working on your proposed budget 
that the President has sent to the Hill.
    Mr. BLUMENAUER [presiding.] Thank you.
    Congressman Boustany?
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Dr. Orszag, this budget proposal rightfully gives 
recognition to the fiscal gap that we are seeing and how it 
relates to health care costs. And I applaud that; I think that 
is laudable. And, clearly, a lot of work needs to be done 
there.
    It is unclear to me at this time, even though we have gone 
through this hearing and the hearing yesterday, as to how the 
$634 billion in that reserve fund will be used to actually bend 
that curve, bend the curve, as you have said, on health 
spending.
    Now, in the course of this hearing, you have mentioned 
health IT. There are significant provisions in the stimulus 
package to deal with this. But, as a physician who has dealt 
with health IT at the ground level, I see some significant 
problems with the way that is going to be implemented. And that 
is something we can talk about later.
    You also mentioned disease management, and, clearly, we 
need to do more there.
    And the third area that you talked about was altering 
incentives for providers. And that is a complicated issue. And 
I would submit, also, that there is also a significant 
impediment in existing law that works against us in that area.
    I also want to point out that, in 2007, you urged this 
Committee in a hearing to cut cost by linking Medicare coverage 
to cost-effectiveness analysis. And you said at that time, and 
I quote, ``Determining which treatment was most cost-effective 
for a given population would involve placing a dollar value on 
an additional year of life,'' end quote. Now, as a physician 
with 20 years' experience, a heart surgeon, I find that 
disturbing. I find that comment disturbing.
    You also urged Congress to rethink the need to permit 
Medicare coverage for, quote, ``more effective but more 
expensive services,'' end quote.
    Some of your previous comments seem to suggest a 
misunderstanding of the value personalized medicine. And, as we 
move toward an era where genetics will play a more important 
role in individual differences in the way medicine needs to be 
implemented with regard to a particular patient comes about, I 
find a disconnect here.
    So I want to know, will this Administration do anything--
what steps will this Administration take to guarantee that 
Medicare won't implicitly use cost data to deprive seniors and 
disabled Americans coverage for medically necessary care?
    Mr. ORSZAG. Well, there are many aspects to your question. 
Let me start with--you said, what is in here that bends the 
curve? And let's talk about financial incentives for providers.
    I think, well, I hope you would agree, I think the MedPAC, 
the Institute of Medicine, a variety of medical experts agree 
that readmission rates are too high and that many readmissions 
could be avoided.
    Mr. BOUSTANY. Oh, there is no question about it.
    Mr. ORSZAG. We have proposals to bundle post-acute care and 
hospital stays together to create stronger incentives for 
reducing those readmissions. We also have incentives that are 
directly targeted at readmission rates among hospitals.
    We have incentives for physicians to form groups. Mark 
McClellan and others have put forward proposals to form 
accountable care organizations. We have a bonus-eligible 
organization, which has some differences but is spiritually 
aligned with that type of proposal.
    And we can keep going down the list. But, basically, I do 
think that we are doing all the things that your colleagues and 
the Institute of Medicine and MedPAC and others have suggested 
would help to bend the curve.
    Now, specifically, with regard to personalized medicine, I 
am fully in favor of personalized medicine. I think we need as 
effective and personalized a system as possible. But it is also 
the case--and I don't know what your experience has been like. 
I know, from my personal experience, as I mentioned earlier, 
that oftentimes that personalized medicine doesn't have enough 
information to deliver the highest-quality, most effective care 
possible. And I would like my doctor, along with everyone's 
doctor, to have more information about what is more likely to 
work for me----
    Mr. BOUSTANY. Well, I would submit to you that the medical 
literature is replete with many, many studies in this area. But 
I guess I want to get back to the heart of my question, and 
that is, in dealing with the cost-effectiveness issue, I want 
to know what guaranties, what steps will the Administration 
take to make sure that this is not abused and cost will not 
used to withhold some types of care?
    Mr. ORSZAG. Well, I don't think anyone is talking about 
cost alone. But let me just--because I do think it is crucially 
important. The Institute of Medicine and others have suggested 
a very large share, perhaps half or more, of the medical care 
delivered in the United States, of that personalized medicine, 
the medicine that your doctor is recommending, is not backed by 
any specific evidence that it works better than an alternative.
    So there is a large literature, but it often doesn't apply 
in, sort of, a detailed enough level to be informing your 
doctor in whatever recommendations the doctor is making. I 
think that is something that, at least if I were--I am not a 
medical doctor; I am a Ph.D.--if I were a medical doctor, I 
would sure want that kind of information so that I could 
provide the best recommendations I could to my patients.
    Mr. BOUSTANY. Well, I think most doctors do. Most doctors 
do attempt that.
    Mr. ORSZAG. They attempt it. The point is the information 
is not there for them to draw upon. And we should be more 
aggressive in providing that information to doctors and letting 
medical decisions be based on medical evidence.
    Mr. BOUSTANY. I agree with that. But I think, clearly, 
there are ways that medical information is disseminated. And 
the, sort of, a top-down, potentially arbitrary approach could 
be problematic.
    Mr. ORSZAG. Well, I don't think it will be top-down, but we 
could have a longer discussion about how it would work.
    Mr. BOUSTANY. Thank you.
    I yield back.
    Mr. BLUMENAUER. Thank you.
    Mr. Roskam?
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Director, thanks for your patience today. And I would just 
like to follow up on Dr. Boustany's questions.
    And I don't think we will probably come to, really, a clear 
understanding. You probably don't have the authority, you know, 
with all due respect, you would probably have to go back to the 
President and so forth. But, sort of, the signal flare that I 
think you are hearing from people, as it relates to the cost-
effectiveness argument, is not the underlying premise that 
cost-effectiveness is a good thing to contemplate, but it is 
the nature of this council, these 15 Members, and what 
ultimately is the stick that they have.
    And it was interesting to me when you were describing your 
own experience with your physician and then, in answering the 
question from Congresswoman Schwartz, you said, words to this 
effect, ``We are going to provide doctors with the incentive to 
provide the very best care.'' Well, implicit in that is, sort 
of, the stick to make decisions if doctors aren't providing the 
very best care.
    Could you describe to us, sort of, your understanding of 
how that works? Because if you are going to provide incentives, 
you have to be able to disincentivize bad decisions.
    And let me ask you to specifically address a particular 
entity that exists in Europe that, at least according to the 
Wall Street Journal, is the entity that other countries are 
looking at as the blueprint here. And it is the----
    Mr. ORSZAG. NICE.
    Mr. ROSKAM. Yeah. So you are familiar with it.
    Mr. ORSZAG. I am.
    Mr. ROSKAM. Can you debunk, sort of, the NICE analogy? 
Because there is some bad stuff that happened there, and we 
don't want that to happen here. I could drag you through the 
bad stuff, but my hunch is you know it.
    Mr. ORSZAG. Okay, completely different system.
    Mr. ROSKAM. Great. What is different about it?
    Mr. ORSZAG. In the United Kingdom, they have a government-
run system, the National Health System, that the National 
Institute for Clinical Excellence, which is NICE, informs. That 
is not the system we have in the United States; it is not the 
system we will have in the United States.
    But I think, coming back to the previous question, to your 
question about incentives, let's take the hospital quality 
incentive scheme, or incentives, that we have in the budget. 
The evidence suggests that the Premier Demonstration Project, 
applying to hospitals, has helped to improve quality by 
creating financial incentives for hospitals to provide higher-
quality care rather than just more care. That is, spiritually, 
that is basically what we need to do.
    Again, I don't see how we can tackle this long-term path 
that we are on if we just continue to pay for more care rather 
than better care. It doesn't mean cutting off, it doesn't mean 
rationing, it doesn't mean yes/no decisions. But we should 
create stronger incentives for higher-quality care.
    Under the current system--let me actually put the point 
more bluntly. Under the current system, more efficient 
providers are often financially penalized because they are not 
doing more unnecessary procedures and tests and what have you. 
That makes no sense. They shouldn't have to pay a financial 
price----
    Mr. ROSKAM. No argument here whatsoever.
    Mr. ORSZAG. Okay, that is all we are talking about.
    Mr. ROSKAM. I completely concur. But here is what I think 
is a danger that we, together, have to figure out. The danger 
is the implicit authority that goes in an agency that will have 
a lot of power, right? It is going to have your ear, it is 
going to have the President's ear. It is going to have a great 
deal of authority. And it will be, for lack of a better 
characterization, sort of the point agency that is going to be 
making demarcations. And it is going to be saying, well, we 
declare this as efficient; we declare this as a bad drug 
technology. And you can begin to imagine that there are people 
that aren't going to feel particularly well-served.
    And the examples in England--this is not theoretical. This 
has happened. And so people with MS have felt like, ``Hey, I 
need this drug therapy, but this agency says I can't have it?'' 
That, I think, is part of the challenge--and you have a lot of 
challenges that you are dealing with--that is part of the 
challenge, moving forward, to make those assurances in place so 
that Americans don't feel roughshod or that 15 people are going 
to have a disproportionate amount of influence over the care of 
millions.
    Mr. ORSZAG. I think we have a lot of areas of agreement in 
which--and I saw the doctor nodding his head, too--that some of 
the financial incentives we currently have are not helpful in 
creating incentives for higher-quality care.
    I think we also can agree that we should be making sure 
that there is more information available, on a medical basis, 
for what works and what doesn't, so that we each can have the 
best information available, not only as patients but as 
doctors.
    And I think we also could all agree that the course that we 
are on is unsustainable, so that we will have to work together 
to make the system more efficient.
    Mr. ROSKAM. And I think we can further agree, wouldn't you, 
that we need to make sure that there are protections in there 
that protect that patient from getting something that they need 
and that it doesn't get bogged down in a bureaucratic fashion.
    Mr. ORSZAG. Absolutely.
    Mr. ROSKAM. I yield back.
    Mr. BLUMENAUER. Congressman Pascrell.
    Mr. PASCRELL. Mr. Chairman.
    I think, Director, please pay attention--I know you are 
doing that--to what both sides of the aisle have said about the 
credit pipeline. Mr. Reichert from Washington and myself 
mentioned this yesterday to the Secretary. This is a critical 
point. It is not happening. It has not happened. I don't see 
any light at the end of the tunnel on this issue. So whether we 
are talking about the TARP, whether we are talking about 
recovery, whether we are talking about our budget, we have to 
get this moving.
    I applaud the Administration for displaying its commitment 
to health reform. While you have done a great deal of work for 
us, we must still grapple to make up the difference between 
your blueprint and the price tag of reform.
    Some have suggested changing the way we treat employer-
provided health insurance. Many experts, including Robert 
Greenstein, executive director of the Center on Budget and 
Policy Priorities, have suggested that moving forward with 
health reform may require a dedicated revenue stream. Some have 
suggested modifying the current tax exclusion for employer-
sponsored health insurance. Many have argued that capping the 
value of this tax exclusion will erode employer-sponsored 
health insurance, which currently provides health coverage to 
61 percent of Americans under 65 years of age and is the most 
effective means of pooling high- and low-cost patients 
together.
    Now, my question is this. I actually have two questions. 
Does the Administration support a modification of the current 
tax exclusion for employer-sponsored health insurance? How 
would you cap this tax exclusion, the effect that it would have 
on the employer-sponsored health insurance market?
    And my followup question is, we must identify additional 
sources to make health reform a reality. I would encourage both 
the Administration and this Committee to think twice before we 
erode the tax treatment of employer-provided health insurance 
coverage. This kind of package may well leave us with a Pyrrhic 
victory, and a lot of people like it the way it is.
    Mr. Director.
    Mr. ORSZAG. Well, one of the principles that the 
President's budget includes is an emphasis on choice of health 
plans, including the option of keeping your employer-based 
health plan. That is specifically identified in the budget.
    We also do have a gap in funding that we will need to work 
with you to fill, since this is a downpayment on reform but not 
a full funding source. Many people have put the health 
exclusion as one of the options on the table that could help to 
fill in that gap. But I think what I would like to say very 
clearly is I understand the concerns that have been raised 
about that proposal. It is not included in this budget. Other 
people have put it on the table. Part of the discussion that 
will have to occur over the coming weeks and months is 
precisely how to provide additional resources to an overall 
health reform effort.
    Mr. PASCRELL. And where do you see that going? What is your 
opinion?
    Mr. ORSZAG. I think it is premature at this point to be 
ruling in or ruling out anything.
    Mr. PASCRELL. You don't have an opinion about it yet?
    Mr. ORSZAG. That is not quite what I said. I said that I 
think it is premature to be ruling in or ruling out anything.
    Mr. PASCRELL. Thank you, Mr. Director.
    Thank you, Mr. Chairman.
    Mr. BLUMENAUER. Thank you, Mr. Pascrell.
    Mr. Tiberi.
    Mr. TIBERI. Thank you, Mr. Chairman.
    Mr. Orszag, last but not least, what was the national debt 
at the end of 2008?
    Mr. ORSZAG. Publicly held debt at the end of 2008 was $5.3 
trillion.
    Mr. TIBERI. How about including everything?
    Mr. ORSZAG. The gross Federal debt is not the concept that 
most economists use, but I will nonetheless give it you. Gross 
Federal debt was $9.99 trillion at the end of 2008.
    Mr. TIBERI. What will those two numbers be at the end of 
your budget?
    Mr. ORSZAG. Well, first, let me say, under the current 
policies that we are under, under current policies, they would 
be $2 trillion higher than under our budget. But because of the 
path that we are on and the legacy that we are inheriting, 
there would be an increase in debt under the budget. It is 
given in Table S-1. And, you know, I can read the numbers just 
as well as you can.
    Mr. TIBERI. Can you go ahead and tell me? I can't find the 
numbers.
    Mr. ORSZAG. Okay. Well, let me first start with the 
baseline projection of debt, if I have this. I guess I don't 
have that. But publicly held debt net of financial assets would 
increase from $5.3 trillion in 2008 to $6.9 trillion in 2009. 
That is because of----
    Mr. TIBERI. Just give me the last number, the 2019.
    Mr. ORSZAG. 2019 would be $13.8 trillion. And, without the 
budget, it would therefore be something like $15.8 trillion.
    Mr. TIBERI. Wow. Does that stagger you?
    Mr. ORSZAG. We are inheriting a very serious fiscal problem 
going out over time. We are addressing it by being honest and 
getting the deficits down to 3 percent of GDP so that debt is a 
common share of----
    Mr. TIBERI. What are the deficits each year of those budget 
years?
    Mr. ORSZAG. They are about 3 percent of the economy.
    Mr. TIBERI. What is the number?
    Mr. ORSZAG. The nominal number, which, again, is not the 
way economists typically look at it, is, 2013, it is $533 
billion.
    Mr. TIBERI. That is still a lot of money, whichever way you 
slice it.
    Mr. ORSZAG. There is no question that it would be 
desirable--again, doing it honestly, not playing--I could make 
that number look a lot of smaller by playing all of the budget 
gimmick games that have been played in the past. But doing it 
honestly, it would be desirable to bring that number down yet 
further. But we need to realize that we are starting with a 
very deep fiscal hole, and we are working our way out of it.
    Mr. TIBERI. You said something about the longer you wait to 
do something, the harder it is. In 10 years, my kids are going 
to face a national debt that is unbelievable and, essentially, 
deficits every year that are bigger than what we have seen in 
the last 8 years.
    Mr. ORSZAG. But, again, $2 trillion less under the budget 
proposal than if we did nothing.
    Mr. TIBERI. Let me talk about an article, an editorial that 
was in the Detroit News today and get your thoughts on it. This 
is today's Detroit News: ``President Obama's proposed cap-and-
trade system on greenhouse gas emissions is a giant economic 
dagger aimed at the Nation's heartland.'' I am from Ohio; this 
says ``particularly Michigan.'' ``It is a multi-billion-dollar 
tax hike on everything that Michigan does, including making 
things, driving cars, and burning coal.'' Michigan and Ohio's 
economies are very similar.
    It goes on to say, ``The President's budget projects 
receipts totaling $646 billion through 2019 through the sale of 
these greenhouse gas permits. The goal, according to the 
President's budget outline, is to reduce greenhouse gas 
emissions, such as carbon dioxide, to 14 percent below our 2005 
levels by 2020. Doing so will drive up the cost of nearly 
everything and will amount to a major tax increase for American 
consumers.'' This is the Detroit News, not me.
    I was speaking to a--not an investor-owned but a municipal-
owned electric company, owned by the government, back in Ohio 
at the end of last week. And he said that, under this proposal, 
consumers in their service areas, electric rates will be 
double, will go up twice as much as they are now, just from 
this proposal, from nothing else.
    My mom and dad are retired, Dr. Orszag. They will not get 
part of this tax cut, Making Work Pay, that you have said will 
help pay for this cost of electricity. They have lived below 
their means their whole life since they came to America on a 
boat. The gasoline that they put in their 14-year-old Buick 
will go up. Their electric will go up. Their natural gas will 
go up. What do I tell my mom and dad and people like them, that 
this is not a tax increase, this is something that will help 
us?
    Mr. ORSZAG. Well, again, I am going to come back to: We 
face a choice. We can continue relying excessively on foreign 
oil and running a lot of energy-inefficient parts of the 
economy, or we can start to move toward a world in which we are 
reducing that dependence and moving toward cleaner energy.
    Mr. TIBERI. Oh, I understand that. But this is going to be 
particularly hard on people in Ohio, in Michigan, in the 
industrial Midwest, and people who--some people, like my 
parents, who, again, have lived below their means, have not 
gone out and bought expensive cars or expensive homes, paid 
their bills, and suddenly this blue-collar, immigrant American 
now is looking at doubling of his gasoline cost, his house 
heating cost----
    Mr. ORSZAG. Well, I think those projections are 
dramatically exaggerated. But I do think, again, we face a 
series of choices here. We face a choice with regard to our 
health care system. We face a choice with regard to our 
educational system, reducing costs and improving quality in 
health care, improving the quality of our education system. And 
we do face a choice on moving to a cleaner energy future. That 
is a choice that we face.
    Mr. CAMP. Will the gentleman yield?
    Mr. TIBERI. I will yield.
    Mr. CAMP. I think if the choice is between clean coal and 
seniors, I will pick the men and women that are seniors in this 
country every time.
    Thank you.
    Mr. TIBERI. I yield back.
    Mr. BLUMENAUER. Thank you very much.
    Dr. Orszag, thank you for your patience and your stamina. 
It has been extraordinarily useful for us all, and we 
appreciate your courtesy.
    Mr. ORSZAG. Thank you very much.
    Mr. BLUMENAUER. We look forward to working with you.
    Mr. ORSZAG. You, too.
    [Whereupon, at 5:48 p.m., the Committee was adjourned.]
    [Submission for the Record follows:]
                        Statement of Matt Lykken
    I am the Director of SharedEconomicGrowth.org. I thank the 
Committee for the opportunity to submit this statement in response to 
the Administration's proposal to raise some $25 billion per year 
through, inter alia, ``reform of deferral.''
    I am an international tax attorney with 24 years of government and 
corporate experience. I have worked for U.S. corporations in the U.S. 
and abroad, and for a foreign corporation following the acquisition of 
my U.S. employer. I have advised several foreign governments on how to 
structure their tax systems in a manner that would provide strong and 
secure revenue while at the same time encouraging investment. My 
colleagues in SharedEconomicGrowth.org are likewise tax attorneys of 
broad experience. As tax professionals and parents, we have become 
alarmed by the clear negative effect that the U.S. corporate tax system 
is having upon the U.S. economy. The current system discourages U.S. 
employment, inhibits repatriation of hundreds of billions of dollars, 
and strongly interferes with efficient investment. Further, compared 
with taxation of the same earnings at the individual level, corporate 
tax is regressive, imposing the same 35% levy on earnings allocable to 
the IRA of a minimum wage worker as it does on earnings allocable to a 
billionaire. The United States can no longer afford this efficiency 
burden. We seek to offer an alternative that is revenue neutral in the 
short term, revenue positive in the longer term, and helpful to the 
working, saving middle-income families who have been standing aghast as 
our government commits their hard earned money to helping the rich and 
the spendthrift.
A Right and a Wrong Way to Reform Deferral
    The Administration is right to wish to reform deferral. Under the 
current system, a corporation can increase its after tax manufacturing 
profits by 54% simply by choosing to locate a plant in the Dominican 
Republic (``D.R.'') rather than in the United States. Further, when the 
corporation then determines how best to invest $1,000,000 of that D.R. 
profit, it must consider that it can invest the full $1,000,000 if it 
does so in any country except the United States, but can only invest 
the after tax amount of $650,000 if it brings the cash here. Clearly, 
we should seek to alter this incentive. However, attempting to do so by 
simply taxing foreign earnings at 35% would have an extremely 
destructive effect given the existence of global competition.
The Wrong Way
    The United States does not have a monopoly on technology, 
creativity, or capital. Virtually all U.S. multinationals have strong 
foreign based competitors. Those competitors are free to set up their 
plants in the D.R. and pay no tax, and under their home country 
territorial tax regimes they will never pay tax on those earnings. (As 
one example, Bayer AG in 2007 had tax expense of =72 million on income 
of =2,234 million).\1\ In the global economy, shareholders demand an 
equivalent post-tax return from any corporation having an equivalent 
growth and risk profile. If a fully taxed U.S. corporation is forced to 
compete with an untaxed foreign rival, then, two things can be expected 
to happen. First, the foreign company may choose to compete on price, 
relying on the fact that it would only need to earn $65 of pre-tax 
profit to be equivalent to a 35% taxed U.S. rival earning $100. The 
U.S. company may not be able to make a reasonable profit in the face of 
that disadvantage, and may be crushed or seek to withdraw from the 
competition. This raises the second effect. If the D.R. operations 
would be worth $1,000 on a 0% tax basis, they would be worth only $650 
on a 35% tax basis. Therefore, a 0% taxed rival could buy the D.R. 
operations of a U.S. parent without tax friction. In other words, it 
could pay $1,000 because the operation would be worth $1,000 to it, the 
U.S. seller would receive $650 after tax, and so both sides would be 
content. Faced with the choice between hopeless competition or a 
frictionless sale, which would the U.S. corporation choose? Could a 35% 
taxed U.S. corporation buy out its 0% taxed D.R. rival? No. Going in 
that direction, the fact that tax basis can only be recovered over time 
imposes a level of friction that would be impossible to overcome. Using 
a typical 15 year recovery period and a typical 15% discount rate, the 
U.S. company would be paying $1,000 for an operation worth only $796 to 
it. In short, existing foreign operations of U.S. parents would die or 
be sold, new operations would not be acquired, and U.S. based 
operations would labor under the burden of unfair price competition. 
Many U.S. corporations would be acquired by foreign rivals, with the 
consequent elimination of prime U.S. headquarters jobs and elimination 
of U.S. export operations, further aggravating our balance of payments. 
This is not a formula for American success.
---------------------------------------------------------------------------
    \1\ See the Bayer 2007 annual report, page 98, available at http://
www.annualreport2007
.bayer.com/en/homepage.aspx.
---------------------------------------------------------------------------
The Right Way
    This Committee will hear a number of proposals for corporate tax 
reform. They will have various known flaws. The Committee will be asked 
to lower corporate tax rates. That is an extremely prudent suggestion 
given that the U.S. tax rate is now a global outlier, but substantial 
rate reduction will increase the earnings lock-in effect and will bring 
back all of the personal income sheltering issues that were suppressed 
when corporate and individual rates were brought into harmony. The 
Committee will hear calls for conversion to the type of territorial tax 
regime used by essentially all of our trading partners, but that also 
has recognized issues. The Committee will receive radical reform 
proposals that raise the risk of a fresh ``arms race'' between tax 
planners and the government, losing the protection of a long tested 
system of extracting revenue. But there is one proposal that would 
eliminate the deferral problem in a manner that would encourage U.S. 
investment and strengthen U.S. corporations. It would make corporate 
tax shelter and transfer pricing issues a thing of the past. It would 
eliminate corporate cash lock-in and free funds for investment in the 
best opportunities available in the overall economy. It would drive 
true corporate transparency and accountability, reduce corporate power 
and ``too big to fail'' consolidations, and shift focus from mindless 
growth to solid profitability. It would reduce the hidden harvest of 
corporate profits by executives and give those funds back to the 
shareholders. It would improve the progressivity of the U.S. tax system 
and reward middle income savers, increasing the value of their hard-hit 
IRA and 401(k) accounts. It would do this in a manner that would be 
revenue neutral on a static basis, and strongly revenue positive in the 
future as increased after-tax earnings are withdrawn from retirement 
accounts. And it would do all of this with a three page bill, included 
here.
    The Shared Economic Growth proposal is simply a corporate dividends 
paid deduction with the revenue offset at the individual shareholder 
level. The United States has always sought to achieve corporate 
integration by reducing tax at the shareholder level, a highly 
regressive technique that pleases large campaign contributors. Shared 
Economic Growth instead allows corporations to reduce their tax only if 
and when they pay out their earnings as dividends, and simultaneously 
taxes those dividends in the hands of the shareholders at full ordinary 
rates. Certain other changes to the system that are possible only with 
the introduction of a dividends paid deduction (i.e. not with a 
corporate rate reduction or shareholder level relief) make this work in 
a revenue neutral manner. Shared Economic Growth could be implemented 
in two alternative ways, offering a policy choice. Because a portion of 
corporate dividends flow to tax deferred savings vehicles such as IRAs 
and 401(k)s, there would be a current revenue loss. The version of the 
bill attached here assumes that this Committee would prefer to allow 
that deferral and to make it up through a levy on individual income 
over $500,000 a year equal to the individual employment tax levy that 
ordinary wage earners pay. Under this version, as the IRAs and 401(k)s 
pay out their enhanced earnings in the future, the government would 
harvest the $25 billion a year that the Administration's budget seeks. 
Alternatively, one could enact the proposal with a withholding tax that 
would hold tax deferred savings accounts neutral while still obtaining 
all of the incentive correction and efficiency effects and somewhat 
increasing progressivity.
    Further information on the proposal can be found at http://
www.sharedeconomic growth.org/home/summaryslideshow.html.
Given This Option, Enacting Destructive Changes Would Be Inexcusable
    Shared Economic Growth is a viable option. It is simple. The static 
numbers are based on IRS Statistics of Income and Federal Reserve data 
and are valid. It is safe. It would strengthen the American economy, 
bring home hundreds of billions of dollars of corporate cash, and 
enhance the market power of American employees, all while satisfying 
the Administration's revenue requirements over time. With such an 
option available, there is no good reason to further damage U.S. stock 
values by even considering the destructive alternative of eliminating 
deferral. U.S. stock prices were falling on February 27 in response to 
the mere suggestion that deferral might be repealed. If U.S. stock 
values are suppressed for a prolonged period by such a hanging threat, 
it may do lasting damage even if deferral is never actually eliminated.
    This is a critical moment in America's history, one where the 
choices made by Congress will determine whether our children will have 
a chance for a joyous and prosperous future or will be doomed to fight 
for their share of a wounded and diminished economy. I thank you for 
investing the time to ensure that you have thoroughly considered all of 
the options so that you may make the right choices for America.
                                 A Bill
    To amend the Internal Revenue Code of 1986 to remove incentives to 
shift employment abroad, and to remove hidden taxes on retirement 
savings and provide equitable taxation of earnings.
SECTION 1: SHORT TITLE
    This Act may be cited as the ``Shared Economic Growth Act of 
2009''.
SECTION 2: PROVIDING INCENTIVES TO LOCATE HIGH-VALUE JOBS IN AMERICA 
        AND TO INJECT CASH INTO THE AMERICAN ECONOMY
    (a) Part VIII of Subchapter B of Chapter 1 of Subtitle A of the 
Internal Revenue Code of 1986 is amended by adding the following new 
section:
    ``251. (a) General Rule. In the case of a corporation, there shall 
be allowed as a deduction an amount equal to the amount paid as 
dividends in a taxable year of the corporation beginning on or after 
January 1, 2010.
    (b) Limitation of benefit to tax otherwise payable.
    (1) The deduction under this section may not exceed the 
corporation's taxable income (as computed before the deduction allowed 
under this section) for the taxable year in which the dividend is paid, 
decreased by an amount equal to 2.85 times any tax credits allowed to 
the corporation in the taxable year.
    (2) Where the deduction otherwise allowable under this section in a 
taxable year exceeds the limitation provided in paragraph 1 of this 
subsection, the excess may be carried back and taken as a deduction in 
the two prior taxable years or forward to each of the 20 taxable years 
following the year in which the dividends were paid. However, the total 
deduction under this section for dividends paid during the taxable year 
plus carryovers from other taxable years may not exceed the limit 
provided in paragraph 1 of this subsection. Rules equivalent to those 
provided in paragraphs 2 and 3 of subsection 172(b) of this subchapter 
shall govern the application of such carryover deductions.
    (3) No amount carried back under paragraph 2 of this subsection may 
be claimed as a deduction in any taxable year beginning on or before 
December 31, 2009. (c) Consolidated groups. In the case of a group 
electing to file a consolidated return under section 1501 of this 
Subtitle, the deduction provided under this section may be claimed only 
with respect to dividends paid by the parent corporation of such 
consolidated group.''
    (b) Subparagraph (b)(1)(A) of Section 243 of Part VIII of 
Subchapter B of Chapter 1 of Subtitle A of the Internal Revenue Code of 
1986 is amended to read as follows:
    ``(A) if the payor of such dividend is not entitled to receive a 
dividends paid deduction for any amount of such dividend under section 
251 of this Part, and if at the close of the day on which such dividend 
is received, such corporation is a member of the same affiliated group 
as the corporation distributing such dividend, and''.
    (c) Section 244 of Part VIII of Subchapter B of Chapter 1 of 
Subtitle A of the Internal Revenue Code of 1986 is repealed for tax 
years beginning after December 31, 2009.
    (d) Subparagraph (a)(3)(A) of Section 245 of Part VIII of 
Subchapter B of Chapter 1 of Subtitle A of the Internal Revenue Code of 
1986 is amended to read as follows:
    ``(A) the post-1986 undistributed U.S. earnings, excluding any 
amount for which the distributing corporation or any corporation that 
paid dividends, directly or indirectly, to the distributing corporation 
was entitled to receive a deduction under section 251 of this Part, 
bears to''.
    (e) Subsection 1(h) of Part I of Subchapter A of Chapter 1 of 
Subtitle A of the Internal Revenue Code of 1986 is repealed for tax 
years ending after December 31, 2009.
    (f) Subsection (a) of Section 901 of Part III of Subchapter N of 
Chapter 1 of Subtitle A of the Internal Revenue Code of 1986 is amended 
to read as follows:
    ``(a) Allowance of credit
    If the taxpayer chooses to have the benefits of this subpart, the 
tax imposed by this chapter shall, subject to the limitation of section 
904, be credited with the amounts provided in the applicable paragraph 
of subsection (b) plus, in the case of a corporation, the taxes deemed 
to have been paid under sections 902 and 960. However, in the case of a 
corporation, no credit shall be allowed under this section or under 
section 902 for foreign taxes paid or accrued, or deemed to have been 
paid or accrued, in tax years beginning after December 31, 2009. Such 
choice for any taxable year may be made or changed at any time before 
the expiration of the period prescribed for making a claim for credit 
or refund of the tax imposed by this chapter for such taxable year. The 
credit shall not be allowed against any tax treated as a tax not 
imposed by this chapter under section 26(b).''
    This amendment shall override any contrary provision in any 
existing income tax convention.
SECTION 3: PREVENTING WINDFALL BENEFITS FOR FOREIGN INVESTORS
    (a) Section 1441 of Subchapter A of Chapter 3 of Subtitle A of the 
Internal Revenue Code of 1986 is amended by adding at the end of 
subsection (a) thereof:
    ``, and except that in the case of dividends, the tax shall be 
equal to 35 percent of such item.''
    The imposition of this 35 percent withholding tax on dividends 
shall override any contrary restriction in any existing income tax 
convention. This amendment shall apply with respect to any dividend to 
which new Section 251 applies.
    (b) Section 1442 of Subchapter A of Chapter 3 of Subtitle A of the 
Internal Revenue Code of 1986 is amended by adding at the end of the 
first sentence of subsection (a) thereof:
    ``, except that in the case of dividends, the tax shall be equal to 
35 percent of such item.''
    The imposition of this 35 percent withholding tax on dividends 
shall override any contrary restriction in any existing income tax 
convention, except that any treaty limiting the imposition of U.S. tax 
on dividends paid from a U.S. resident corporation to a foreign parent 
corporation shall not be overridden where the foreign parent owns, 
directly or indirectly, at least 80 percent of the voting stock of the 
U.S. corporation and where the foreign parent is 100 percent owned, 
directly or indirectly, by a corporation whose ordinary common shares 
possessing at least 51 percent of the aggregate voting power in the 
corporation are regularly traded on one or more recognized stock 
exchanges. This amendment shall apply with respect to any dividend to 
which new Section 251 applies.
SECTION 4: FAIR FUNDING FOR RETIREMENT SECURITY
    (a) Section 1 of Part I of Subchapter A of Chapter 1 of Subtitle A 
of the Internal Revenue Code of 1986 is amended by adding the following 
new subsection:
    ``1(h) (1) (a) Tax imposed. There is hereby imposed a tax of 7.65 
percent on so much of the adjusted gross income for the taxable year of 
that exceeds----
    (A) $500,000, in the case of
    (i) every married individual (as defined in section 7703) who makes 
a single return jointly with his spouse under section 6013;
    (ii) every surviving spouse (as defined in section 2(a)); and
    (iii) every head of a household (as defined in section 2(b));
    (B) $250,000, in the case of
    (i) every individual (other than a surviving spouse as defined in 
section 2(a) or the head of a household as defined in section 2(b)) who 
is not a married individual (as defined in section 7703); and
    (ii) every married individual (as defined in section 7703) who does 
not make a single return jointly with his spouse under section 6013;
    (C) $7,500, in the case of every estate and every trust taxable 
under this subsection.
    (b) Credit for hospitalization tax paid. There shall be allowed as 
a credit against the tax imposed by this subsection so much of the 
amount of hospitalization tax paid by the individual with respect to 
his wages under subsection 3101(b) and to his self-employment income 
under subsection 1401(b) of this Title as exceeds the following 
amounts:
    (A) In the case of individuals described in subparagraph (1)(A) of 
this subsection, $14,500; and
    (B) In the case of individuals described in subparagraph (1)(B) of 
this subsection, $7,250.

                                  
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