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





                THE PRESIDENT'S FISCAL YEAR 2011 BUDGET
                       OVERVIEW WITH OMB DIRECTOR
                            PETER R. ORSZAG

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

                                HEARING

                               before the

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

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 3, 2010

                               __________

                           Serial No. 111-40

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

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

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

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

                               __________

                                                                   Page

Advisory of January 27, 2010, announcing the hearing.............     2

                                WITNESS

The Honorable Peter R. Orszag, Director, Office of Management and 
  Budget.........................................................     6

                       SUBMISSION FOR THE RECORD

Corporation for Enterprise Development, statement................    50

 
                THE PRESIDENT'S FISCAL YEAR 2011 BUDGET
                       OVERVIEW WITH OMB DIRECTOR
                            PETER R. ORSZAG

                              ----------                              


                      WEDNESDAY, FEBRUARY 3, 2010

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

    The Committee met, pursuant to notice, at 2:02 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) 225-3625
FOR IMMEDIATE RELEASE
January 27, 2010

               Chairman Rangel Announces a Hearing on the

              President's Fiscal Year 2011 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 President Obama's budget 
proposals for fiscal year 2011. The hearing will take place on 
Wednesday, February 3, 2010, 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 1, 2010, President Barack Obama will submit an overview 
of his fiscal year 2011 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.
      

BACKGROUND:

      
    In announcing the hearing, Chairman Rangel said, ``Director Orszag 
faced a difficult challenge in helping the President develop and 
prepare a budget at a time when we need to simultaneously create jobs 
and strengthen the economy while paying attention to our country's 
long-term fiscal outlook. Director Orszag has testified before the 
Committee on numerous occasions and I look forward to hearing from him 
again.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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2010. Finally, please note that due to the change in House mail policy, 
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problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    Chairman RANGEL. The Committee will come to regular order, 
with the exception of some of our Members who elected to pass 
on the Secretary of Treasury so that they will have an 
opportunity to lead us off this afternoon with Mr. Orszag. So 
we have Mr. Boustany, Mr. Heller, Mr. Roskam, Mr. Nunes, Mr. 
Higgins, and Mr. Meek.
    So I will yield on my opening statement to the Ranking 
Member, Mr. Camp, and then we will move on to listen to Mr. 
Orszag.
    Mr. CAMP. Mr. Chairman, thank you. I will just submit my 
opening statement for the record so we can get right to 
questioning.
    Chairman RANGEL. I will do the same.
    Welcome. We look forward to working with you. We want to be 
as supportive as we can, under the circumstances. And we do 
hope, as with our other witnesses, that you take advantage of 
the invitation that we may have in a bipartisan way to walk us 
through as we share with you some concerns we have in an 
unofficial point of view, where we can have a better 
understanding of where the President would want to take us and 
what obstacles he may have in that process.
    So you may proceed as you see fit. And we would hope that 
you can limit your testimony so that we will have time for 
questions and answers. Thank you again for coming.
    Mr. Orszag.

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

    Mr. ORSZAG. Thank you very much, Mr. Chairman. And I would 
welcome the opportunity to sit down with you in other settings 
on a bipartisan basis to talk through some of the issues.
    The President's fiscal year 2011 budget focuses on three 
things: Job creation in the near term, strengthening the middle 
class, and beginning the difficult work of putting us back on a 
path to fiscal sustainability.
    First, a little bit of economic background. We have just 
come through a year in which we averted a second Great 
Depression. At the end of 2008, the economy was declining at 
more than a 5 percent annualized rate. At the end of 2009, it 
was increasing at more than a 5 percent annualized rate. 
Although real GDP is now expanding, the employment market 
remains too weak. The unemployment rate is 10 percent, and 
there have been 7 million jobs lost since December 2007.
    In that context, the President has put forward a jobs and 
wages tax credit intended to spur hiring, especially among 
small businesses, along with other key investments, including 
in infrastructure, education, clean energy, and innovation.
    Second, a little bit of background on our fiscal context 
and the preexisting condition we faced at the beginning of 
2009. In January 2009, before the Obama Administration took 
office, CBO issued an economic and budget outlook which clearly 
showed an increase in spending from 20.9 percent of GDP in 
fiscal year 2008 to 24.9 percent of GDP in 2009, a 4 percentage 
point increase in spending as a share of the economy, again 
before the Administration took office.
    The reality has turned out roughly consistent with that 
projection. Spending in 2009 was 24.7 percent. A different 
mix--mandatory spending was lower, discretionary spending 
somewhat higher--in part because of the Recovery Act, than what 
was initially projected.
    Similarly, with regard to our medium-term deficits, as of 
January 2009 we faced an $8 trillion 10-year deficit, which can 
be attributed to two basic forces: One was the 2001 and 2003 
tax cuts not being paid for, along with the Medicare 
prescription drug benefit not being paid for; and the second 
was the economic downturn.
    The first factor, deficit financing of the tax cuts and the 
drug benefit, raised the deficit by more than $5 trillion. The 
second factor, the economic downturn, by reducing revenue and 
increasing certain kids of spending, raised the deficit by more 
than $2 trillion.
    Now, that is all fine and well and provides the facts about 
where we found ourselves. The question is, what are we doing 
about it and how are we addressing both problems? I already 
mentioned that the President has put forward a jobs package 
intended to spur hiring in the near term. What about our 
medium-term deficits?
    The first thing we are doing and the first thing that 
should be done is to avoid making the problem worse. The 
Administration is pleased that the Senate has now joined the 
House in passing statutory pay-as-you-go legislation, which 
embodies the simple but important principle that, when you face 
a hole, you shouldn't make it any deeper. If we had lived by 
this rule in the past, our out-year deficits would be roughly 2 
percent of GDP, debt as a share of the economy would be 
declining, and our fiscal outlook would be significantly 
different.
    Second, economic recovery will help to reduce the deficit. 
We project that economic recovery will help to reduce the 
deficit from about 10 percent of GDP this year to roughly 5 
percent of GDP by 2015. That is higher than we would like, and 
so we have put forward specific policies to reduce it further: 
In particular, $1.2 trillion in deficit reduction embodied in 
this Administration budget, more deficit reduction than in any 
President's budget submission in more than a decade, and 
sufficient to cut the deficit in half as a share of the economy 
by the end of the President's first term.
    What are we talking about? A financial services fee which 
will raise $90 billion; allowing the 2001 and 2003 tax 
legislation for those making more than $250,000 a year to 
expire, as scheduled, next year, which will reduce the deficit 
by almost $700 billion; eliminating fossil fuel subsidies to 
help move the Nation toward a clean energy future, reducing the 
deficit by $40 billion; and a 3-year freeze on non-security 
discretionary spending, reducing the deficit by $250 billion 
over the next decade, even while investing in key areas like 
education, R&D, and clean energy.
    Finally--and I see that my time is running out--even with 
those steps, the hole that we face is so deep that we will 
still not get to where we need to be, which is why we are 
calling for a bipartisan fiscal commission to work together and 
come up with additional measures that will help reduce our 
deficits further and put us on a stable fiscal trajectory not 
only over the next decade but thereafter.
    And, with that, Mr. Chairman, I will turn it back to you, 
and I would welcome any questions.
    [The prepared statement of Mr. Orszag follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Chairman RANGEL. What authority will this commission have 
legislatively?
    Mr. ORSZAG. There would be no direct authority 
legislatively, but, as you know, both Senator Reid and Speaker 
Pelosi have suggested that if the commission comes forward with 
a recommendation, Senator Reid has indicated that it will be 
brought to a vote on the floor of the Senate, and the Speaker 
has indicated that if it passed the Senate, she would bring it 
to the Rules Committee in the House.
    I would note there has been a lot of discussion about the 
difference between a statutory commission, which, 
unfortunately, despite having sufficient votes if all the 
cosponsors would have voted for it, had it passed the Senate, 
it not being enacted, there has been a lot of discussion about 
a statutory commission versus an Executive order commission.
    There is no doubt that a statutory commission, which the 
Administration favored, is somewhat stronger in terms of 
guaranteeing a vote on the commission's recommendations. But I 
think the key issue is whether the commission issues those 
recommendations in the first place. Remember that under any of 
these commission designs, you would need a supermajority within 
the commission in order to issue a recommendation. It would 
have to be done on a bipartisan basis. I think if that happens, 
the strength of the voting guarantee thereafter is of somewhat 
less importance.
    Chairman RANGEL. Well, you certainly do put a lot of 
confidence in a commission rather than in the House or the 
Senate. But having said that, is this what you are tying a part 
of the deficit reduction to, this commission?
    Mr. ORSZAG. No. What we have said is we get the deficit 
down in 2015 slightly under 4 percent of GDP through the $1.2 
trillion in deficit reduction we have put forward. And we have 
noted that it would be desirable to move beyond that, and so we 
have assigned the task of additional deficit reduction to the 
fiscal commission. But we don't show numbers that assume the 
result of that fiscal commission.
    Chairman RANGEL. Why do you feel that you have to go to the 
commission? Why can't you go to the House and Senate leadership 
in order to get that type of commitment?
    This is especially so if the commission has no statutory 
authority. And you say getting a vote as though you know that 
you are going to get the results you want. I mean, getting a 
vote doesn't sound like a profile in courage to me.
    Mr. ORSZAG. Well, and I guess that was my point, Mr. 
Chairman. I am agreeing with you that, ultimately, it requires 
legislative action to address this problem.
    In the past, there have been situations, for example, with 
the Greenspan Commission, where it proved to be useful to have 
outside experts and a commission formed in order to help the 
Congress----
    Chairman RANGEL. These are inside legislators, aren't they, 
for the most part?
    Mr. ORSZAG. There would be a mix, but, yes, there would be 
a heavy representation of inside legislators.
    Chairman RANGEL. So whatever you are talking about doesn't 
apply here. You have legislators that are recommending to their 
colleagues what they should be doing from a fiscal point of 
view. And, to me, even though I know that you and the 
Administration differ, as most people do who lead legislative 
bodies and go to the executive start thinking differently about 
what should and should not be done by commissions, but it just 
seems to me that we should not have to need that, unless you 
can give me some reason as to why, other than when you had 
outside experts. I thought we pay enough to staff here to have 
inside experts. You are an expert. The White House has experts. 
But I guess we are supposed to be intimidated when they come 
from outside rather than inside?
    Mr. ORSZAG. I would hope that the goal is not intimidation 
but, rather, assistance. But, again, I think----
    Chairman RANGEL. Well, you say assistance, but, really, the 
only thing it sounds like you are getting is getting a vote.
    Mr. ORSZAG. No, I think what you are getting is----
    Chairman RANGEL. What makes it so positive about getting a 
vote? I mean, some of us here, we get the vote, but we don't 
know which way the vote is going to go.
    Mr. ORSZAG. I agree. And, again, so that is why I think the 
difference between a statutory commission and an Executive 
order commission has been somewhat overstated.
    Chairman RANGEL. I know the difference. I am only asking, 
why have it? Why do you think we need it? That is what I am 
asking.
    Mr. ORSZAG. I think the reason we need it is we are 
struggling--and perhaps through, for example, the sort of 
informal meetings that you were suggesting there can be more 
bipartisan cooperation--we have been struggling to find the 
bipartisan cooperation that is necessary to fix big problems, 
including our fiscal problem. It is our hope that the 
commission provides an avenue for doing that. But if there are 
alternative avenues for doing that, let's explore them.
    Chairman RANGEL. Okay. I want you to know that we here in 
this Committee, we like each other. We just don't vote with 
each other.
    Mr. ORSZAG. Okay. Good.
    Chairman RANGEL. So I don't know how you are going to work 
that out. But I yield to Mr. Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman.
    I want to say I agree with everything the Chairman said 
right now. And I have real concerns about the structure of this 
commission. And it is my understanding they have the authority 
to recommend tax increases, is that correct?
    Mr. ORSZAG. The Administration has put forward the tax 
policies we support, but we think it is important to allow the 
commission to do its work.
    Mr. CAMP. But they do not have the authority to recommend 
any decreases in discretionary spending. So----
    Mr. ORSZAG. I don't know that that is the case.
    Mr. CAMP [continuing]. Discretionary spending is off the 
table. Well, in the budget report, that is what it says.
    Mr. ORSZAG. Where does it say that?
    Mr. CAMP. Well, in that little box you have there.
    Mr. ORSZAG. Could we look at the box?
    Mr. CAMP. It is in the box. It looks kind of like a 
warning. I think somebody, I think Paul Ryan has described it 
as a cigarette label warning.
    Mr. ORSZAG. It is on page 146. If you could point me to the 
discretionary spending----
    Mr. CAMP. In fine print, I think it says----
    Mr. ORSZAG. Just because I do think this is factually 
important, if we could examine that box, I don't think there is 
a reference to discretionary spending.
    Mr. CAMP. It is my understanding that discretionary 
spending will not be part of the commission.
    But what I really want to ask you about is this: I think 
that there has been a real concern about transparency, 
certainly, particularly on health care. But there has been one 
area that there has been some transparency I want to compliment 
the Administration on, and that is, in promoting a 2009 
stimulus plan, the President's economists forecast a very clear 
picture of what they expected in terms of job creation if the 
stimulus passed, and that is the January 2009 Roemer-Bernstein 
report.
    And instead of creating 3.5 million jobs as promised in 
this report, the stimulus is followed by the elimination of 
nearly 3 million more jobs. So, in that report, the 
Administration also predicted unemployment now would be well 
under 8 percent, and, of course, it is now 10 percent.
    Given that, I have a couple of questions. I know my time is 
very limited, but in a yes or no way, has the stimulus been a 
success, in your view?
    Mr. ORSZAG. The Recovery Act has avoided 1.5 million to 2 
million people becoming unemployed who otherwise would be. Let 
me just clarify.
    Mr. CAMP. So you would say, yes, in your view, it has been 
a success?
    Mr. ORSZAG. It has been an important step toward avoiding a 
Great Depression and toward limiting the increase in 
unemployment. And that is not just our analysis, it is the 
analysis of the Congressional Budget Office and other outside 
experts.
    Mr. CAMP. And then why do you think we need another 
stimulus bill only 1 year after a trillion dollars has been 
added to our debt?
    Mr. ORSZAG. Because what normally happens--the Recovery Act 
has been successful in restoring economic activity, again, a 
shift from -5 percent to more than +5 percent. But what 
normally happens during a recovery is the employment market 
lags behind. What we are trying to do is more tightly link job 
growth to economic growth so that we don't have unnecessarily 
high unemployment for an extended period of time.
    Mr. CAMP. Well, and doesn't more of last year's stimulus 
bill remain unspent than you are proposing to spend in the next 
stimulus bill?
    Mr. ORSZAG. I am sorry?
    Mr. CAMP. Doesn't more of last year's stimulus bill remain 
unspent than you are proposing in this bill? Yes or no?
    Mr. ORSZAG. The Recovery Act is on schedule relative to 
where it was originally projected. Seventy percent we will 
spend out by the end of this fiscal year. And the question is, 
can we move beyond that to try to, again, accelerate hiring 
relative to GDP growth? And I think the answer to that is yes.
    Mr. CAMP. All right. And will the Administration issue a 
report similar to the Roemer-Bernstein report detailing the 
projected job creation and unemployment effects of the new 
stimulus bill, the 2010 stimulus bill?
    Mr. ORSZAG. I think once the details of the jobs creation 
package are finalized, one could do that kind of analysis.
    Mr. CAMP. Thank you.
    Thank you, Mr. Chairman.
    Chairman RANGEL. At the last hearing, a lot of Members 
waived their right to take advantage of the 1 minute that was 
left so that they would be able to lead in the questioning at 
this time, and that is Mr. Higgins of New York, Mr. Boustany of 
Louisiana, Mr. Meek of Florida, Mr. Heller of Nevada, Mr. 
Roskam of Illinois, and Mr. Nunes. So we will follow that. Then 
we will get back to regular order by me recognizing Mr. Higgins 
of New York for 5 minutes.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    Dr. Orszag, the Administration has proposed a $3.8 trillion 
budget, $2.4 trillion of which is for Medicare, Medicaid, 
Social Security, and interest on the debt. The Medicaid and 
Medicare piece of this is $788 billion, which I think is a 
pretty compelling argument for the need for health insurance 
reform. The other piece is Social Security, and the final piece 
is interest on the debt.
    Throughout this morning and throughout this year, there has 
been a lot of talk in Washington about deficits and debts and 
where we are today. A lot of the problems that we are 
experiencing, as you know, were caused by a previous 
Administration: Two tax cuts, representing $968 billion, unpaid 
for; two wars, representing $984 billion, unpaid for, including 
$12 million of cash that was distributed to put the Sunni 
insurgency on the American payroll in Iraq. Nobody knows where 
it is, nobody has any accountability. A drug prescription 
program that cost $680 billion, unpaid for.
    Under the previous Administration, the national debt more 
than doubled, from $5.6 trillion to almost $12 trillion. The 
vast majority of the current budget deficit is a consequence of 
the previous 8 years. That on top of the fact that the previous 
Administration embarked on an effort to a reckless deregulation 
of the financial industries. In particular, the Securities and 
Exchange Commission changed what they referred to as the net 
capital rule, which allowed investment banks to increase their 
debt-to-asset ratio from 6:1 to 33:1. A lot of these investment 
banks were overleveraged and created all kinds of exotic 
instruments to cover for their overleveraging.
    This isn't my opinion. It is the opinion of the Wall Street 
Journal. It is the opinion of a conservative columnist, writer 
Bruce Bartlett, who wrote the book, ``Imposter.''
    So I think when we embark on this debate, we have to be 
honest, based on factual information, as to what has 
contributed to this. And the reality is, both Democrats and 
Republicans have contributed to this problem. The question is, 
where do we move from here?
    And I think the one thing that everybody agrees with is 
that we need to do nation-building right here at home in 
America. Because, as the rest of the world rises, as we are 
preoccupied with wars in two foreign places, what is being 
compromised is our investment in infrastructure, our investment 
in human capital.
    The President has fulfilled his obligation to increase 
funding to the National Cancer Institute, which is very, very 
important, $6 billion. But what will it do? It will allow the 
National Cancer Institute to start 30 new advanced trials of 
``smart drugs,'' more than doubling the number of cancer drugs 
in clinical trials in the next 5 years.
    Smart drugs are effective because they kill cancer cells 
without killing the healthy cells. They are highly effective. 
They are moving us from a culture where cancer was a death 
sentence 30 years ago. Now more than 65 percent of adults who 
are diagnosed with cancer live beyond 5 years of their 
diagnosis; 80 percent for kids. But in the previous 10 years, 
cancer funding languished. When you factor into account 
inflation, it was a loss of funding.
    This is why this is important. The only failure in cancer 
research is when you quit or you are forced to quit because of 
lack of funding. Cancer research is a continuum. It needs to be 
sustained. You can't stop and start.
    Many of the drugs that are available today to effectively 
treat breast cancer, Herceptin, Gleevec, Avastin for lung 
cancer, have been in periods of discovery for 20 years. And 
their availability to the market and to people who are 
afflicted with these cancers has been delayed because of the 
lack of funding.
    Could you speak to the issue of cancer funding and this 
Administration's commitment to the infrastructure spending that 
is also necessary to prepare this economy for global 
competition in the next part of this century?
    Chairman RANGEL. Mr. Higgins left you 20 seconds, so that 
whatever you want to say, say, and then I would hope you would 
send your written response.
    Mr. ORSZAG. Absolutely.
    Very briefly, the Administration is very committed to 
continuing down the path of aggressively pursuing cancer 
research. One of the developments this year is the NIH Director 
has now stepped forward with specific metrics and goals that he 
would like to be moving the effort toward, which I think is 
actually very beneficial. But we will continue the discussion.
    Mr. HIGGINS. Thank you.
    Chairman RANGEL. Dr. Boustany from Louisiana.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Dr. Orszag, welcome.
    I want to focus for a moment on American competitiveness. 
And, as you know, many of us on both sides of the aisle on this 
Committee believe that the Tax Code should promote 
competitiveness of American businesses doing business 
worldwide. This means exports, as the President has clearly 
expressed.
    Although the Administration has made some changes to its 
international tax proposals from last year, it still seeks to 
raise significant taxes on these American companies doing 
business overseas, and nowhere does a corporate tax rate cut 
appear in the budget. We all know that we have the second-
highest statutory rate, and I think we are among the highest in 
effective tax rates.
    So not only does our high U.S. rate discourage investment, 
but the disparities between our rate and the rates in other 
developed nations contributes to the kinds of transfer pricing 
issues that the Administration has expressed concerns with.
    So isn't it the case that lowering corporate tax rates 
would relieve some of these transfer pricing issues, take some 
of this pressure off? And wouldn't it also help promote 
location, make the United States more attractive for 
investment, and also increase jobs?
    Mr. ORSZAG. Congressman, as you know, there is a 
fundamental tension between the mobility of capital across 
national boundaries in a global marketplace and the national-
based tax system that we have. And that manifests itself in 
issues like transfer pricing, along with a host of other 
questions.
    We are very focused on expanding exports, including through 
a new national export initiative that has more than $500 
million in funding in this budget----
    Mr. BOUSTANY. But speak to the corporate tax rate----
    Mr. ORSZAG. Well, again, the reason I--and research and 
development and a better educated workforce here and moving 
toward a clean energy future. Because, obviously, tax rates 
matter, but there are many other things that matter even more.
    Mr. BOUSTANY. I understand, but my question is on the 
corporate tax rate.
    Mr. ORSZAG. And the tension in corporate tax rates is, as 
you know, there is a tension, because right now there is an 
incentive for a U.S. firm, relative to hiring someone here or 
undertaking activity here, to locate that activity abroad. That 
is what many of these proposals are trying to take care of.
    Mr. BOUSTANY. Well, according to the U.S. Bureau of 
Economic Analysis, that doesn't appear to be the case. Because 
it seems to show that, for every job that is created overseas 
by U.S. companies having affiliates there, we are creating an 
equal number of jobs here. The numbers are pretty clear, going 
back all the way to 1988.
    Mr. ORSZAG. But that doesn't speak to shifting profits 
artificially into those affiliates, which is an incentive that 
you create through----
    Mr. BOUSTANY. But the point is, if you lower the tax rate, 
then we will see more of that capital employed here.
    Mr. ORSZAG. Well, again, I guess there are different 
theories of the case. We think the way to expand exports while 
promoting employment here is to invest in a well-educated 
workforce, in research and development, being the world leader 
in new industries like clean energy. And then----
    Mr. BOUSTANY. But that capital, the capital that these 
companies make overseas, a lot of that will be transferred 
back, because most of the R&D jobs end up back here in the 
United States. So lowering corporate tax rates should be good 
policy.
    Mr. ORSZAG. It also, as you know, is regressive and costs a 
lot of money. So we are trying to balance----
    Mr. BOUSTANY. But it promotes growth.
    Mr. ORSZAG. Well, no, I am not sure it does. Again, the 
question is, look, we have had very rapid export growth over 
the last two quarters, and that is mostly because we are coming 
off of a low base and----
    Mr. BOUSTANY. It is a low dollar.
    Mr. ORSZAG. Yes. But still, the point is there are many 
things that drive export growth. One of the reasons why we are 
creating a new national export initiative and why we are 
investing in research and development and innovation and in a 
clean energy future and a well-educated workforce is, 
fundamentally, that is the key to our international 
competitiveness.
    Mr. BOUSTANY. Well, I think if you lower the corporate tax 
rate and simplify things, clearly, that capital will be 
deployed back here in the United States, because, again, 
experience and economic data shows that most of those R&D jobs 
are here in the United States and we could develop more of that 
here.
    Also, there are benefits of having these companies able to 
allocate capital appropriately, because a lot of the profit 
does come back here in the long run when it comes to R&D, but 
also the benefit to the communities. I can tell you, any city 
that has a large company would love to be able to expand. 
Cities that don't have these kinds of companies would love to 
have them, because they contribute to the tax base locally, 
they contribute to charitable events, and they also do 
educational things.
    Mr. ORSZAG. Congressman, as you know, there is a tension 
between what is called capital import neutrality and capital 
export neutrality----
    Mr. BOUSTANY. I understand that.
    Mr. ORSZAG [continuing]. In the international Tax Code. 
These proposals are intended to address one of the problems, 
which is that, currently, the tax rate on domestic activity for 
that U.S. corporation can be creating an incentive for foreign 
activity relative to domestic activity.
    Mr. BOUSTANY. That is not what the information bears out, 
according to the U.S. Bureau of Economic Analysis.
    Chairman RANGEL. Mr. Meek of Florida.
    Mr. MEEK. Thank you. Thank you, Mr. Chairman.
    And, Mr. Orszag, thank you for being before the Committee.
    And I am going through the President's budget right now. As 
you know, there has been a lot written about it.
    First of all, I just want to say that I appreciate the 
Administration extending the Making Work Pay tax credit. Some 
7.1 million Floridians are going to be able to take advantage 
of that or continue to take advantage of it. I am pretty sure 
you know, in the State of Florida, that we are at 11.8 
unemployment. And we know that the good, bad, and ugly comes 
from the Federal Government, as it relates to helping us 
increase employment opportunities in Florida.
    I can say that I have joined a bipartisan group of Members 
not only of the Florida delegation but those that care about 
NASA, and we are very concerned about the decision not to move 
forth or to try to rekindle the shuttle program or the lunar 
exploration plan. It has become a great concern to many of us.
    We know that there has also been put forth a plan by the 
Administration that was announced last week to look at private-
sector opportunities as it relates to rockets. And we don't 
know what that means for human exploration in the future, but 
we do know that we are going to lose 7,000 jobs, and only 1,700 
jobs are going to come from the privatization of the space 
program.
    I have to ask you this question because I think that it has 
so much to do with where we are as it relates to space 
exploration but also as it relates to jobs. And we are talking 
about scientists, we are talking about engineers, we are 
talking about a major brain drain from the State of Florida of 
the talent that we have now.
    And I want to know if there are any plans, especially as we 
look at the President's budget, the Administration, to really 
take a forward leap in trying to replace those jobs or trying 
to see how we can keep that talent in the United States? 
Because if we are going to start sharing talent with other 
countries, we may very well lose everything we have gained over 
a period of years.
    Mr. ORSZAG. Yes, Congressman, and what is--the underlying 
goal of the NASA proposals is to allow the United States, 
actually returning to earlier questions, to leapfrog ahead in 
advanced technology. So there is longer-range R&D investments 
and a series of, as my colleague John Holdren puts it, 
``putting the science back into rocket science,'' so that we 
can actually substantially advance the course of human 
spaceflight. This is a set of reforms that Sally Ride and Buzz 
Aldrin and Norm Augustine, who chaired the committee that 
reviewed NASA, have all embraced.
    With regard to employment effects, don't forget that that 
is not the only thing that is happening in the NASA budget, 
which, by the way, despite the overall non-security freeze, is 
going up. The NASA budget is increasing $6 billion over 5 
years. One of the things that that is funding is the 
refurbishment of the Space Center in Florida, which will have 
direct employment effects, along with the expanded and 
redirected research and development effort.
    Mr. MEEK. How many jobs that you would----
    Mr. ORSZAG. I don't have a direct estimate, but----
    Mr. MEEK. But it is not going to take us close to 7,000.
    Mr. ORSZAG. I am not sure. We can get back to you.
    Mr. MEEK. Because, of the 1,700 that are going to be 
created, we don't know if those jobs are going to be created in 
Florida, where the most impact is going to take place.
    But continue, please.
    Mr. ORSZAG. I was just going to say I know that my 
colleagues at the Office of Science and Technology Policy, 
along with those at NASA, have looked at that in more detail, 
and I am sure we can get back to you with more information.
    Mr. MEEK. Yeah, well, you know, that is of great concern to 
us all, because it is not only an economic engine for the Space 
Coast but also for the entire State of Florida.
    I know the Administration has made a number of 
announcements, including the high-speed rail announcement out 
of the stimulus package, as it relates to the Sun Rail from 
Tampa to Orlando. We also know of smart grid investment, a 
number of investments that have been made. But this issue is so 
very, very important. We have a lot of subcontractors, a lot of 
small businesses that are attached to it. I just want to bring 
it to your attention, being a senior Member of the 
Administration.
    Mr. Chairman, I would like to enter for the record a 
bipartisan letter that was written on November 23rd to 
President Obama about our concerns about the change in policy 
as relates to NASA.
    And also I would like to enter a letter from me, ``Time to 
Usher Human Space Flight Into the 21st Century,'' that could 
hopefully head us in the right direction as it relates to 
future investments.
    If I could have unanimous consent to enter that into the 
record, I would appreciate it, Mr. Chairman.
    Chairman RANGEL. Without objection.
    [The information follows:]
    Chairman RANGEL. Mr. Heller of Nevada.
    Mr. HELLER. Thank you, Mr. Chairman.
    And, Dr. Orszag, thanks for being here today.
    I have to believe there are a couple of memos that are 
floating around the White House these days, especially after 
the President's comments yesterday about wasting your money in 
Las Vegas. I am of the belief now that perhaps February is 
National Bashing of Nevada Month. I don't know if that is 
accurate or not, but I would certainly like to see that memo, 
if it is available.
    But there also seems to be another memo, as I look at your 
testimony, and I read through your written testimony and also 
the previous testimony of Secretary Geithner and, of course, 
the President's State of the Union, having read them several 
times. You know, there are words that are used that clearly you 
can use and words you can't use. Words that you can use are 
things like ``inherited,'' and I am hearing that a lot today. 
``We inherited these problems.'' We hear words like ``failure 
of the previous Administration.'' That gets discussed a lot.
    But words I think more important that I don't hear, again, 
going through your testimony, Secretary Geithner's, even the 
President's State of the Union, are words like ``capitalism.'' 
Never used in your comments. Words like ``free markets,'' never 
used. I don't see it with the President, I don't see it with 
Geithner, I don't see it from yourself.
    And if you are limiting the use of those vocabularies, I 
think it is a mistake. I do believe that, if we are going to 
get out of the economic problems we have here in this country, 
capitalism and free markets have to be the primary source, the 
primary way of getting out of these problems.
    But one thing that you do talk about is fiscal discipline. 
And I am confused, like most of the Members on this Committee, 
about fiscal discipline when it comes to this budget. For 
example, you have $3.8 trillion in Federal spending for 2011. 
That is an all-time record. A $1.6 trillion deficit, again, an 
all-time record. You have $2 trillion in tax hikes that will 
kill jobs, again, another record. And $14 trillion added to the 
debt inherited by our children and grandchildren, again, 
another record. And I don't know where fiscal discipline fits 
in there.
    One of the things that you mentioned, and I appreciate it, 
both yourself and the President, Secretary Geithner, is about 
working together in a bipartisan manner, Republicans and 
Democrats. I can't tell you how many letters I have sent to the 
White House trying to solve problems. He says, ``I want to hear 
good ideas. I don't care if they are Republican or I don't care 
if they are Democrat ideas, I want to hear good ideas.'' I 
can't get an answer. In 3 years, I have never received a 
response from the White House on any letters I have sent to 
them.
    Mr. ORSZAG. Two of those would not be us.
    Mr. HELLER. What is that?
    Mr. ORSZAG. Two of those years then would not be us.
    Mr. HELLER. Well, okay. Okay, and that is acceptable. But I 
sent letters, I sent letters in response to the health care 
issues and never got a response; on energy, never got a 
response; on budget issues in the past, never received a 
response.
    And I am wondering if that is a pattern. If I am to expect 
to take you at your word that Republicans and Democrats have to 
come together, why can't we get a response?
    Mr. ORSZAG. Congressman, I would welcome letters from you 
or others. I think I have a record of responding. I don't know 
exactly what has happened to any letters you have sent, but if 
you send me a letter, you will get a response.
    Mr. HELLER. If you could send a message back and let them 
know. Congressman Ryan mentioned a letter that he had sent a 
year ago and again is asking for a response on this. I think it 
is important----
    Mr. ORSZAG. I don't think Congressman Ryan is suffering 
from any lack of attention from the President at this point.
    Mr. HELLER. But if we are going to work together, I think 
it is critical that we get answers to our questions.
    Mr. ORSZAG. Okay.
    Mr. HELLER. If we take a look at the unemployment in my 
State--and, again, I don't think the President's comments 
help--we are at 13.1 percent unemployment in southern Nevada, 
13 percent overall. I want to ask the same question that the 
Ranking Member asked, specifically about whether or not the 
stimulus has failed or not failed in the State of Nevada? I 
can't explain this to my constituents as they continue to lose 
their jobs. We had an increase of almost one-half percent of 
job losses last month, over the month of December.
    How do I explain to them, not in the talk within the 
Washington Beltway, but how do we answer this question so that 
they understand whether or not this stimulus is working for 
them?
    Mr. ORSZAG. Again, I think if you look at the evidence, 
because of the Recovery Act there are 1.5 million to 2 million 
people today who would be unemployed without that Recovery Act. 
And, again, that is not just our numbers. This is the 
Congressional Budget Office; this is Goldman Sachs; this is 
Mark Zandi, who worked for Mr. McCain; other outsiders, all 
suggesting numbers in that range.
    Now, is that sufficient to avoid all job losses? No. We 
were losing 700,000 jobs a month at the beginning of 2009. Now 
we are down to well under 100,000, and some private-sector 
forecasters are suggesting positive job growth by this spring.
    Mr. HELLER. But when you were promising 8 percent and it is 
now at 13, how do you go back and tell them it is working?
    Mr. ORSZAG. The problem was the situation was much worse at 
that time than anyone knew.
    Mr. HELLER. Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Roskam of Illinois.
    Ms. BERKLEY. Mr. Chairman, may I correct the record here? 
Because in the State of Nevada, when we did get the stimulus 
money for the infrastructure projects, the Republican Governor 
has refused to free up the money, and we are dead last, 50th in 
the United States for freeing up those dollars. The money is in 
the State of Nevada. It is the Republican Governor that isn't 
giving out the money.
    Mr. HELLER. So what would our unemployment be with that 
stimulus money? What would our unemployment be? Answer that 
question.
    Chairman RANGEL. Mr. Roskam of Illinois.
    Mr. ROSKAM. Well, back to this bipartisan moment.
    Director, I am from the State of Illinois and had a 
question for you. The budget--and this relates to Guantanamo, 
Illinois. The budget includes that----
    Mr. ORSZAG. You mean Thompson?
    Mr. ROSKAM. Thompson, yes.
    Mr. ORSZAG. Yes. I think you said Guantanamo, Illinois.
    Mr. ROSKAM. Well, that is what it would be, Guantanamo, 
Illinois. So the budget includes it. The Majority Leader was at 
the White House yesterday. He walked out, and you know how to 
read these tea leaves. He essentially said, ``Not so fast.'' So 
we are getting a mixed message from the Democratic leadership 
as it relates to Guantanamo, Illinois.
    What is the latest?
    Mr. ORSZAG. All I can say is the President remains 
committed to closing Guantanamo. I would note that the purchase 
of the Thompson facility would be justified regardless, 
because, as you know, the Bureau of Prisons lacks bed space----
    Mr. ROSKAM. I agree with that wholeheartedly. I mean, so 
the original decision was made before the Christmas Day event, 
and then the subsequent decision to take--not release the 
Yemeni prisoners, obviously, back to Yemen.
    But, to your knowledge, there is no change? Is the 
Administration still spot-on on this?
    Mr. ORSZAG. I am going to again defer to the Attorney 
General and others. What I will say again, though, is the 
purchase of the Thompson facility is justified regardless of 
what happens.
    Mr. ROSKAM. Right, but as it relates to the detainees----
    Mr. ORSZAG. I will defer to----
    Mr. ROSKAM. You don't know. Okay.
    Could you just, sort of, walk through--you know, I have 
been listening. The President came into Baltimore, and we had a 
good exchange, House Republicans. He walked in, we gave him a 
standing ovation, good back and forth. And I think both sides, 
kind of, gained from it.
    The idea is, look, there is--and now I am interpreting--but 
you look at supermajorities, or up until Massachusetts, 
supermajorities in both chambers, an underperforming stimulus. 
And I know you have to stick with your talking points that it 
is great, but there is really nobody that believes that it is 
great.
    Mr. ORSZAG. Well, I----
    Mr. ROSKAM. No, listen, you did your duty. You don't have 
to do it anymore. There is nobody that really believes it is 
great. And it is this underperforming thing, and it was a 
trillion dollars, and the promise was going to be 8 percent, 
and now Illinois is over 11, he is at 13-plus. And it is not a 
good narrative.
    So if you rewind the tape and listen to President Obama, 
candidate Obama's language, I just want to quote something for 
you, and this was one of his statements, and it was in one of 
those great settings, sort of, outside, white shirt, sleeves 
rolled up, roaring crowds. And he said, ``Under my plan, no 
family making less than $250,000 a year will see any form of 
tax increase--not your income tax, not your payroll tax, not 
your capital gains tax, not any of your taxes.''
    Now, that quickly fell by the wayside last year with a 
whole host of taxes that this Congress passed. Now we are being 
told, look, this next great thing is going to be coming over 
the hilltop, and, really, this time it is going to be great.
    What is it that animates the hope in my district that this 
plan that you are articulating, this budget, gets us out of 
this mess, when, with all due respect, the leadership got it so 
wrong just 12 months ago?
    Mr. ORSZAG. You know, Congressman, there may be some things 
that I have to say because of my job, but the success of the 
Recovery Act is not actually one of them. I would be delighted 
to give you a list of credible outsiders. I think the 
conventional wisdom among economists is by far that, without 
the Recovery Act, we would have faced a much higher probability 
of entering a depression.
    If you just simply look at economic performance in the 
second, third, and fourth quarters of last year, I think it is 
unambiguous that the Recovery Act contributed importantly to 
moving from negative growth to positive.
    Now, is that enough?
    Mr. ROSKAM. Good. Listen, you checked the box, you did it 
again. Go ahead. But what is it, moving forward, what is it 
that really animates the hope?
    Mr. ORSZAG. But that is the key underlying precept, because 
you were rejecting that notion and therefore saying the next 
thing won't work either. I am saying it did work; more is 
necessary. But I am just, frankly, not accepting the underlying 
precept behind your question.
    Mr. ROSKAM. So it is double down--listen, we spent a 
trillion and it was great; we are going to spend trillions more 
and it is going to be fabulous?
    Mr. ORSZAG. No. We were losing 700,000 jobs a month--
700,000. The economy was falling by 5 percent on an annualized 
basis. The decline in net worth was more than 30 percent. If 
anyone at that point told you the economy would be growing by 
5.7 percent in the fourth quarter of 2009, you probably would 
have expressed a lot more skepticism than you are expressing to 
me today.
    Mr. ROSKAM. My time is up. I will sign your hall pass that 
you did your duty. But I think folks in my district are very, 
very reluctant about moving forward and spending more.
    I yield back.
    Chairman RANGEL. Mr. Nunes.
    Mr. NUNES. Thank you, Mr. Chairman.
    And thank you, Mr. Orszag. Welcome to the Committee again.
    I am going through your numbers here, and I want to keep 
this very brief. I won't make a statement and I hope that you 
won't make a statement either so we can just get to the bottom 
line of some of these numbers that you are using to balance 
your budget--or, I shouldn't say balance, but to try to reduce 
the deficit over time.
    First, I want to look at the LIFO provisions, the change in 
accounting you are doing there. You have $59 billion in revenue 
there that you are using. Can you answer me, how is that 
supposed to help small businesses in this country if you are 
going to eliminate that important provision? Because, 
obviously, if it raises $59 billion, that is going to come out 
of the pockets of small business.
    Mr. ORSZAG. Actually, it is not necessarily 
disproportionately small business. I am going to say again, we 
are doing a whole host of things for small businesses, and we 
could walk through that. I will avoid doing that right now and 
just say the LIFO provision was put forward as, frankly, just 
good tax policy.
    As you know, some firms use last-in, first-out; some use 
first-in, first-out. It is an anomaly that we think would be 
better addressed by eliminating----
    Mr. NUNES. Isn't it kind of gimmicky to use it?
    Mr. ORSZAG. No.
    Mr. NUNES. That would be part of a broader tax proposal 
that the Chairman put out last year?
    Mr. ORSZAG. You may choose not to do it. I hope that is not 
the case. But it is not a gimmick, no.
    Mr. NUNES. Okay. Well, my next question is on insurance. On 
insurance, you are going to add about $14 billion in fees on 
the insurance, life insurance, dividends received. I mean, how 
does that help people that are trying to buy life insurance? It 
is another revenue raiser.
    Mr. ORSZAG. Yes. Again, look, I am going to back up and 
say, because we could keep going down the list----
    Mr. NUNES. I just have one more after this one.
    Mr. ORSZAG. Okay. Well, there are tax expenditures and 
special tax breaks strewn throughout the Tax Code. We face 
massive out-year deficits. One of the things that we are trying 
to do is address those out-year deficits in part by tightening 
up the Tax Code when there are unwarranted tax breaks for 
certain slivers or special parts of either corporations----
    Mr. NUNES. But, once again, that is basically $14 billion 
in taxes added to the $59 billion in the LIFO changes. So I 
want to talk about----
    Mr. ORSZAG. Well, if you are asking if we cut back on 
unwarranted tax breaks to corporations, the answer is, yes, we 
do. Over time and in out-years, yes.
    Mr. NUNES. I would also say I think it is a gimmick, 
because I don't think either one of these would happen. There 
is one that I think possibly could happen, and that is you are 
raising $38 billion on American energy production. You are very 
familiar with these productions, the 199 provisions.
    Mr. ORSZAG. Yes.
    Mr. NUNES. Now, roughly half our trade deficit is buying 
foreign oil. Now, how is it that we are going to create 
American jobs and buy less foreign oil if we tax our domestic 
producers?
    Mr. ORSZAG. One of the absolutely essential things that we 
need to do is become a world leader in clean energy. That is 
the future, and we need to build out those----
    Mr. NUNES. But this does the opposite, though.
    Mr. ORSZAG. No, it is a carrot and stick. We have more than 
$6 billion in investments to move toward that clean energy 
future. We have expanded loan guarantees for energy efficiency. 
We are investing in nuclear energy. We have a whole variety of 
investments in moving to a cleaner energy future.
    Mr. NUNES. You guys are promoting long-term smart grid, all 
sorts of wonderful things. But you can't honestly tell me that 
if you get rid of these production credits, that we are not 
going to have to import more oil from foreign countries if we 
tax our domestic producers.
    Mr. ORSZAG. I am inferring that you agree it is important 
to move to a clean energy future. And I think that, in addition 
to subsidies, or to the carrot, this will also help move us in 
that direction. I think you would probably agree with that.
    Mr. NUNES. You have a long-term approach for things not 
proven yet, in terms of the renewable energy portfolio we are 
trying to move to. But in the short term, you are using this to 
try to get toward a balanced budget, and it is going to result 
in more imported oil. I don't see how you don't--if you tax 
these domestic producers, how are we not going to import oil to 
replace that oil?
    Mr. ORSZAG. Again, the key thing we need to do is move to a 
cleaner energy future, and that is what these provisions, along 
with others, are intended to do.
    Mr. NUNES. So you don't think, by eliminating these, that 
it will increase imports?
    Mr. ORSZAG. I think the effects on imports--we could come 
back with a full analysis--are difficult to assess. It is not 
as simple as you are suggesting. But the more important thing 
is, it is always easy to say, ``We will start later.'' We need 
to start now to be moving toward cleaner energy. It is as 
simple as that, in my opinion.
    Mr. NUNES. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes the Majority whip, 
Mr. Cantor of Virginia.
    Mr. CANTOR. Thank you, Mr. Chairman.
    Mr. Orszag, thank you very much for being here.
    Mr. ORSZAG. Good to see you.
    Mr. CANTOR. A few questions, Mr. Chairman.
    If you would, could you explain to us the sense behind the 
proposal to essentially require independent contractors to 
become employees and essentially having to withhold?
    I am told that, within your budget proposal, there is that 
notion, that actual item, which is now going to create that 
obligation on the part of an employer dealing with an 
independent contractor.
    Mr. ORSZAG. I believe this question was also posed to Mr. 
Geithner earlier today. And, again, the motivation is there is 
ambiguity currently. Small businesses, if I remember correctly, 
have to check 20 different criteria to evaluate whether someone 
is an independent contractor or a worker or an employee, and 
the intention is to clarify those rules.
    Mr. CANTOR. But is it not where you come down is to make it 
more difficult and more costly and provide a disincentive for 
employers to go ahead and hire, and, therefore, the end result 
could very well be less people----
    Mr. ORSZAG. No, I don't think it is a disincentive to 
hiring. There is a disincentive to hiring somebody as an 
independent contractor if that person should be an employee. 
And also simplification.
    Mr. CANTOR. So those are two different things.
    Mr. ORSZAG. I agree. You are doing both.
    Mr. CANTOR. Right. I think, again, my sense is this is 
going to be resulting in less people having the opportunity to 
be employed or to serve as an independent contractor.
    Mr. ORSZAG. Well, the latter might be correct, but I think 
the former is not.
    Mr. CANTOR. But, again, twofold. Simplification is one 
thing, but then to require hiring creates all kinds of 
additional costs. And right now, while we are in an environment 
where we so desperately need small businesses to start hiring 
and creating jobs, why would we now be putting more burdens, 
more costs on the job creators?
    Mr. ORSZAG. Again, I think one of the biggest problems--and 
I have run a small business; I know that dividing line can be 
very difficult to assess, and providing that clarity is 
important.
    And I would say, by the way, on small business, by far the 
most important thing we can do is increase demand for their 
products, which means getting the economy back on its feet and 
making sure they have access to credit. Because that is the key 
impediment to small business activity right now. And there is a 
whole host of things we are trying to do, and hopefully we 
could work together on that, to boost credit to small 
businesses.
    Mr. CANTOR. Mr. Orszag, I so appreciate your saying that, 
because you and I have been in discussions where we 
continuously now propose to you ways we could work together in 
a no-cost way to the taxpayers, one of them being how do we 
change the incentive on the ground with auditors in the field 
so that they are not necessarily looking at performing loans 
and calling those performing loans and the kinds of things we 
Republicans had put forward in our jobs plan when we said that 
we could require auditors to just disclose how many loans, 
performing loans, have been called.
    Again, I think you agree with us that the pendulum has 
swung too far and rationality has left the equation. And, 
somehow, auditors are looking at risk all around as something 
bad, versus what we know in this economy, risk-based investment 
has created jobs and opportunity.
    Along those lines, Mr. Chairman, I would like to ask the 
Director, how do you defend--set aside some of the things that 
you are talking about and the President is talking about right 
now in small business proposals. And we can talk about methods 
of tax policy and whatever.
    But how do you defend, honestly, how do you defend, if you 
are talking about job creation, do you defend a cap-and-trade 
proposal? How do you really defend notions of saying we are 
going to let capital formation be secondary, so we are going to 
let the reduction in capital gains taxes, that reduction be 
repealed? How can you defend that, if we are talking about job 
creation being the primary focus?
    Chairman RANGEL. You have 35 seconds to answer that.
    Mr. ORSZAG. Okay.
    Mr. Cantor, as you know, we have a new jobs and wages tax 
credit aimed at small businesses. We are proposing no capital 
gains taxes on investments in small businesses, the section 
1202 provision being made permanent and 100 percent exclusion. 
We have an expansion in SBA programs, $17.5 billion in loans--
--
    Mr. CANTOR. I am asking about the tax cuts that are about 
to expire and the uncertainty that that creates in 
decisionmaking on the part of small business. How do you defend 
that?
    Mr. ORSZAG. What I was trying to say is we have a whole 
series of tax cuts aimed specifically at small businesses.
    Mr. CANTOR. But the uncertainty provided by that, you are 
not worried about the impact?
    Mr. ORSZAG. We have been clear about what we think should 
happen. We don't think there is uncertainty.
    Mr. CANTOR. You think that is good for job creation?
    Mr. ORSZAG. We have a whole series of tax provisions aimed 
specifically at small business. But I am going to come back 
again and say the key thing, the key challenge facing small 
businesses right now is inadequate demand for what they make 
and access to capital. And we need to be addressing both of 
those very aggressively.
    Chairman RANGEL. I would like to join with the gentleman 
from Virginia as we look into this independent contractor 
problem, because one of the major problems I think the Internal 
Revenue has is that many people who call themselves independent 
contractors are basically employees, and they are avoiding 
their obligations, employers. But it is a good issue. It is a 
complex issue that has been a problem ever since I have been in 
Congress. I would be glad to work with you to see whether we 
can simplify it or at least make it clearer as to who is an 
employee and who is an independent contractor.
    Mr. CANTOR. Mr. Chairman, if I can just respond to that. I 
agree simplicity is something we should strive for, but we 
ought not put an impediment in the way of a true independent 
contractor to be able to assume that status because somehow the 
IRS or the Federal Government is seeking more tax revenues. 
That is the point.
    It is hard enough now for small businesses to keep the 
lights on, and to then add unnecessary or additional burdens 
because it is a policy we want to pursue right now, that is a 
policy that is counter to job creation.
    Chairman RANGEL. Well, Mr. Camp and I are going to try the 
best that we can to see what recommendations the Administration 
has made that we can work together on. And that certainly for 
me would be one, whether we raise any money or not. Thank you.
    The Chair would like to recognize my friend from Michigan, 
Mr. Levin.
    Mr. LEVIN. Thank you.
    You know, the discussion we had in the last few minutes 
about LIFO oil and gas with Mr. Cantor, independent 
contractors, even the energy bill, I think those issues need to 
be discussed. The independent contractor, the problem is you 
used the word truly independent contractor, and the issue is 
who is truly an independent contractor. That is a legitimate 
source of debate.
    But I must say I was dismayed by some of the back and forth 
that went on earlier. And when the Budget Director was told 
that he was simply checking the box, I suggest that we try to 
check our partisanship. I found that insulting. So let me just 
ask you, I mean, the problem we have is trying to find some 
common ground here.
    And as I go through your suggestions, Mr. Orszag, I think 
it shows that we have a lot of distance between us, the 
Majority and the Minority here, because you propose a financial 
crisis responsibility fee, and so far I think there has been 
strong opposition from the Minority to that, and we have to 
talk it through.
    The next proposal is the tax cut for people earning more 
than $250,000. And there seems to be a deep divide between the 
parties there. The limit on itemized deduction has been 
somewhat controversial within our ranks across party lines. We 
need to talk about that.
    So let me just ask you, as we have an honest debate about 
how we approach the budget issues, and by the way, we said 
earlier that if we have dug a deep hole, it is best not to keep 
digging. And I think that is true. But I think it is fair in 
evaluating the proposals how to get out of the hole that we can 
look at the record of those who have proposed approaches that 
have helped lead to the depth of the hole.
    So let me just ask you to contrast--I referred to some of 
your proposals. There was a discussion I guess in the Budget 
Committee yesterday. Comment if you would on what you think are 
the contrasts between the two approaches and how you think we 
might address them?
    Mr. ORSZAG. Well, Congressman, I think you have identified 
some of the differences.
    Financial services responsibility fee is a good example 
where our view is that the law requires that any residual cost 
to the taxpayer under TARP be paid in full. We put forward a 
fee that would do that, and not only do that, but impose the 
burden on our largest financial institutions, those with more 
than $50 billion in assets, and thereby also help to get at one 
of the contributors to the financial market problems, which was 
leverage. I mean, that is a small example.
    A big example, and I have a lot of respect for him, but Mr. 
Ryan has put forward an alternative path forward on the budget 
as a whole which represents a dramatically different approach 
to many of our major social insurance programs, including 
Medicare, Medicaid and Social Security, dramatic difference 
there also.
    Mr. LEVIN. And what is in those proposals that you think 
are dramatically different?
    Mr. ORSZAG. Well, in each program, there are dramatic 
differences. Perhaps the most dramatic is in Medicare where, 
instead of a defined benefit, a package in which you have a 
package of insurance, you are instead, for those 55 and below, 
given a voucher or basically a check. And you are then out on 
your own to go purchase insurance. The check or the voucher 
does not keep pace with health care cost growth over time.
    Mr. LEVIN. And Social Security.
    Mr. ORSZAG. Social Security, the plan would introduce 
individual accounts into Social Security.
    Mr. RYAN. Gentlemen, I am right over here. If you want to 
know what is in the plan, I would be happy to answer your 
questions.
    Mr. LEVIN. I am afraid we very much know what is in your 
plan. And I just thought it might be useful to have the Budget 
Director comment on it. Thank you.
    He wasn't just checking the box either.
    Chairman RANGEL. Mr. Lewis of Georgia.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Thank you, Mr. Director, for being here. Thank you for your 
service.
    Mr. Director, last year when you came before our Committee 
to testify, we discussed the important health care reform and 
the need for everybody, for all of our citizens, to have health 
care. We discussed some moral imperative to the need to have 
coverage.
    And now we hear people saying, this costs too much, and in 
light of the budget deficit, people are saying, give up, wait, 
be patient, now is not the time.
    I want you to tell Members of this Committee, as we look at 
the budget, how health care reform is going to help us as we 
take a long hard look because the problem is not going to go 
away.
    Mr. ORSZAG. Congressman, there are tens of millions of 
Americans in this country who, under the legislation both you, 
the House, and the Senate have passed, would enjoy health 
insurance who currently don't have health insurance. They are 
exposed to financial risk. They are exposed to health risk.
    There are tens and tens of millions of Americans, indeed 
hundreds of millions of Americans, who will have more security 
in their health insurance because they won't need to worry 
about switching jobs, preexisting conditions, losing coverage 
when they switch jobs, under the proposals that both the House 
and Senate have embraced.
    And then, finally, both the House and Senate bills reduce 
the deficit by more than $100 billion over the next decade and, 
just as importantly if not more importantly, put in place the 
key infrastructure that will allow you to restrain cost growth 
over time and improve quality over time. Unless we do that, 
unless we address the underlying drivers of health care cost 
growth, there is nothing else that is going to matter over the 
long term in terms of addressing our long-term fiscal gap, 
period.
    Mr. LEWIS. I appreciate your response.
    Mr. Director, I want to move to another area. I know the 
President has--I mean, you have opposed a spending freeze on 
everything except defense and some other major programs like 
Medicare, Social Security. Is the Defense Department a sacred 
cow? What about some Members of Congress that are proposing 
that we spend $2.5 billion on 10 more C-17 planes that are not 
needed? Do you have an answer for that? I think the President 
is against it. You are against it. Senator McCain is against 
it. That is wasteful. Why is the Defense Department a sacred 
cow?
    Mr. ORSZAG. Congressman, it is not. And in fact you men- 
tioned the C-17. Secretary Gates has been very clear that 
additional C-17 purchases are not necessary.
    So, again, last year we put forward a variety of reductions 
and terminations, canceling the F-22 fighter jet, for example, 
and the Presidential helicopter. This year, Secretary Gates is 
adamant, we don't need additional C-17 cargo planes. We don't 
need the alternative engine for the F-35, we don't need the 
Navy CGX cruiser. There are a whole series of changes that he 
is trying to make in the procurement side of the defense budget 
that are not militarily necessary and that cost money, even 
while protecting our troops in the field. And that is what he 
is trying to accomplish.
    We are at war. We need to make sure we adequately fund our 
troops. But there are efficiencies that can be found in the 
procurement side of the budget for the Defense Department, and 
that is exactly what he is trying to accomplish.
    Mr. LEWIS. Do you think it is fair for any of us on this 
Committee or any other Committee or any other Member of 
Congress to look upon the Defense Department as a job creator, 
as a shopping bin or a shopping market for jobs? I mean, some 
planes are not needed. Some weapon systems are not needed.
    Mr. ORSZAG. The sole purpose of the Defense Department 
should be to protect the Nation as well as possible.
    Mr. LEWIS. Could there be savings if we just go and do the 
right thing?
    Mr. ORSZAG. That is exactly what we are talking about here. 

C-17, alternative engine for the F-35, the CGX cruiser, you can 
keep going down the list. We have a volume of terminations and 
reductions that include a whole series of changes in the 
Defense Department that the military has said are not necessary 
and that just impose costs on the taxpayers for no added 
national security benefit.
    Mr. LEWIS. Thank you, Mr. Director.
    Chairman RANGEL. The Chair recognizes Mr. Herger of 
California.
    Mr. HERGER. Thank you, Mr. Chairman.
    Mr. Director, at last year's White House fiscal summit, you 
stated, ``The single most important thing we can do to improve 
the long-term fiscal health of our Nation is slow the growth 
rate in health care costs.''
    That is why I am puzzled by your support for the Democrats' 
health care bills, despite what you said in your testimony 
today, that the Democrats' health bills would constrain costs 
over the long term. The Obama Administration's own actuaries at 
CMS examined the Democrat health bills that passed the House 
and the Senate and found that national health care spending 
would actually increase if these bills became law, both in raw 
dollars and as a percentage of GDP.
    Furthermore, both bills, the Medicare actuaries wrote, 
``show a negligible financial impact over the next 10 years for 
the other proposals intended to help control future health care 
cost growth.''
    Mr. Orszag, would you explain how, given these findings, 
you can argue that these bills will improve our Nation's long-
term fiscal health if, as you say, such health is dependent 
upon slowing the growth rate in health care costs?
    Mr. ORSZAG. Congressman, if you look at the Congressional 
Budget Office analysis of the health bills, and remember CBO is 
the primary agency that the Congress relies on to evaluate the 
impact of legislation on the Federal budget; very clearly the 
legislation both in the House and the Senate reduces the 
deficit, not only over the first decade but in the decades 
thereafter. For example, the Senate bill reduces it by hundreds 
of billions of dollars in the second decade. And that is 
largely without taking into account a whole variety of changes 
that are absolutely necessary in order to move toward a higher 
quality health care system of the future and that, frankly, 
would be necessary even under the approach that Mr. Ryan has 
put forward.
    If individuals--even if we moved toward a voucher system 
for Medicare, those individuals are going to need information 
on which treatments work better than whatever, other ones, 
which doctors are more effective and what have you. Without 
that, the system won't work. We need to be making investments 
in health information technology, in information about what 
works and what doesn't, into additional incentives for 
prevention and wellness, regardless of whether you want to move 
in Mr. Ryan's direction or keep the current structure of the 
Medicare program largely intact even while moving to improving 
incentives for providers, which these bills do.
    The bills are trying to move toward a system in which we 
are no longer just paying for quantity, but instead, we are 
paying for quality over time. That is the key change, and they 
do it in a variety of ways. There are a whole variety, which we 
can go on about, projects designed to evaluate the best way of 
compensating doctors and hospitals for high-quality care rather 
than just more care, absolutely essential if we are going to 
address our long-term fiscal problem.
    Mr. HERGER. But again, as I understand the Congressional 
Budget Office, as you just referred to, indicated that they are 
not capable of scoring this, that only----
    Mr. ORSZAG. No, no.
    Mr. HERGER. EMS can do that.
    Mr. ORSZAG. That is not quite right, sir. What CBO has said 
is, and when I was speaking at the fiscal summit, I was 
speaking about the impact on the Federal budget. CBO has been 
very clear that they do analyze impacts on the Federal budget. 
They provided analysis not only of the budget window, the first 
10 years of the budgetary impact, but they have gone beyond 
what they have traditionally done and provided assessments of 
what would happen in the decade thereafter in terms of the 
Federal budget. What CBO has said it could not do, and frankly 
I think there are questions about the availability of other 
entities to do so also, is evaluate the impact on national 
health expenditures including private expenditures.
    So the question about our fiscal future is obviously a 
Federal budget question that CBO does do analysis on, and the 
conclusion is very clear, the bills reduce the deficit over the 
first decade, they reduce it by increasing amounts thereafter 
and that that is what CBO has found.
    Chairman RANGEL. Thank you.
    The Chair recognizes Mr. Becerra of California.
    Mr. BECERRA. Thank you, Mr. Chairman.
    And Dr. Orszag, good to see you again.
    Mr. ORSZAG. Good to see you.
    Mr. BECERRA. Thank you for coming. I would like to make 
reference to a couple of charts. I know you have seen these 
before from the Budget Committee hearing. One is on the 
deficits that we faced over the course of the last several 
years. If I could have chart one put on the screen. Once again, 
I think it is important that 
we always place in context the conversation we are having about 
budget, where we are, how difficult the situation is. I simply 
use this chart to point out how steep the climb will be for 
this country, for Americans, to be able to get back to work; 
for the Federal Government to once again be able to see green 
as we saw under the previous President in the 1990s, Bill 
Clinton, when we last saw a budget surplus; and just simply how 
difficult it will be.
    My first question to you, Dr. Orszag, you may have already 
heard me ask this, because you are very good with numbers I 
think you can do this calculation, you have a train traveling 
at 50 miles an hour--have you heard it, I hope you have--
carrying about an average 100, 120 cars. All of a sudden, we 
realize the train has been driven recklessly for too many 
years. It is a free-fall in terms of where this train will end 
up, so we apply the brakes. How long does it take from the 
moment we apply the brakes to stop that 120-car-train traveling 
at 50 miles an hour?
    Mr. ORSZAG. It depends on the strength of the brakes.
    Mr. BECERRA. Yes. It is good brakes.
    Well, let me go to the next chart before I give you the 
answer. If I can get the second chart up.
    This is the train we were on. For the last decade, we were 
on a train, whereas you can see if you try to break up the 
reasons we have massive deficits, part of it, of course, is due 
to the economic downturn; part of it now as a result of the 
bailout of the financial services industry, you see under the 
red in TARP; some of it is the stimulus bill, the economic 
recovery package; a great portion of it is the Bush tax cuts; 
and a significant portion as well is due to the wars in Iraq 
and Afghanistan.
    And as you see them moving out into the further years, 
2019, the biggest contributor to the deficits and of course our 
national debt will be the Bush tax cuts if we were to extend 
them out. The answer to the question, by the way, on that 
train, it takes a train traveling 50 miles an hour with 120 
cars on it about a mile and a half to stop. And so this is our 
train and the President is trying to stop it from pitching 
further down. And it is going to take a while, many of us 
believe the President is on the right track, but it will be 
tough. Is there any belief anywhere in any economic circles 
that we can get out of this mess in a year or two?
    Mr. ORSZAG. No.
    Mr. BECERRA. Is there any reason to believe that any other 
President would have found himself or herself facing any rosier 
situation on the day that the keys were handed over from the 
previous President George Bush to the new President Barack 
Obama?
    Mr. ORSZAG. No.
    Mr. BECERRA. Now, part of this problem, of course, is a 
result of the financial services debacle that we saw that 
nearly sunk the entire country, and now the President has 
proposed a responsibility fee on big banks to try to recoup the 
money that was lent to these big banks when they came on their 
hands and knees saying that they needed some relief.
    I don't know if the news has come out yet, but I was told 
that today we would hear an announcement from AIG, one of the 
companies that took about $140 billion in taxpayer money so it 
wouldn't go under, and AIG apparently is prepared to pay out 
about $100 million in bonuses to its executives as of today. I 
don't know if Wall Street just doesn't get it, but those are 
the things that make Americans truly sour on not just what we 
do in Washington, D.C., but certainly what is going on on Wall 
Street as well.
    Is the responsibility fee the Administration's efforts to 
try to make sure that the taxpayers do get back money that we 
continue to see Wall Street spend in ways that no American 
taxpayer would expect the money to be spent?
    Mr. ORSZAG. Yes. And again, there is built into the 
legislation a requirement that any--every penny that the 
taxpayers put into that program has to be repaid. And this 
responsibility fee is intended to fulfill that legislative 
requirement that the financial industry repay the American 
taxpayer in full for every penny involved.
    Mr. BECERRA. I appreciate that.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Doggett.
    Mr. DOGGETT. Thank you very much.
    Dr. Orszag, the budget that you propose involves a deficit 
of $1.6 trillion this year after $1.4 trillion last year, 
something that I find deeply troubling. And I know, as was just 
explained, that this Administration did not dig us into this 
budgetary hole, but I think, as we explore ways to dig 
ourselves out, we have to scrutinize every spending proposal as 
if it were coming out of our own pocket, which in a very real 
sense it is.
    I want to continue our discussion of yesterday about a $133 
billion expenditure that you are recommending, a tax 
expenditure that was announced last week, that you referred to 
as a job tax credit. I read over the weekend that the Assistant 
Secretary of the Treasury, Alan Krueger, admitted that the 
Treasury doesn't know how many companies would claim the tax 
credit or how many jobs it will create, but said that even if 
it only got us one additional hire and we were subsidizing nine 
more that would have been created anyway, that that would be a 
success. I don't know of many spending programs, direct 
spending programs, that we would consider a success at 10 
percent accomplishment of what it was set to achieve. As you 
know, almost everyone involved with the last jobs tax credit 
says it didn't work or it didn't work well, that it subsidized 
jobs that would have been created anyway, that the system was 
gamed.
    Mr. ORSZAG. You mean the one in the 1970s?
    Mr. DOGGETT. I mean the one in the Carter Administration. 
And I know you made some changes that you think are going to 
address those concerns. But even in those changed forms, most 
tax experts, most economists that have commented on it to date, 
have been critical as to whether that can be accomplished. If 
we have the Treasury itself saying that they don't know whether 
it will be more than 10 percent effective, that doesn't sound 
to me like a very effective way to dig out of the hole.
    Now, you told me yesterday, and I will just turn to your 
testimony, that altogether it is not necessarily a negative 
because, as you said, additional cash will be injected into 
small businesses and alleviate the liquidity crunch, which is 
very much what Assistant Secretary Krueger had to say.
    The problem I have with that, like some of the other 
programs, tax programs that the Administration has supported, 
is that they don't alleviate the liquidity crisis for everyone. 
I have some businesses down in central Texas that began 
conservative in their hiring approach, and then they did 
everything possible to cut costs so that they didn't have to 
lay off an employee who had been loyal to them.
    This will advantage a new business that comes into town, a 
franchise that wants to compete with them, by hiring new 
employees and getting subsidized 5,000 employees up to 
$500,000, and they won't get any liquidity out of this proposal 
if they are not adding new employees.
    I think that is one of the reasons that a number of 
commentators, including those based at the Center for American 
Progress, have said that this kind of jobs tax proposal 
distorts the marketplace because it favors some over others.
    That is the kind of concern that I have about your 
proposal. I want to create jobs, but I want to do it in an 
efficient, effective way, and not in a way that encourages 
people to game the system and reward people like those that 
would be rewarded under your proposal who made hires before 
this bill even became effective or before it was even 
announced.
    Mr. ORSZAG. Mr. Doggett, I look forward to working with you 
on this. Let me just make a few comments.
    First, with regard to the Carter era tax credit, there are 
some analyses, for example one by John Bishop that I remember, 
suggesting that it actually was quite effective. The analyses 
that suggest otherwise generally find that, to the extent it 
wasn't effective, that it wasn't effective because it was way 
too complicated. People were confused by it. They just didn't 
get it. This design is very simple and straightforward and I 
think will address that complexity issue.
    Second, it is not just for new jobs. It is also for wage 
increases or for moving people up in terms of the hours worked. 
And so for those businesses that don't want to hire someone new 
but they have some employees who deserve a wage increase or who 
they could have work more hours, they can also benefit from 
this. So if it were just limited to new hires perhaps the 
concerns would be somewhat deeper. It is not.
    But again, I would look forward to working with you.
    Mr. DOGGETT. I look forward to working with you on it also.
    I think the smaller the better if you are just determined 
to have this kind of credit. I just don't see most of these 
businesses being motivated by tax decisions. They are motivated 
by whether they have new customers with money coming in the 
door.
    Chairman RANGEL. Mr. Sam Johnson of Texas.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    I happen to agree with Mr. Doggett. He is right on target. 
I think you guys are way off base on that.
    There is another subject I think you are off base on, too, 
and that is cutting the military services. Have you ever been 
in combat?
    Mr. ORSZAG. No sir.
    Mr. JOHNSON. I think if you will look at the JCS, most of 
them never have either. Those who haven't been fired at or 
fired a shot at an enemy don't understand what it takes to 
maintain superiority. We collapsed in Korea and lost it, we 
collapsed in Vietnam and lost it. We haven't won in the Middle 
East either. And a weak military isn't going to get there.
    And the things you talk about that you say we don't need, 
you are full of it, I hate to tell you that.
    Mr. ORSZAG. Mr. Johnson, I just want to clarify, that was 
not me. That is Secretary Gates, Admiral Mullen and the 
military.
    Mr. JOHNSON. I just mentioned them.
    Mr. ORSZAG. Okay.
    Mr. JOHNSON. You know, the health care reform thing that 
Mr. Herger talks about, it seems to me that the Republican 
alternative does fit better into your previously stated goals 
for health care reform than the President's own plan.
    And we have a copy of the CBO score, if you want to see it, 
of the Republican plan. I am sure you looked at it. You might 
want to reconsider that.
    One thing I have heard again and again from my constituents 
back in Texas is they are sick and tired of the secret backroom 
deals when it comes to negotiating health care reform. Since we 
haven't been invited to any of these meetings, I don't believe 
any of my colleagues on this side of the dais were, were you 
part of the backroom deals where the White House officials and 
Chairman Baucus promised special treatment for the 
pharmaceutical industry if they agreed to cough up $80 billion?
    Mr. ORSZAG. Congressman, I was not directly involved in 
those discussions. But let me say what the President I think 
said today or earlier last week, which is that he recognizes 
and supports increased transparency as we move throughout the 
rest of this process.
    Mr. JOHNSON. So you weren't there either when they were 
talking about the so-called Cadillac tax that non-union workers 
would have to pay?
    Mr. ORSZAG. I think you--sorry, you asked me about the 
pharmaceutical.
    Mr. JOHNSON. Yes.
    Mr. ORSZAG. Those are different things, as you know.
    Mr. JOHNSON. Different subject.
    Mr. ORSZAG. I was involved in some of the discussions over 
the excise tax, yes.
    Mr. JOHNSON. You were.
    Mr. ORSZAG. Yes sir.
    Mr. JOHNSON. And you approve of that?
    Mr. ORSZAG. That is a controversial topic. The motivation 
behind it is I think well known, but I know that many people 
have significant concerns about moving in that direction.
    Mr. JOHNSON. Well, I think we have to be careful where we 
tax.
    Were you also there concerning Senator Nelson's special 
Medicaid deal?
    Mr. ORSZAG. No, sir.
    Mr. JOHNSON. Thank you.
    Given the defeat of the commission legislation in the 
Senate last week, what assurance do you have that Congress will 
ever even act on the Presidential commission recommendations?
    Mr. ORSZAG. Well, Mr. Johnson, as I said earlier, I think 
the key issue is, and I am hoping that your side of the aisle 
will join together to work on the commission, the key issue is 
whether the commission issues a recommendation. If it does, 
both Senator Reid and Speaker Pelosi have provided assurances 
that a vote will be taken.
    As I said earlier, and I know there are issues to be worked 
through with regard to the commission, but the key question is 
whether we can join together to actually get to the 
recommendation stage. And I think there has been a lot of 
attention on what happens thereafter, but that seems to me 
somewhat less important.
    Mr. JOHNSON. Well, you ought to talk to Mr. Rangel a little 
bit.
    Thank you, sir. I have no further questions.
    Chairman RANGEL. Have you followed this Committee's 
reaction to the MedPAC recommendations as relates to Medicare?
    Mr. ORSZAG. I am sorry.
    Chairman RANGEL. Have you followed this Committee's 
reactions to recommendations that have been made by MedPAC as 
relates to Medicare?
    Mr. ORSZAG. In general, yes.
    Chairman RANGEL. And aren't you pleased with our 
performance?
    Mr. ORSZAG. In general, you have, I think, especially in 
the health reform legislation, adopted many of the 
recommendations that MedPAC has put forward.
    Chairman RANGEL. All right. I just wanted to make certain.
    Let's see now. Mr. Blumenauer of Oregon.
    Mr. BLUMENAUER. Mr. Chairman, thank you.
    Actually, Mr. Orszag, I think appearing repeatedly before 
this panel qualifies for some sort of combat designation.
    I do appreciate your clarifying that this recommendation on 
the weapons that my good friend from Texas was talking about 
actually came from the Department of Defense, and it references 
a weapon in particular that if we are losing in the Middle 
East, this weapon would have virtually no impact in dealing 
with the problems that we face with insurgency, with terrorism, 
with improvised explosive devices. So I think it is an example 
of the tough decisions that this Congress doesn't want to make, 
and that has been a problem with Administrations in the past.
    These are tough questions. We can't do everything at once. 
And I think you are attempting to give the Department of 
Defense what it needs and not often have Congress force it to 
take things that have more political--political--impact than 
they do military impact.
    I am, however, interested in exploring some of the other 
areas of tradeoff. You have heard some of our colleagues here 
raise some concerns about some of the tax provisions, that we 
are going to continue extending tax benefits, yet we have a 
serious deficiency with America's infrastructure. You talk 
about the financial experts, the independent economists, almost 
all of whom will say that investing in the long-term renewal 
and rebuilding of America is going to create more jobs than 
short-term tax cuts that my friends on the other side of the 
aisle don't actually think made much difference, the 40 percent 
of the last package, and instead, we are at an impasse on the 
reauthorization of the Surface Transportation Act, which could, 
for the amount of money that you are talking about moving in 
this direction, basically fully fund a program.
    I don't want to put you on the spot now because I would 
like something in a written form about what the tradeoff might 
be to invest in an area that actually has bipartisan support 
across the country that the Administration has talked about, 
but we are not putting enough in to make a difference.
    I would like to conclude with one area. I see my friend 
Paul Ryan is back. He wasn't here in the last panel when I was 
able to commend him for putting forth some specific suggestions 
to actually bring down the long-term number. Now, I think Paul 
would welcome a debate on the specifics, which we should have, 
but I guess I am wondering if there isn't some way in the 
spirit that Paul has tossed out some things, some of us, I 
mean, we have worked together on agricultural subsidy reform, 
which is in this budget, and I hope you will go to bat for it 
and back some of us up who care about it.
    But you know, we know you can take any six of us and put us 
in a room, and we will describe what the path will look like, 
for instance, to fix Social Security. Now, some will have a 
little more on revenue, and some will have a little more on 
adjusting long-term inflationary rates. Others will suggest 
that there might be some difference in terms of the aid, but 
there are three or four variables that actually will happen in 
the next 10 years. And I wonder if there is any opportunity 
that we might be able, in the spirit that Paul has offered up a 
few things, that there might be a way for some people to not 
wait for a commission but to actually roll up their sleeves and 
have a little bit of this conversation, because we know that is 
where we are going to go in the next 10 years, and maybe we can 
do it in a way that is a little less toxic than it has been to 
date?
    Mr. ORSZAG. And Mr. Blumenauer, that is exactly what we are 
trying to create through the commission. But if there are 
alternative mechanisms that would complement or supplement, I 
know the Chairman, for example, had mentioned informal meetings 
on a bipartisan basis to address some of these issues. The 
problem is so substantial and the need for bipartisan 
cooperation so significant that my view is, whatever works, 
let's do it.
    Mr. BLUMENAUER. Well, I would just conclude by expressing 
my hope that we can take a few of these things, we can find 
maybe an informal way to debate and refine and flesh them out, 
but I hope in a couple of these areas that we can look at the 
broader context so that we don't have to wait for a commission, 
because it is going to take the full 10 years to turn this 
battleship around, as you have documented in a previous life. 
Thank you very much.
    Chairman RANGEL. Mr. Pomeroy is recognized for 5 minutes.
    Mr. POMEROY. Thank you, Mr. Chairman.
    I want to follow along my colleague, Mr. Blumenauer. I 
believe that my colleague, Paul Ryan, has advanced a detailed 
plan with specifics to match the Republican counterpart to the 
Administration's plan which is detailed and has specifics. And 
so we at last face the prospect of actually being able to make 
choices between alternatives that are real and on the table 
before us, not basically fighting fact with fiction or just 
totally empty rhetoric as an alternative that really doesn't 
allow for an honest debate.
    Now, having not been a Member of the Budget Committee, I am 
sure it was covered exhaustively there, but if you can give us, 
Mr. Director, maybe a little flavor for the Administration's 
take on the Ryan budget proposal and the alternatives that this 
Administration believes would be a better policy course.
    Mr. ORSZAG. Yes.
    Well, Mr. Pomeroy, I discussed this a little bit briefly 
before, but I think there are a whole series of changes that 
Mr. Ryan would propose; tax changes that would eliminate the 
estate tax. It would eliminate the corporate income tax. It 
would dramatically change the tax structure. Mr. Ryan may have 
a different perspective, but in my analysis, and we will get 
more rigorous analysis of it, it would significantly shift the 
tax burden from upper-income taxpayers toward middle-income 
taxpayers.
    But most of the long-term deficit impact comes from a 
substantial change in Medicare. So the plan succeeds in 
reducing our long-term deficit, but at the cost of exposing 
beneficiaries to much more uncertainty about how much health 
care is going to cost them and at the cost of shifting 
additional costs onto beneficiaries.
    So it is not hard to reduce Federal expenditures just by 
shifting uncertainty and cost onto beneficiaries, and I 
actually think Mr. Ryan would agree, there are--that, in a 
sense, and CBO said that that is exactly what it does, there 
are costs and benefits to doing that.
    Mr. POMEROY. Now, in the alternative, I think there has 
been a fair description.
    Mr. RYAN. Would you yield?
    Mr. POMEROY. I yield to you briefly, but I do have another 
point I want to draw.
    Mr. RYAN. No one disagrees that the current spending 
trajectory cannot go on as it is. So Dr. Orszag will agree, and 
he has said this many times, the path of spending we are on 
right now cannot go where it is. It has to come down. The 
question is, how do you do it?
    Mr. POMEROY. Precisely correct. And I do commend you for 
putting forward specifics as an alternative. All right.
    Mr. Orszag, or Dr. Orszag, what would be specifics you 
would advance as your alternative to essentially the outline 
you have just given us?
    Mr. ORSZAG. We support a more progressive tax system rather 
than a more regressive one. We support, for example, finding 
efficiencies in Medicare on the provider side, reducing 
unwarranted subsidies to providers and altering their 
incentives, so that they provide higher quality care rather 
than just more care, instead of loading the burden onto 
beneficiaries disproportionately.
    In Social Security, we don't support introducing individual 
accounts into Social Security. We support individual accounts 
on top of Social Security, which is why, in this budget, we 
have a whole series of reforms intended to promote automatic 
IRAs and automatic 401(k)s in addition to shoring up the 
defined benefit system, which I know is very close to your 
heart. And you can go down the list. There is a significantly 
different path chosen in which more risk is loaded onto 
individuals under Mr. Ryan's plan, and the Tax Code is much, 
much more regressive.
    Mr. POMEROY. I think that that is, for my purposes, the 
opening bell of what will be a very interesting debate. And 
again, it is going to be an interesting debate because we 
actually have specific alternatives to talk about.
    I commend Mr. Ryan.
    I have a couple of seconds left. I just came from a press 
conference on the goal of restoring pay-as-you-go as a budget 
discipline into the Code. Do you have a comment on that?
    Mr. ORSZAG. I applaud the Senate in embracing statutory 
pay-as-you-go legislation. It embodies, as I said earlier, the 
very simple principle that when you have a big hole, don't dig 
it any deeper. We are finally at a point, I know the House has 
been pursuing this for years and years and years, we are 
finally on the verge of actually embedding it back into 
legislation in a way that I think will be very constructive.
    Mr. POMEROY. Thank you.
    I yield back, Mr. Chairman.
    Chairman RANGEL. Thank you.
    The witness has to leave in 20 minutes. We have about 16 
Members. We are also expecting a vote on the floor. How much 
time have you got?
    Mr. ORSZAG. I am told I need to be back at the White House 
at 4:00.
    Chairman RANGEL. Okay. So we will proceed under the 1 
minute rule with the understanding that you will get responses 
from the Director, and then we see what happens.
    So Mr. Pascrell is recognized for 1 minute.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    We need to develop new models in this country, Mr. Orszag, 
and I am very happy to see that the President has embraced this 
challenge and has decided to find revenue. We cannot do the 
same; we can't use the same models as we have been using.
    The budget contains a measure that we passed in the House, 
the Student Aid and Fiscal Responsibility Act, which converts 
all new Federal student lending to the Direct Loan program. And 
according to the CBO, this will save taxpayers $87 billion over 
10 years by switching to the cheaper Direct Loan program. And 
boy, you know what the struggle was there. You know who was on 
which side on that debate and why they were there.
    The budget eliminates funding for inefficient fossil fuel 
subsidies, eliminates 12 tax breaks for oil, gas, coal 
companies--we will see who is on which side to defend those 
subsidies--and will raise nearly $39 billion over the next 10 
years. These are the kind of commonsense measures we have been 
talking about for years.
    What other innovative approaches to raising revenue are 
found in this budget? What kind of groundbreaking action can 
Congress take to close the deficit gap while still being able 
to grow our economy? And as part B to that question, Mr. 
Orszag, what are we doing in terms of the health care delivery? 
I am interested to hear what kinds of things the Administration 
is doing in this budget without whatever we call reform, and 
what things do you have in the pipeline to do with existing 
resources and authorities to begin to bend that cost curve, 
because most of us haven't seen it so far?
    Chairman RANGEL. Mr. Brady is recognized for 1 minute.
    Mr. BRADY. Thank you, Mr. Chairman.
    For the record, I will--for brevity, I will ask the 
Director for a written response on how many American jobs will 
be created by the tax increases on small businesses, local real 
estate partnerships, U.S. companies competing overseas, U.S. 
energy companies, capital gains, research and development, 
charitable giving and the death tax, and I will just ask for 
any economic numbers you have.
    Second, a hypothetical. The train is hurtling down the 
track. Democrats have been at the helm of the train for 3 
years. Deficit speed is now 10 times faster than when 
Republicans were at the head of that train. Instead of slowing 
down, they propose to accelerate the deficit speed for another 
year and keep the pedal to the metal for another decade. Now, 
how long will it take before the Democrats realize they are 
actually driving the train?
    Mr. ORSZAG. I am not sure I like this minute rule thing.
    Mr. BRADY. Okay. I just wanted to check on that.
    I yield back, Mr. Chairman.
    Chairman RANGEL. Mr. Ryan.
    Mr. RYAN. I don't know how to follow that.
    As a Member of Congress, here is how I get my health care. 
I get a fixed payment from my employer, Federal Government, the 
American taxpayer. I get a book from the Office of Personnel 
Management saying, here is the certified plans to choose from. 
I pick one.
    That is exactly precisely what we are proposing for people 
under the age of 55 in Medicare but with more support for low-
income and sicker people, and not as much for higher-income 
people.
    Does this program have to change to be saved? Of course, it 
does. But since I have a minute, I won't belabor all of this.
    A reputable economist told the Wall Street Journal that the 
``unusual situation the government finds itself in with other 
countries willing to finance the U.S. debt at low rates won't 
last.'' When it flips, the question is, how do you get ahead of 
that to avoid the downward spiral of rising interest rates, a 
plunging dollar and a sinking economy? I couldn't----
    Mr. ORSZAG. Can I chime in, a charming and intelligent 
economist----
    Mr. RYAN. He was a reputable economist, and yes, an 
intelligent economist. I couldn't have said it better myself.
    I have to think that if you wrote this budget with your own 
druthers, it wouldn't be the budget we have here today. You 
know this budget is unsustainable. Some of us put an actual 
plan out there, and the Administration is putting out a 
commission. This commission, you know, whatever you want to 
call it, this is not a real budget. It is not a sustainable 
budget.
    And I just wish, because the spending and deficit and debt 
trajectory matters so much to the bond markets, to the future 
of our country, I just wish the Administration would stop the 
spending spree and get this stuff under control, because it is 
not about politics. It is about prosperity, and it is being 
threatened.
    With that, I yield.
    Chairman RANGEL. Mr. Neal is recognized.
    Mr. NEAL. Thank you very much, Mr. Chairman.
    Thanks, Mr. Orszag. Two points. One, I am delighted that 
the automatic IRA has been included in the President's budget, 
my proposal. And I hope and believe that that is something that 
we ought to be able to get done here on both sides. There ought 
to be enthusiasm for creating it, so I am happy that it is in.
    But I do want to raise some skepticism about going to a 
Medicare commission. We proved here that you can address some 
of these issues. We did it three times with President Bush, 
Sr., and President Clinton twice.
    And the idea that we would farm out the responsibility for 
what is such an important part of our constitutional obligation 
raises doubts in my mind about what the outcome might be.
    And I say that obviously because of the interest I have in 
teaching hospitals, the interest I have in what are now 
extraordinary employers across the Northeast. And it is also 
first-class health care. And the health care that takes place 
there doesn't occur in many other places across the globe. So I 
just wanted to raise that point with you.
    If you want to try to defend the position in a minute or 
so, at the Chairman's behest, that would be fine with me. But I 
am pleased about re-insurance, and I am pleased about automatic 
IRA, and I am skeptical of a Medicare commission.
    Chairman RANGEL. Mr. Tiberi is recognized for 1 minute.
    Mr. TIBERI. Thank you, Mr. Chairman.
    Thank you for being here. I would like to talk to you more 
about this another time, but I think the budget is full of 
contradictions. One of them I would like you to answer a 
question on. The front page of my paper today, I think you 
would agree with this, Recession Takes a Toll on Donations in 
the U.S., charitable contributions specifically.
    I am the Cochair of the philanthropic caucus, and I have 
heard from many over the last year, particularly after the last 
budget proposal, which was not adopted by Mr. Rangel and the 
Majority because of opposition within their conference, and the 
Administration or several Members of the Administration last 
year backed off the proposal, and I was hopeful it wouldn't 
reappear, but yet it is back. Can you comment on it?
    Mr. ORSZAG. Again, I am not clear whether I should be 
responding now or not.
    Mr. TIBERI. Okay. If you could respond in writing. I know 
Mr. Levin had a similar concern regarding the itemized 
deduction proposal.
    Chairman RANGEL. Ms. Brown-Waite is recognized for 1 
minute.
    Ms. BROWN-WAITE. Thank you very much, Mr. Chairman.
    In the proposed budget there is a Medicare cut of $720 
million I believe, but there are no details. Could you provide 
the Committee with information as to exactly how this will be 
achieved? It calls for $722 million in cuts. So where are the 
cuts going to be? That would certainly be----
    Mr. ORSZAG. Sure. It may be in program integrity, but we 
will get back to you in writing.
    Chairman RANGEL. Mr. Thompson is recognized for 1 minute.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Orszag, I have a couple of things. I am concerned that 
the one area where we can really make an impact on creating 
jobs is the Corps of Engineers. With a $61 billion backlog, you 
are proposing we cut them another 10 percent.
    Second, I would like to know what we are going to do on the 
sustained growth rate, which is going to prohibit patients from 
seeing their doctor, patients under Medicare.
    And it was mentioned earlier about LIFO. I think it would 
be a tragedy to get rid of LIFO. This would put our foreign 
competitors at an advantage to our U.S. businesses. This hits 
small businesses here at home. That is going to cost us in 
jobs. It is going to cost us in revenues. It is going to cost 
us in everything, including important market share when we are 
competing against these foreign markets. And to do LIFO is just 
a rocket shot at American small businesses, when at the same 
time the foreign competitors will see a huge, huge boost.
    Chairman RANGEL. Mr. Davis of Kentucky is recognized for 1 
minute.
    Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman.
    One point I would like to make with the hollow comments 
about wanting more partisanship and every time that we point 
out an objection, that we are accused of partisanship.
    I represent a district that is Democratic. We are more than 
willing to work issues like Mr. Thompson talked about, but I 
think it is time that the Administration end the war on the 
Ohio Valley States and specifically on West Virginia and the 
Commonwealth of Kentucky.
    There is a contradiction in your budget. You say you want 
to create jobs. You say you have a carrot-and-stick energy 
process or initiative. I am an engineer. It doesn't work, first 
of all, from a technological standpoint. From a practical 
perspective, what do I tell the Caterpillar D-8 operator in 
Hazard, Kentucky, who is being legislated out of a job; 404 
permits are behind the Corps.
    And at the heart of our energy industry right now, I can 
tell you this, the things that have acceptance in every sector 
of business, you are legislating away the expensing for 
research and development, for depletion. Capital gains are 
being taken away as a benefit for royalties, and finally, it is 
a repeal with the domestic manufacturing deduction on something 
that generates over 50 percent of the energy to power this 
country.
    What you are doing is lighting a fuse to economic disaster, 
and you are putting the very people you want to help out of 
work.
    I would like your answer in writing to that conversation, 
please.
    Chairman RANGEL. Mr. Davis from Illinois is recognized for 
1 minute.
    Mr. DAVIS OF ILLINOIS. Thank you, Mr. Chairman.
    The debate goes on and on about the Recovery Act, its 
success or failures. What would the job creation outlook be and 
unemployment be, in your estimate, if we didn't have it?
    Mr. ORSZAG. The very short answer is there would be 2 
million more unemployed people today, roughly 2 million, 
without the Recovery Act.
    Mr. DAVIS OF ILLINOIS. Thank you.
    Chairman RANGEL. Mr. Reichert is recognized for 1 minute.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Mr. Orszag, you know, there have been some questions about 
jobs created versus jobs saved. Well, I am interested in jobs 
that we have lost through inaction.
    So when the Treasury Secretary was here just a couple of 
hours ago, Chairman Rangel agreed with me that the United 
States is losing jobs by the failure of enacting pending trade 
agreements with Korea, Colombia and Panama.
    Do you agree with Chairman Rangel and myself that we are 
losing jobs by not enacting these trade agreements? And you can 
answer that a yes or no.
    Mr. ORSZAG. I would say that we need to engage with the 
rest of the world. We are looking to----
    Mr. REICHERT. Are we losing jobs, sir, by not enacting 
these?
    Mr. ORSZAG. Exports are a key part of economic growth and--
--
    Mr. REICHERT. Is that a yes, sir?
    Mr. ORSZAG. Get those trade agreements done but in a way 
that----
    Mr. REICHERT. Yes or no?
    Mr. ORSZAG. I don't want to play that game.
    Mr. REICHERT. No, I am not playing a game. It is a 
question.
    Mr. ORSZAG. With improvements to those trade agreements, 
they would be desirable both from----
    Mr. REICHERT. So that is a yes. Thank you.
    Chairman RANGEL. Mr. Etheridge is recognized for 1 minute.
    Mr. ETHERIDGE. Thank you, Mr. Chairman.
    Dr. Orszag, budgets are a blueprint of our priorities. And 
let me just say, I don't want you to comment on this, but you 
have already heard it today, folks at home are really upset 
about what they read in the morning paper about AIG. We put a 
lot of money in it, and I don't think they get the message yet, 
and I hope we will continue to take--to press on that, and you 
have heard that here.
    But let me ask you in writing to share with us, I served as 
a State superintendent of schools for my State before I came 
here. I happen to believe that education is the one thing that 
levels the playing field for all folks and really builds a 
strong foundation for the future. And unfortunately, it doesn't 
show up in our balance sheet right away. And I hope you will 
share with us as a Committee a list of those things in this 
budget that affect elementary education, higher education, and 
those who are out of work who are coming back through the 
community college system for long-term opportunities and 
education.
    Thank you, Mr. Chairman, I yield back.
    Chairman RANGEL. Copy the Chairman on that request.
    Dr. Boustany is recognized for 1 minute.
    Mr. Heller.
    He is not here.
    Mr. Kind is recognized for 1 minute.
    Mr. KIND. Thank you, Mr. Chairman.
    Dr. Orszag, thank you for your patience in being here 
today. But the Republican idea of privatizing Social Security 
and privatizing Medicare, which is a part of their so-called 
plan, really isn't a plan at all. It is just an ideology. It is 
an ideology that has been rejected in the past.
    So if you want to have a real debate on it, let's get those 
terms out so that the American people really know what is at 
stake. But it all comes back to rising health care costs if we 
are ever to get this budget under control. And I appreciate the 
leadership you and the Administration have shown.
    But the key in my eyes is, we have to reform the way health 
care is delivered in this country and especially how we pay for 
health care, getting off of this fee-for-service, which is 
volume-based payments, to one that rewards the quality or the 
value of care that is given. And I look forward to working with 
you as we move forward on health care reform, because the 
election in Massachusetts does not solve the health care crisis 
that we have in this Nation.
    And if we are going to have balanced budgets again, a 
payment reform is going to have to be a part of the solution. 
Thank you.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Mr. Director, thank you for your patience. 
I am going to take you up on your kind offer to meet with us in 
a bipartisan way. And you can get more votes privately than you 
ever can get publicly, so maybe we can work out something.
    Mr. ORSZAG. Sounds great. Thank you.
    Chairman RANGEL. Thank you again.
    [Whereupon, at 3:55 p.m., the Committee was adjourned.]
    [Submission for the Record follows:]

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