    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                       HEARING ON THE PRESIDENT'S FISCAL

                      YEAR 2012 BUDGET PROPOSAL WITH U.S.

            DEPARTMENT OF THE TREASURY SECRETARY TIMOTHY F. GEITHNER

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

                                    HEARING

                                   before the

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

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                               February 15, 2011

                                   __________

                                Serial No. 112-6

                                   __________

             Printed for the use of the Committee on Ways and Means

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      <-- ** ADJUST Q SPACE AS NEEDED **  deg.  <-- ** ADJUST Q SPACE AS
                  NEEDED ***  deg.COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM McDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    CHARLES W. BOUSTANY, JR., Louisiana  JOHN B. LARSON, Connecticut
    DEAN HELLER, Nevada                  EARL BLUMENAUER, Oregon
    PETER J. ROSKAM, Illinois            RON KIND, Wisconsin
    JIM GERLACH, Pennsylvania            BILL PASCRELL, JR., New Jersey
    TOM PRICE, Georgia                   SHELLEY BERKLEY, Nevada
    VERN BUCHANAN, Florida               JOSEPH CROWLEY, New York
    ADRIAN SMITH, Nebraska
    AARON SCHOCK, Illinois
    LYNN JENKINS, Kansas
    ERIK PAULSEN, Minnesota
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee

                           Jon Traub, Staff Director

                      JANICE MAYS, Minority Staff Director

                                C O N T E N T S

                                   __________
                                                                       Page

    Advisory of February 8, 2011 announcing the hearing..............     2

                                    WITNESS

    The Honorable Timothy F. Geithner, Secretary, U.S. Department of
      the Treasury...................................................     8

                       HEARING ON THE PRESIDENT'S FISCAL

                      YEAR 2012 BUDGET PROPOSAL WITH U.S.

            DEPARTMENT OF THE TREASURY SECRETARY TIMOTHY F. GEITHNER

                                  ----------

                          WEDNESDAY, FEBRUARY 16, 2011

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                                        Washington, DC.
        The committee met, pursuant to call, at 1:02 p.m., in Room
    1100, Longworth House Office Building, Hon. Dave Camp [Chairman
    of the Committee] presiding.
        [The advisory of the hearing follows:]

    ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

      Chairman Camp Announces Hearing on the President's Fiscal Year 2012
    Budget Proposal with U.S. Department of the Treasury Secretary Timothy
                                  F. Geithner

        House Ways and Means Committee Chairman Dave Camp (R-MI) today
    announced that the Committee on Ways and Means will hold a hearing on
    President Obama's budget proposals for fiscal year 2012. The hearing
    will take place on Tuesday, February 15, 2011, in 1100 Longworth House
    Office Building, beginning at 1:00 P.M

        In view of the limited time available to hear the witness, oral
    testimony at this hearing will be from the invited witness only. The
    sole witness will be the Honorable Timothy F. Geithner, Secretary, U.S.
    Department of the Treasury. However, any individual or organization not
    scheduled for an oral appearance may submit a written statement for
    consideration by the Committee and for inclusion in the printed record
    of the hearing.

    BACKGROUND:

        On February 14, 2011, the President is expected to submit his
    fiscal year 2012 budget proposal to Congress. The proposed budget will
    detail his tax proposals for the coming year as well as provide an
    overview of the budget for the Treasury Department and other activities
    of the Federal Government. The Treasury plays a key role in many areas
    of the Committee's jurisdiction.

        In announcing this hearing, Chairman Camp said, ``With the
    unemployment rate stuck at or above 9 percent for the last 21 months
    and anemic economic growth, tax policies ought to help, rather than
    hinder, our country's economic recovery. The President has called for
    corporate tax reform to make our employers more competitive. However,
    75 percent of America's job creators are structured as pass through
    entities, and that means we need to craft policies that address the
    needs of all job creators--large and small. This hearing will provide
    the Committee an opportunity to review the President's proposals and
    explore ways in which we can work on a bipartisan basis to reduce
    complexity and develop the pro-growth tax policies our families and job
    creators need.''

    FOCUS OF THE HEARING:

        U.S. Department of the Treasury Secretary Geithner will discuss the
    details of the President's budget proposals that are within the
    Committee's jurisdiction.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
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    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on Tuesday, March 1, 2011 Finally, please note
    that due to the change in House mail policy, the U.S. Capitol Police
    will refuse sealed-package deliveries to all House Office Buildings.
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    (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
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    submission or supplementary item not in compliance with these
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        1. All submissions and supplementary materials must be provided in
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        3. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
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        Note: All Committee advisories and news releases are available on
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        The Committee seeks to make its facilities accessible to persons
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    noted above.

        Chairman CAMP. The committee will come to order for this
    hearing on ``The President's Fiscal Year 2012 Budget
    Proposal.''
        Before I begin this afternoon, I want to recognize an
    individual who is not with us today because his courage and
    conviction has landed him an invitation to the East Room of the
    White House. It goes without saying that it is an immense honor
    to serve with our colleague from Atlanta, Mr. John Lewis. His
    role in the civil rights movement is well-documented. And after
    today, when the President of the United States bestows upon him
    the Nation's highest civilian honor, the Presidential Medal of
    Freedom, it will be well-recognized.
        On behalf of this Committee and the people I represent in
    the Fourth District of Michigan, I want to extend heartfelt
    congratulations to John. The success of the civil rights
    movement was a victory for the African American community and
    for every American. It may be a bit out of character for this
    Committee, but I would ask that we break with tradition and all
    join in a deserved round of applause for the Honorable John
    Lewis.
        [Applause.]
        Chairman CAMP. With that, welcome, Secretary Geithner. It
    is good to see you again and have you before the Committee.
        It has been said that the power to tax is the power to
    destroy. But last year's election shows the American people are
    increasingly concerned about the power of deficits to destroy
    jobs, the sound dollar, and ultimately their children's and our
    country's future.
        Unfortunately, the President's budget features too much of
    both. It would result in record-high deficits while pushing the
    Federal tax burden over 20 percent of our economy, a level
    never sustained in our Nation's history.
        And let me be clear, Mr. Secretary, Americans are not taxed
    too little. What America has had under this administration is
    too little job creation, more borrowing, taxing, and spending,
    and certainly not the answer to what ails our economy.
        In 2009, we were promised that spending $1 trillion on a
    stimulus plan would drive unemployment under 7 percent by now.
    Instead, unemployment has remained at or above 9 percent for a
    record 21 months.
        Stimulus advocates also promised 137 million jobs by now.
    We are woefully short of that mark as well. Today, almost 14
    million Americans are looking for work but can't find it, and a
    record number have given up trying, choosing instead to sit on
    the sidelines of our economy. A full 6.2 million are long-term
    unemployed, and the average duration of unemployment is a
    record 37 weeks. That is almost double the record level before
    this recession.
        Vice President Biden recently said that the unemployed
    should just ``hang in there'' and wait for jobs to return. But,
    at the current pace, it could be 2020 or beyond before the U.S.
    returns to full employment. And that is a long time to just
    ``hang in there''.
        The fact is, Americans shouldn't have to wait any longer
    for some real solutions. And, frankly, this budget is a missed
    opportunity. In the words of Erskine Bowles, the Chairman of
    the President's own deficit commission, this budget goes
    ``nowhere near where [you] will have to go to resolve our
    fiscal nightmare''.
        As I look through this budget proposal, I am left wondering
    if there wasn't a printing error, because it looks almost
    identical to last year's budget. We again have massive tax
    increases, now totaling $1.9 trillion, that will hit small
    businesses, middle-class families, American employers with
    worldwide operations, and investment income--the very
    investments we need to jump-start the economy.
        Even the same things are missing from this budget. There
    are platitudes about tax reform but tax policy proposals that
    move in the opposite direction. And there is nothing on
    entitlement reform, and there is little more than lip service
    about getting the deficit under control.
        During the Simpson-Bowles commission, of which three
    members of this Committee were members, we heard testimony
    that, once a nation's debt reached 90 percent of its economy,
    that country would see economic growth decline by about 1
    percent. And in the U.S., that would cost us about a million
    jobs. And, Mr. Secretary, we are not at 90 percent; our gross
    debt is now 100 percent of our economy. And we can ill-afford
    to lose out on the needed job creation simply because
    Washington can't get its spending under control.
        Despite that and other warnings, what is being presented
    today fails to deliver real change. I had hoped for so much
    more, and I am left wondering how many more experts need to
    ring the alarm bell before this administration begins to hear
    it and act accordingly?
        I ask unanimous consent to insert into the record a
    Washington Post editorial from today's paper entitled,
    ``President Obama's Budget Kicks the Hard Choices Further Down
    the Road.''
        [Washington Post article]
        [GRAPHIC] [TIFF OMITTED] 67470.010

        [GRAPHIC] [TIFF OMITTED] 67470.011

        Chairman CAMP. Now, I am sure many of my friends in the
    minority can't wait to chime in and set the record straight. So
    please allow me to admit something: We all share part of the
    blame for where we are today. However, that is not the issue.
    The issue is whether or not we will all be part of the
    solution.
        And, Mr. Secretary, you and I have had many good
    discussions about where this country needs to go. And today I
    am not interested in the boilerplate but am interested in
    finding real solutions that reduce the cost and complexity of
    our Tax Code, that deal with the unsustainable costs of our
    entitlement programs, and that brings our debt back under
    control. All of these will help unleash the private sector to
    create good-paying jobs.
        So, Mr. Secretary, I look forward to hearing from you
    today. And also, later in the week, we will hear from your
    colleagues from the Department of Health and Human Services, as
    well as the Office of Management and Budget, on these topics.
        And, with that, I yield to the ranking member, Mr. Levin,
    for the purposes of an opening statement.
        Mr. LEVIN. Thank you, Mr. Chairman.
        The President's budget is in sharp contrast to the House
    Republicans' CR. It embodies a necessary combination of
    investing in economic growth and reducing our deficit. The
    Republican 2011 blueprint, which the House will debate this
    week, reflects starkly different priorities. It disinvests. It
    would take our economy backwards through extreme cuts.
        The President's budget charts a responsible path to a
    sustainable fiscal situation. Its point of departure is an
    economy that has been through a wrenching recession and a
    recovery that is still gathering strength.
        Since the recovery began, more than 1.3 million private-
    sector jobs have been created, more than in all 8 years of the
    Bush administration together.
        Our efforts were designed to ensure a sustainable economic
    recovery, and we must be sensible to that, as we take needed
    steps to reduce our deficits.
        That is why, as the President's budget lays out $1.1
    trillion in deficit reduction over the next decade, it invests
    in proven public-private partnerships that support jobs,
    innovation, and growth. It makes permanent and enhances the R&D
    credit. It extends the Build America Bond program, which
    Republicans oppose and which has financed over $180 billion in
    vital infrastructure improvements.
        It also provides an additional $5 billion for the highly
    successful 48(c) tax credit. This tax credit provides a direct
    incentive to manufacture advanced energy products like solar
    panel and wind turbines here in the U.S. In one example that I
    know you, Mr. Chairman, are very familiar with, Hemlock
    Semiconductor received $142 million in tax credits to help
    maintain its global leadership in producing the polycrystalline
    silicon used in the manufacturing of solar panels. This is one
    of the vivid examples of a successful public-private
    partnership.
        The House Republican plan disinvests in jobs and growth and
    in our community. It cuts more than $1 billion from the Clean
    Water Revolving Fund. It chokes funding for the Energy Advanced
    Research Projects Agency, which is conducting cutting-edge
    research to foster the products and jobs of tomorrow. It
    completely eliminates the COPS program that puts police
    officers on our street every day. It takes a hatchet to the
    Community Development Block Grant program that is so important
    to local economic development in municipalities that are under
    severe economic strain right now.
        At the same time, the Republicans' rules allow for
    unlimited additional tax cuts that are not paid for, at a time
    when tax revenues as a percentage of the economy are near an
    all-time low. According to the administration's estimates,
    permanently extending the tax cuts for upper-income households
    alone would increase the deficit by nearly $1 trillion over 10
    years.
        The President's budget focuses on preserving the tax relief
    for working families making less than $250,000. It would
    permanently protect the middle class from AMT. And it
    permanently extends vital assistance to working families that
    we had to fight Republicans to include in the December tax
    compromise.
        More broadly, the Chairman--you, Mr. Chairman--has
    criticized the President's budget as lacking a plan for tax
    reform. If we are going to have tax reform, we are going to
    need to work together, not against each other, to make the
    difficult choices necessary for responsible reform.
        Nowhere is it more true than on the debt limit. As the
    Secretary--as you, Mr. Secretary--has made clear, the need for
    fiscal responsibility and the need to support economic recovery
    must complement each other, not undermine one another. And
    vitally, we cannot jeopardize the economic recovery by putting
    at risk the full faith and credit of the United States. The
    majority must not irresponsibly put our economy in severe
    jeopardy by using the debt limit as leverage or as a bargaining
    chip.
        We took necessary steps to prevent a recession caused by a
    financial crisis from becoming a depression. We cannot risk a
    new financial crisis that would reverse the new momentum of
    economic growth.
        Thank you, Mr. Chairman.
        Chairman CAMP. Thank you, Mr. Levin.
        Welcome, Secretary Geithner. You have 5 minutes. Your full
    written statement will be part of the record, but you may begin
    your testimony. And welcome to the Committee on Ways and Means.

    STATEMENT OF TIMOTHY F. GEITHNER, SECRETARY, U.S. DEPARTMENT OF
                     THE TREASURY, WASHINGTON, D.C.

        Secretary GEITHNER. Thank you, Chairman Camp, Ranking
    Member Levin, and Members of the Committee. It is a pleasure to
    be here before you today to talk about the President's budget.
        The President's budget presents a comprehensive strategy to
    strengthen economic growth and expand exports, with investments
    in education, innovation, and the Nation's infrastructure.
        Alongside these investments, the budget presents a
    detailed, multiyear plan to cut spending and reduce deficits.
    Our deficits are too high. They are unsustainable. And, left
    unaddressed, these deficits will hurt economic growth and make
    us weaker as a nation. We have to restore fiscal responsibility
    and go back to living within our means.
        The President's budget cuts the deficit he inherited in
    half as a share of the economy by the end of his first term.
    These cuts are phased in over time so that we protect the
    recovery.
        In order to make it possible for us to invest in future
    growth and to restore fiscal sustainability, the President
    proposes to reduce nonsecurity discretionary spending to its
    lowest level as a share of the economy since Dwight Eisenhower
    was President.
        To achieve this, the budget proposes a 5-year freeze of
    annual nonsecurity discretionary spending at its 2010 level.
    And this will reduce the deficit by more than $400 billion over
    the next 10 years.
        The President also proposes to reduce the request for
    Defense spending, to freeze civil service salaries, to improve
    efficiency in government services through a range of program
    eliminations and reductions.
        These savings create the necessary room for us to make
    targeted investments in support of reforms that will help
    strengthen future economic growth. The most important thing we
    can do to promote our long-term growth is to improve the
    quality of education, to invest in innovation, and to rebuild
    America's infrastructure. Without these investments, America
    will be weaker and less competitive.
        As part of this strategy for growth, the President proposes
    reforms to our tax system designed to encourage investment. We
    propose to put in place a permanent and expanded tax credit for
    research and development in the United States; to eliminate--to
    eliminate--capital gains on investment and small businesses; to
    encourage advanced manufacturing and clean energy technologies;
    to keep taxes on investment income, dividends, and capital
    gains low; to reform and extend the Build America Bond program;
    and to make college more affordable for middle-class Americans.
        These tax incentives are accompanied by reforms that would
    reduce incentives to shift income and investment outside the
    United States and to close loopholes and tax preferences that
    we cannot afford.
        Now, in addition, we propose to pursue comprehensive tax
    reform that would lower the corporate tax rate. Our present tax
    system for businesses combines a very high rate with a very
    broad range of expensive tax preferences for specific
    industries and activities.
        We need a more competitive system that allows the market,
    not tax planners and lobbyists, to allocate investment, a
    system in which businesses across industries pay a roughly
    similar share of earnings, a system that provides more
    stability and certainty, that is more simple to comply with.
    And we need to do all this without adding to our future
    deficits.
        We have begun the process of building support for
    comprehensive corporate tax reform. Mr. Chairman, I want to
    welcome your personal support for comprehensive reform. I
    believe we have the opportunity to do this now.
        The President's budget also outlines some responsible
    reforms on the individual side. We propose, as we have in the
    past, to allow the 2001 and 2003 tax cuts for the wealthiest
    Americans to expire; to limit certain deductions, tax
    expenditures for those same high-income Americans; to restore
    the estate tax to the 2009 levels; and to close the carried
    interest loophole.
        These proposals--and I want to emphasize this--these
    proposals will help ensure that the savings we achieve together
    through spending restraint are devoted to deficit reduction,
    not to sustaining lower tax rates for the most fortunate 2
    percent of Americans.
        This budget would achieve the dramatic reductions in our
    deficit over the next decade that are necessary to stop the
    national debt from growing as a share of the economy and to
    stabilize our debt burden at a level that will not threaten
    future growth.
        Now, this is only a first step, a down payment on the long-
    term reforms necessary to address our long-run deficits. To
    address the long-run deficits that we face over the next
    century, not just the next decade, we will have to build on the
    progress and the very substantial progress that has been
    achieved in the Affordable Care Act to reduce the rate of
    growth in health care costs.
        And in addition to that, although it is not a contributor
    to our short-term or medium-term deficits, we should work
    together across party lines to strengthen Social Security for
    future generations.
        Now, we cannot grow our way out of these deficits. They
    will not go away on their own. And they will not be solved by
    cutting deeply into programs, into investments that are
    critical for future growth and competitiveness. We have to work
    together to find consensus on a multiyear plan that cuts
    deficits where we can so that we can invest where we need and
    that reduces our deficits.
        Making a multiyear commitment will allow us to make sure
    that the changes are phased in as the economy recovers. And
    making a multiyear plan will help give businesses and
    individuals adequate time to adjust and prepare for the impact
    of those changes on the economy.
        The President's proposals represent an important starting
    point for discussion. And we recognize that there are many
    valuable ideas on both sides of the aisle. And we know, as you
    know, that we need both parties and both houses of Congress to
    come together to enact solutions that work best for the
    country.
        In December, we were able to come together to find
    bipartisan consensus on a very strong package of tax incentives
    to help sustain recovery and restore confidence. We want to
    bring that same commitment to the challenge of restoring fiscal
    responsibility.
        Thank you. I would be happy to take any of your questions.
        [The prepared statement of Secretary Geithner follows:]
        [GRAPHIC] [TIFF OMITTED] 67470.001

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        [GRAPHIC] [TIFF OMITTED] 67470.007

        [GRAPHIC] [TIFF OMITTED] 67470.008

        [GRAPHIC] [TIFF OMITTED] 67470.009

        Chairman CAMP. Well, thank you very much, Mr. Secretary.
        I think we can agree, the economy is not adding jobs at the
    rate it needs to. And I think that is particularly why I am
    disappointed. You sense disappointment on our side, that the
    President's budget brings up some of the same tax hikes on
    American small business that Congress, even when both chambers
    were controlled by Democrats, already rejected.
        About 75 percent of small businesses are structured as
    passthroughs--partnerships, or S corps, or sole
    proprietorships--and they are responsible for about two-thirds
    of all new jobs created. Yet, these are the businesses the
    President would subject to massive tax hikes by raising the top
    marginal rates.
        Given that unemployment has been stuck at or above 9
    percent for 21 consecutive months, do you really believe that
    we should be raising taxes on small businesses? And will you
    commit that any tax reform that we might move forward on would
    address the concerns of these employers?
        Secretary GEITHNER. Mr. Chairman, a very important
    question. And you are right, I think, to emphasize that our
    overwhelming priority now for the country should be to make
    sure we are reinforcing this expansion, get more people back to
    work. Because we are still living with the scars of the damage
    caused by the crisis. You can see it in high unemployment
    rates, in millions of people still at risk of losing homes, the
    pressure on small banks, small businesses across the country.
    So that objective of strengthening growth should still be our
    overwhelming focus and priority.
        Now, we propose in the budget a series of very well-
    designed, targeted tax incentives for small businesses.
    Because, as you said, they are so important to job growth and
    to innovation. So, for example, as I said in my opening
    statement, we are proposing to eliminate capital gains taxes on
    investment in small businesses, to make permanent pretty
    generous expensing for investment by small businesses in
    capital equipment.
        Now, you are right that we are proposing again to allow to
    expire on the schedule agreed to by Congress last December
    these taxes that affect the top 2 percent of individuals and
    small businesses in the country. They only affect 2 to 3
    percent of businesses. And the vast bulk of those small
    businesses you referred to are structured as partnerships. And
    we are talking here about our law firms, investment firms,
    businesses who choose to structure themselves as partnerships,
    not as corporations.
        And the vast bulk of those small businesses you are
    referring to earn very, very substantial amounts of revenue
    each year. And, again, even in that case, we are proposing to
    restore those tax rates to the level that prevailed in the
    1990s, where we had the best record of investment, productivity
    growth, innovation, job growth than the country has seen in
    generations.
        We think that is a responsible recommendation. We recognize
    it is not popular on your side of the aisle. But I want to
    underscore what you said, I think, is that our challenge is it
    to figure out a way to restore sustainability and strengthen
    economic growth. We have to balance those two objectives. And
    we are not going to be growing in the future unless we make
    some tough choices to restore fiscal responsibility. And those
    are the types of tax changes, tax reforms we think are
    consistent with our obligations to strengthen growth.
        Chairman CAMP. Well, I am encouraged by some of the
    comments that the President and you have made, and also by your
    testimony today about the need for the reform of the corporate
    Tax Code.
        But, given those comments, we then see a budget that goes
    in the opposite direction. Instead of proposing reforms that
    broaden the base and lower rates, which is what I think most
    people would like to see on the business side, and trying to
    level the playing field and reduce complexity, this budget is
    proposing changes that continue to pick winners and losers.
        I guess my question to you is, how do you suggest we
    achieve tax reform, particularly on the business side, when the
    administration continues to push proposals that will raise
    taxes on some companies or some activities in order to offset
    spending that is unrelated to those activities? It is going in
    the opposite direction of, I think, the very encouraging
    comments that have been coming out of the administration and
    you, as well.
        Secretary GEITHNER. Mr. Chairman, you are right that, in
    the budget, we do not propose a detailed plan for comprehensive
    tax reform. But we do propose a set of changes to the existing
    structure that would help, as we see it, improve investment
    incentives in the United States.
        And I think the way to look at those changes is, they help
    make the case for why we need comprehensive reform. And if
    there are aspects of those proposals that make you
    uncomfortable, you should view it as an incentive for us to do
    comprehensive reform.
        And we are very serious, as you know--and we have talked
    about this a lot--in trying to build consensus now on a set of
    fundamental changes to the corporate tax system that would
    improve incentives for investment, do so in a way that is
    fiscally responsibility. And to do that, we would have to lower
    the rate very substantially and eliminate or substantially
    reduce the broad range of tax preferences, incentives, that now
    create a lot of unfairness and distortions in the Tax Code.
        But, again, what we did in the budget is say, we would like
    to work with Congress on comprehensive reform, but if we are
    forced to work within the current system, here are some changes
    that would help improve investment incentives in the short
    term. But, again, view those as an incentive, as a way to make
    the broader case for a comprehensive reform.
        Chairman CAMP. All right. Thank you.
        Mr. Levin may inquire.
        Mr. LEVIN. Thank you.
        Mr. Chairman, I am glad you asked the Secretary about the
    position of the administration not to extend the high-income
    tax cut.
        And I think, Mr. Secretary, you have helped to shatter the
    myth that this is basically an increase in taxes on small
    business. You have explained that, right? And as I remember the
    analysis, about 75 percent of the high income that would be
    affected would be income over $1 million a year. Is that
    correct?
        Secretary GEITHNER. That is roughly correct, yes.
        Mr. LEVIN. That is the estimate.
        Secretary GEITHNER. That is the estimate. That is one
    estimate, yeah.
        Mr. LEVIN. And you indicated what percentage of businesses
    would be affected?
        Secretary GEITHNER. Only 2 to 3 percent of all businesses
    in the country. And, again, the vast bulk of those businesses
    make well over a million dollars in earnings a year. And, of
    course, many, many of those who make that much money are
    fundamentally what we would call law firms or investment firms
    or other types of companies that are structured that way to
    help lower their tax burden.
        Mr. LEVIN. All right. Let me now ask you about investment,
    because there is such a sharp contrast between the President's
    budget and the CR. I think you have described it--for the
    President, it is invest and cut the deficit. For the CR, it is
    essentially non-invest or disinvest and cut the deficit, except
    increase it by how much, the high-income tax cut over 10 years?
        Secretary GEITHNER. Well, to extend the high-income tax
    cuts for 10 years would cost substantially over $700 billion,
    maybe close to a trillion dollars.
        Mr. LEVIN. All right, now, Mr. Chairman, it is interesting.
    I think we need to have this discussion. You used the term
    ``winners and losers.'' And that is often talked about in terms
    of investment. And I didn't mean to pick on you. I picked on
    Hemlock because I was there.
        Chairman CAMP. The chair does not feel picked on.
        Mr. LEVIN. Good.
        I was there. It is a vivid example of public-private
    partnership. And I was told right there that, if it hadn't been
    for 48(c), the expansion would not have occurred.
        So, Mr. Secretary, just quickly sum up why this budget
    cutting the deficit combines it with investment.
        Secretary GEITHNER. Well, you know, again, we live in a
    very competitive world. We have to make sure that we are
    focused every day on how to make the country stronger and more
    competitive. And if we are going to be able to meet a
    substantial share of the growing demand for goods and services
    around the world, we want more of that to be met by investment
    in the United States.
        And what the President's budget does is propose a range of
    reforms and incentives that make it more likely that that next
    great American business builds their next factory in the United
    States and that that great foreign competitor of the United
    States builds his or her next factory in the United States. And
    we want to make sure the Tax Code is working to encourage those
    kind of investments and not to discourage those kind of
    investments.
        And it is very important, when we think about fiscal policy
    choices, we look at them through the prism of what is going to
    be a better strategy for growth and investment. It is not
    simply an exercise of reducing future deficits. Although this
    is very important to future growth, how you do it is critically
    important. And you have to set priorities, and you have to make
    sure, again, you are preserving the capacity to invest in
    things that are important to the competitiveness of every
    business in the country.
        For example, any business you talk to in the country that
    is engaged in manufacturing will tell you that they need better
    access to high-quality engineers. They want our schools to do a
    better job of producing people with the skills they need to
    compete. They need to make sure they have better designed
    incentives in the Tax Code to encourage investments here in the
    United States. The proposal we made to make permanent the R&D
    tax credit and expand the credit is a good example of those
    kind of incentives.
        But we just want to make sure that we look at these fiscal
    choices through the prism of what is going to be good for
    growth and investment in the United States.
        Mr. LEVIN. Thank you. And the CR is a disinvestment
    proposal at the time we need more, not less.
        Secretary GEITHNER. Well, again, I think the challenge is I
    think we all recognize we are going have to reduce spending. We
    all recognize we are going to have to reduce our long-term
    deficits. The question is how to do that and how to do that in
    a way that preserves incentives for investment here, allows us
    to improve education, strengthen our public infrastructure.
    That is the challenge we face.
        Mr. LEVIN. Thank you.
        Chairman CAMP. Thank you.
        Mr. Herger may inquire.
        Mr. HERGER. I thank the Chairman, and I join in greeting
    the Secretary to our hearing.
        Secretary Geithner, on page 2 of your written testimony,
    you state that, quote, ``We must restore fiscal responsibility
    over the long term by reducing the rate of growth in health
    care expenditures,'' close quote. I couldn't agree with you
    more. In fact, that is one of the main reasons why I voted
    against the Democrats' health care overhaul twice in the last
    Congress.
        The Obama administration's own Medicare actuaries have
    predicted that national health care expenditures over the next
    decade will be $311 billion higher because of the Democrats'
    health care overhaul. In other words, the health care law bends
    the cost curve up, not down.
        Yet, on page 7 of your testimony, you assert that, quote,
    ``Independent analysts have estimated the Democrat health care
    law will significantly slow the growth rate of medical costs,''
    close quote.
        Mr. Secretary, could you tell us, who are the analysts you
    are relying on for this claim? And is there a reason you are
    choosing to ignore the findings of your own administration's
    actuaries?
        Secretary GEITHNER. Excellent question, and thanks for
    giving me a chance to respond to that.
        As many of you have said, our long-term deficits that we
    face over the next century are primarily driven by rapid rates
    of growth in health care costs and, to a lesser extent, by
    Social Security obligations. The most important thing we can do
    to reduce those long-term costs is to reduce the rate of growth
    in health care costs.
        Now, in our system, in our country, we rely on the
    independent, nonpartisan Congressional Budget Office to analyze
    for the Congress and for the administration the impact of
    reforms on costs. And it is the judgments of the CBO that bind
    all of us. They bind the Congress and ultimately bind the
    administration.
        And it is in the judgment of the nonpartisan, independent
    CBO that those reforms, if enacted and held to over time, will
    substantially reduce the rate of growth in health care costs
    for the public sector. And they, in fact, make the largest
    contribution to entitlement reform that this country has
    considered in generations.
        And it is, of course, in recognition of the fact that the
    only path to long-term fiscal responsibility is through health
    care savings that these reforms made it through the Congress
    are so important. And, of course, we recognize that we are
    going to have to build on that. We haven't solved that problem
    definitively. And we would welcome the chance to join with you
    in figuring out ways we can help make a further contribution,
    even greater contribution to reducing the rate of growth in
    those costs.
        But I would rely on CBO's estimates.
        One more clarification: If I am not mistaken, I think what
    the actuary said, was if Congress does not enact those reforms,
    then costs will grow more rapidly. He was making a prediction
    about what Congress might ultimately do, not what the reforms
    would produce in terms of savings.
        Mr. HERGER. Last summer, in an interview on ``The Kudlow
    Report,'' you said that the administration wanted to prevent
    the rates on capital gains and dividends from rising beyond 20
    percent. Can you please clarify whether this 20 percent rate is
    inclusive of the new 3.8 percent tax increase included in the
    Democrat health care law?
        Secretary GEITHNER. No, it is not. But we do propose in the
    budget to make sure that the top rates on dividends and capital
    gains don't rise beyond 20, because, again, we want to have a
    budget that is encouraging investment in the United States.
        Mr. HERGER. So it is not inclusive. So it does rise beyond
    20 percent in this area.
        Secretary GEITHNER. Well, maybe this is a simplifying
    convention, but when we think about the rate on dividends and
    capital gains, we view it--we look at the statutory rate
    established in the budget. And, again, we think there is a good
    case for trying to make sure that we keep the overall tax
    burden on investment income in the United States at a modest
    level. We think that is good for future growth. We think we can
    afford do that.
        Mr. HERGER. Again, Mr. Secretary, our concern is, at a time
    when the economy is what it is, that we really hold to this.
    The American public, certainly those who are creating new jobs,
    cannot afford to have more money taken out. That money could be
    used for investment.
        I yield back.
        Chairman CAMP. All right. Mr. Johnson is recognized.
        Mr. JOHNSON. Thank you, Mr. Chairman.
        Mr. Secretary, the Congressional Budget Office shows
    permanent deficits in the Social Security program, meaning that
    Social Security payroll taxes can't fully cover benefits. In
    other words, the cost of paying benefits is now more than the
    revenues coming in to pay them. You would agree.
        We are on a very tight time schedule here, so I will ask a
    few simple questions, and I would ask you to be brief in
    responding, if you would.
        How are we paying benefits if we don't have sufficient
    payroll taxes? Is the Treasury paying Social Security interest
    it is earning from the IOUs Treasury gave the system when it
    borrowed payroll taxes from Social Security to pay for other
    government spending?
        Secretary GEITHNER. Congressman, we have the ability to
    meet our commitments to Social Security beneficiaries, and we
    will continue to meet that obligation.
        But we recognize, as do many of your colleagues, that, over
    the longer term--but we have some time to get this right--we
    need to make sure that we strengthen Social Security, secure
    Social Security for future generations. And that is going to
    require some changes. And we are, as the President has said, we
    are willing to work with all of you to figure out a best way to
    do that. But----
        Mr. JOHNSON. How much are those interest payments going to
    be in 2012, do you know?
        Secretary GEITHNER. I don't know right now, but I would be
    happy to respond to you in writing----
        Mr. JOHNSON. It is about $127 billion, according to the
    Trustees Report. According to the President's budget, in 2012
    the budget deficit is expected to hit $1.1 trillion--the fourth
    year in a row of trillion-dollar-plus deficits. Meanwhile, the
    debt held by the public will be near $12 trillion next year,
    double what it was in just 2008.
        Mr. Secretary, where will the money come from to pay the
    interest owed to Social Security?
        Secretary GEITHNER. Well, Congressman, again, I think you
    are making our point. It is very important that we find a way
    to reduce our long-term deficits. That is not something we can
    defer forever. And what the President's budget does is propose
    a detailed mix of policies, both spending restraint as well as
    tax reforms, that will bring those deficits down dramatically,
    dramatically, over the next----
        Mr. JOHNSON. I understand that, but where are you going to
    get the money to pay Social Security? You are going to have to
    borrow it, right?
        Secretary GEITHNER. We have the resources to meet those
    commitments for a substantial time to come. Now, of course, we
    don't want to put off those questions forever. It would be good
    for the country, I think, for us to come together on ways to
    strengthen Social Security. And we are willing to begin that
    conversation with the Congress soon.
        Mr. JOHNSON. Well, clearly, we are borrowing at record
    levels. That is a crisis this nation faces, the fear that the
    rest of the world soon won't want to lend to us.
        What percentage of our borrowing comes from foreign
    sources?
        Secretary GEITHNER. Well, Congressman, as a whole, we are
    borrowing much less from the rest of the world than we were
    just 3 years ago. Right now, our current account deficit, the
    amount we borrow from the rest of the world to meet our
    obligations, is now about half the level it was at the peak in
    2007. And what that means is that Americans are saving more and
    they are funding a larger share of these deficits.
        But a substantial share of our outstanding debt, like is
    true for every major economy, is held by foreigners. And,
    again, we agree and what this President's budget reflects is a
    recognition that, if we are going to grow in the future, we
    have to make sure we agree on reforms that bring down those
    long-term deficits.
        Mr. JOHNSON. The President's budget this year says 47
    percent comes from foreign sources.
        Thank you, sir.
        I yield back the balance of my time.
        Chairman CAMP. Thank you.
        Mr. Rangel may inquire.
        Mr. RANGEL. Thank you, Mr. Chairman.
        And thank you, Mr. Secretary, for sharing your views with
    us.
        As we discuss the budget for 2012, soon, and very soon, we
    will have to look at the continuing resolution for this year
    and next. Having said that, at one point in time, the President
    of the United States indicated that he was only advocating an
    extension of the tax relief for those people making less than
    $250,000. But in this agreement, as they said, the President
    didn't ask for it, but he did agree that it would be for
    everybody. Having said that, I understand the cost of the
    relief given to the upper-income people is over $100 billion.
        Now, the CR that the majority has given to us has a
    substantial number of cuts in spending, but that doesn't
    necessarily mean that it is not going to be ultimately a cost
    that we are going to have to pay.
        My question to you: Have there been any comparisons between
    the cost of extending this relief to where economists say we
    should not expect economic growth as a result of it and the
    negative impact of cutting programs which could cause an
    additional spending? Has your office reviewed this to give us
    direction?
        Secretary GEITHNER. Well, Congressman, you are raising
    exactly the right point, which is that, as we think about ways
    to reduce these deficits, we have to make sure that we are
    doing things that are going to be supportive of future growth,
    that are going to have a high return, as you say, a large bang
    for the buck, if we are making investments. And you want to
    make sure you are not cutting into things that will hurt future
    growth, raise unemployment in the future, raise our long-term
    deficits in the future.
        And what the President's budget does is reflect our view of
    where those choices should be made. So, again, we want to make
    sure we are increasing investments in education, in
    infrastructure, in research and development, not cutting those.
    Because if we do a smart job of making investments in support
    of reforms in those areas, future growth will be stronger, it
    will be more competitive, our deficits will be lower in the
    future. If we cut deeply into those investments, we will be
    weaker as a country, it will be harder to solve our long-term
    fiscal problems.
        But those are exactly the kind of tradeoffs that this
    Committee and your colleagues in both houses will have to make.
        Mr. RANGEL. Mr. Secretary, really I have to go vote, but
    the point I am trying to make is that the insistence on the
    overall tax cuts for the upper income did increase the deficit,
    and that money was borrowed in order to do it. And so, to come
    back now and to talk about savings, it seems to be a dramatic
    inconsistency in supporting both of those themes.
        Secretary GEITHNER. Those temporary tax cuts were
    expensive. We can't afford to make them permanent. And I agree
    that if we are going to make cuts in spending, as we have to
    do, we want to make sure that those savings go to support
    investments and cutting future deficits, not sustaining tax
    cuts for the top 2 percent of Americans that we can't afford.
        Mr. RANGEL. Thank you, Mr. Secretary.
        I yield back, Mr. Chairman.
        Chairman CAMP. Thank you.
        Mr. Brady is recognized.
        Mr. BRADY. Thank you, Mr. Chairman.
        Mr. Secretary, this budget don't add up, either for job
    creation or tackling these dangerous deficits. And the two are
    tied together, as you say, because consumers aren't confident
    that America is going to really tackle its fiscal deficit, and
    businesses don't believe Congress is serious about this.
        I think you are repeating 2 mistakes from the last 2 years.
    One is using rosy economic forecasts, as you did last year and
    the year before--the White House, excuse me, Mr. Secretary, not
    you. These forecasts are 0.4 and 0.5 percent higher than CBO
    and OMB. Doesn't sound like much, but just that difference
    wipes out three-fourths of the purported savings in this budget
    over the next decade.
        And then, secondly, on job creation, I don't understand why
    the administration comes back with higher taxes on U.S.
    companies trying to compete and win overseas. Because all we
    are doing in this budget is encouraging companies to
    manufacture oversees--$87 billion more in energy taxes, again,
    on U.S. energy companies, encouraging them to send their
    workers overseas.
        And then, finally, this budget takes a whack at real-estate
    partnerships, traditional partnerships that build our shopping
    centers, apartments, movie theaters, office buildings, none of
    which can stand an almost tripling of their taxes.
        So, how in heaven's name does the White House believe it
    will gin up the economy, which is very sluggish, by taxing the
    manufacturers and job creators most likely to get us out of
    these tough times?
        Secretary GEITHNER. Congressman, excellent questions. And
    let me just respond quickly on each one.
        I actually think, if you look carefully at the economic
    assumptions in the budget, they are actually quite realistic
    and quite conservative. You are right, at some parts of the 10-
    year horizon, some of the estimates look a little higher than
    the consensus forecast, but in other cases they are lower and
    more conservative.
        But I think if you look at these--I will just give you one
    example. The average growth rate estimated over this period of
    time is significantly lower than the average strength of past
    recoveries. So we are trying to be conservative.
        And, again, one great strength of our system is, in the
    end, CBO's assumptions govern, in this case. And you will be
    able to rely on them to make sure that we are being balanced.
    But I think they are reasonably conservative.
        Now, very important that as we think about tax policy that
    we are doing things that encourage investment. Now, you are
    right that we are proposing to reduce some tax benefits that go
    to some parts of the American business community. But we are
    proposing very substantial and very broad-based incentives for
    investment, too. And if you look at the overall net income
    impact of those in terms of tax revenues, it is a very, very
    modest change. And I think, again, what it does is shift the
    incentives in the Tax Code, if these were enacted, to encourage
    the next company to build their next plant here in the United
    States.
        Now, I know you are right that we are proposing to
    eliminate some loopholes, some preferences, things that we
    think are expensive and don't have much impact on growth. And
    we know people are going to disagree with those things, but it
    is just a reflection of the fact that we don't have unlimited
    resources, we face some tough choices, and we can't do
    everything we want to do.
        And every time we look at a tax provision, we should ask
    ourselves two questions. One is, is it improving incentives for
    investment here? And does it have a substantial return, in
    terms of growth impact? And if it is too expensive relative to
    that, then our view is we should phase it out.
        Mr. BRADY. Just a final, and I will close out. And, again,
    this isn't your budget, necessarily, but the White House. But
    please carry back to the White House this message: Because they
    kill jobs, those tax increases are dead on arrival in this
    House. We have to find a better way, we will work together with
    you, to get this economy going.
        Thank you, Mr. Secretary.
        Chairman.
        Mr. TIBERI. [Presiding.] Thank you.
        Thank you, Mr. Secretary, for being here. I guess it is
    just you and me for the time being.
        Secretary GEITHNER. Let's solve some problems.
        Mr. TIBERI. I was pleased to hear the President, in his
    State of the Union, talk about lowering corporate tax rates as
    a way to expand jobs. Within the budget, however, I am worried
    that the administration isn't paying as much attention to small
    businesses, in terms of creating jobs.
        Obviously, you know--I don't have to tell you--the way that
    small businesses are set up, most pay as passthrough entities
    their income taxes. And, therefore, I believe there are a
    number of things within the President's budget that impact
    those small-businesses owners.
        And so, if I could just kind of read you a list of things I
    am interested to hear your ``yes'' or ``no'' answer, if you
    think that any of these are a tax increase on small-business
    owners.
        The President's budget, as you know, proposes to phase out
    personal exemptions on itemized deductions. In addition, the
    President's budget proposes to limit otherwise allowable
    itemized deductions, commonly known as the Pease limitation.
        Do you consider these two tax increases on small
    businesses? Those passthrough entities that are oftentimes
    partnerships, S corps, many of those often itemize their
    deductions.
        Secretary GEITHNER. Well, to make it easier, I agree on the
    following, which is, again, that those tax changes only impact
    2 to 3 percent of small businesses. And those small businesses
    affected overwhelmingly are businesses that earn substantially
    more than a million dollars. And you are right that many of
    them are structured as passthrough entities. But, in that
    context, most of the ones that are affected by this are, you
    know, typically like a law firm or an investment partnership.
        Mr. TIBERI. The President's budget proposes to reclassify
    many groups of independent contractors as employees--you have
    testified to this before--for tax purposes. And many of those
    small businesses contract with those outside individuals.
        Do you consider the new payroll tax on those small
    businesses a tax increase on them, since you reclassified----
        Secretary GEITHNER. Well, I wouldn't describe it that way.
    Let me just tell you what the objective of this is.
        As you know, this is a very complicated provision of the
    Tax Code, and it is very hard for people to comply with it. And
    what we are proposing is a very simple thing. It is that
    Congress authorize the IRS to issue guidance for comment on how
    to make sure that we simplify the ease of complying with this,
    to make sure that businesses are on a level playing field.
    Because right now, the current system, apart from being way
    complicated to comply with, creates a lot of unfairness across
    businesses, and it gives some businesses the opportunity to,
    frankly, lower their tax burden in a way that is unfair to
    their competitors.
        So we want a level playing field and a more simple thing to
    comply with. And what we are proposing is just that Congress
    give the IRS the authority to issue guidance for comment. And,
    of course, once the IRS goes out with a draft, anybody affected
    will have a chance to comment on that and suggest how that
    could be improved.
        Mr. TIBERI. Would the small businesses be paying more,
    though, if they had those employees?
        Secretary GEITHNER. It just depends on their circumstance.
        Again, what we think is fair is, we want to have a Tax Code
    where businesses pay roughly the same amount of income tax
    relative to earnings. In our current system, as you know, it is
    deeply unfair. Some companies pay a lot more than the average,
    some pay less than the average. And we think we want to move to
    a system where, again, it is a more level playing field and it
    is a more fair, simple system to comply with.
        Mr. TIBERI. Another rate in the President's budget that has
    changed is the top rate for the estate tax. Obviously, many
    small-business owners, farmers are concerned about what happens
    in 2 years to the estate tax.
        Is the rate that goes up to 45 percent, is that an increase
    in taxes for small-business owners?
        Secretary GEITHNER. It absolutely is a change in the estate
    tax. And, again, what we are proposing is that we restore the
    rates and the exemptions to the levels that prevailed in 2009.
    And, again, with those rates and those exemptions, a tiny,
    tiny, tiny, small fraction of estates are affected by those
    changes.
        And, again, we think that is the best way to balance our
    obligations for fiscal responsibility with all the other
    objectives we share, how to make sure we are strengthening the
    economy as a whole.
        Mr. TIBERI. In my State of Ohio, there are roughly 50,000
    people that are employed by the independent oil and gas
    industry by producers. It is a pretty big industry. Most of
    these individuals are employed by small-business owners, a lot
    of family-owned businesses. And, as you know, the President's
    budget proposes to repeal the marginal well tax credit, to
    repeal the expensing for intangible drilling costs, and to
    repeal the percentage depletion.
        Do you consider this a tax increase on independent oil and
    gas producers?
        Secretary GEITHNER. I would, yes.
        What it does is, again, reduce a very, very substantial
    subsidy that now goes to the oil and gas industry. And we are
    proposing to eliminate that because it is very expensive and it
    works against a national priority, which is to encourage the
    economy, as a whole, to shift to less carbon-intensive forms of
    energy use in the future and to reduce our ultimate dependence
    on the types of energy that, again, contribute to climate
    change and could threaten future growth prospects. That is the
    rationale for that change.
        Mr. TIBERI. One of my constituents is a small-business
    owner, a family operation. He says that if this proposal
    becomes law, it will evaporate the industry in Ohio.
        Last year, Joint Tax suggested that this will not only hurt
    the domestic production of oil and natural gas, but it will,
    ironically, increase our dependency on foreign fossil fuel. Do
    you agree with that?
        Secretary GEITHNER. No, I don't.
        But here is a different way to look at this. When we allow
    parts of the American economy to pay much lower taxes than the
    average, that means taxes are higher on all other businesses in
    your State. And I think what you have to ask yourself is, is
    that fair and does that make sense? It adds to inefficiency. It
    probably hurts growth overall, because what it means is people
    who sit in this room are allocating investment, not the market
    as a whole. And, again, we want the market to decide which
    businesses grow, not the community of tax lobbyists and tax
    planners.
        Again, when we allow certain parts of the economy to pay
    much less than their fair share of taxes, then it means every
    other business in the country is paying higher taxes as a
    result.
        Mr. TIBERI. One final question: Do you consider the
    individual mandate within the health care bill, the penalty
    levied upon people who refuse to accept to take on individual
    insurance, the penalty that they have to pay to the IRS, a tax?
        Secretary GEITHNER. Congressman, I think you know my answer
    to this question, which is, we do not. But that is not a
    judgment I ultimately make. That is a judgment that is going to
    be made in different rooms, different bodies than this.
        But I can tell you that I fully support the health care
    reforms that were passed because I think they are very
    important to helping make sure that the cost businesses bear
    for health care are reduced over time and that we can restore
    fiscal responsibility, fiscal sustainability to our long-term
    deficits.
        Mr. TIBERI. Do you think, though, it is kind of ironic that
    the Treasury Secretary thinks it is not a tax but the Justice
    Department argues that it is a tax?
        Secretary GEITHNER. I cannot begin to explain when lawyers
    and financial people disagree on some things, but I can give
    you lots of other examples where that is the case.
        Mr. TIBERI. I thank you for your patience.
        We are going to take a break, about 10- to 15-minute break.
    Refill your water glass, take a restroom break. Votes should be
    done in about 10 minutes, and we will resume our hearing.
        So the hearing will be in recessed for about 15 minutes.
        Chairman CAMP. [Presiding.] Mr. Stark is recognized.
        Mr. STARK. Thank you, Mr. Chairman.
        And thank you, Mr. Secretary, for taking the time to
    explain much of this to us.
        We have recently received a letter from over 270 prominent
    economists--I presume you were one of the 270--which stated
    that the Affordable Care Act contains essentially every cost-
    containment provision that policy analysts have considered
    effective in reducing the rate of medical spending.
        Could you comment on how you feel the Affordable Care Act
    will relate to constraining health care costs?
        Secretary GEITHNER. Congressman, very important question,
    and thank you for asking it.
        What these reforms do over time is change the incentives
    for how Americans use health care and set in motion what we
    believe are the most powerful sets of ideas out there for
    reducing the rate of growth in health care costs over time.
        And, of course, there is a lot of uncertainty that
    surrounds these estimates, but, as I said earlier, we rely on
    the CBO to make these judgments for us. And, in their judgment,
    these reforms over time will very, very substantially reduce
    our long-term deficits by reducing the rate of growth in costs.
        Now, as the President has made clear, we want to build on
    those reforms. Ultimately, we are going to have to do more. And
    we would welcome the chance to work with people on both sides
    of the aisle to strengthen those reforms so they can deliver
    even more savings in the future.
        But I agree with your characterization that the bill
    includes, we think, many, if not most, if not all, of the best
    ideas out there for reducing the rate of growth in costs.
        Mr. STARK. Well, Mr. Secretary, you, every once in a while,
    blog. And I have been given a quote from a blog you did some
    time ago, talking about in the absence of health care reform.
    And I wonder if you could dig back on your Facebook someplace
    and send us a copy of that blog for the record.
        Secretary GEITHNER. I would be happy--to I don't really use
    that term and don't do Facebook. But I would be happy to give
    you our analysis and our reports about what the reforms would
    do for our competitiveness as a country.
        Secretary GEITHNER. Again, you know, I think it is
    important to recognize, if you ask businesses what they care
    about most among their concerns, they care a lot about the
    burden rising health care costs puts on them. And so, if we
    care about competitiveness and growth and jobs, not just access
    to affordable care, you have to make sure these reforms take
    hold or are allowed to work over time.
        Mr. STARK. Thank you. Thank you very much.
        I yield back, Mr. Chairman.
        Chairman CAMP. Thank you.
        Mr. Davis is recognized.
        Mr. DAVIS. Thank you, Mr. Chairman.
        Thank you for joining us today, Mr. Secretary.
        I would like to switch subjects to a different area that is
    very current from a standpoint of job creation and job
    sustainment, and that is to talk about unemployment insurance
    for a moment.
        Could you tell us who pays unemployment insurance taxes?
        Secretary GEITHNER. Well, as you know--and I am sure you
    know this based on your question--businesses pay the
    unemployment insurance taxes.
        Now, if you are an economist, you would give a more complex
    answer to that, because, ultimately, of course, the economy as
    a whole pays those taxes. But----
        Mr. DAVIS. But, ultimately, it comes out of someone's
    pocket.
        Secretary GEITHNER. Yeah, the direct incidence is on
    businesses. You know, some people would say that--well, I won't
    give you the more complicated answer.
        Mr. DAVIS. I guess that leads to my next question. Have you
    been an employer and paid these taxes? I mean, I have. I have
    written the checks every quarter to the----
        Secretary GEITHNER. I, unfortunately, have been in the
    public sector all my life. But I have helped manage substantial
    organizations of people.
        Mr. DAVIS. Okay. No fault in that, but it does give a
    difference in context.
        The reason that I wanted to clarify that, the
    administration's budget, pages 184 and 191, describes your
    unemployment insurance proposal as offering $9 billion in
    relief to employers through 2013, and then subsequently tax
    hikes totaling $67 billion over the next decade.
        If you were an employer, as I was or many of us on the
    Committee were, paying those checks and were looking at long-
    term capital investment forecasts, trying to decide whether to
    hire or not hire, what to do, if you were an employer having to
    face that decision, would you think that getting, for example,
    $9,000 in relief now in exchange for a $67,000 tax tab in the
    future through increased unemployment insurance taxes is really
    a good deal?
        Secretary GEITHNER. Oh, I do think it is a good deal,
    because our job is to figure out what makes sense for the
    country at a time when we have limited resources. And, as many
    people on your side of the aisle have said, we have to
    recognize that we face unsustainable long-term deficits. So we
    are going to have to do things that are going to be painful.
    The choice is to--we want to make those choices in a way that
    is careful and sensitive.
        But what this proposal does--remember, this is just a
    proposal. You know, Congress has to reflect on this and
    consider it. And we are completely open to suggestions of how
    better to design it. But what it does is, it marries some
    short-term relief for States and for employers with reforms
    that make the base of these assessments more fair across
    companies as a whole.
        And, again, there may be different ways to do this. We may
    not have gotten it perfectly right. Open to suggestions, happy
    to work with you on a better way do it.
        Mr. DAVIS. I appreciate that perspective. I think 2014 may
    be the ultimate year of fulfilling that Mayan prophecy
    economically, with all of these taxes coming to bring the end
    of the business world. The concern that I have is that, in
    fact, we have so many issues that are coming if there are not
    reforms to the reform in health care and other things like
    this. I hear constantly from employers back in my district that
    there is a lot of fear, frankly, at the small to mid-sized
    business levels about hiring. Now we add on
    another issue with UI and the proposed tax increases in the
    budget.
        I guess my final question would be this: If you were an
    employer and you were trying to make decisions with cash
    longer-term, do you think that, with this looming tax hike,
    that you, personally, would be eager to take on new liabilities
    to hire people?
        Secretary GEITHNER. Well, Congressman, again, what I would
    try to look at is the following. I would say just two things.
    One is, look at what businesses across the country are doing
    today. And if you look at what has happened to the recovery
    over the last 18 months, businesses are expanding investment at
    an accelerating rate, pretty strong rate, much more rapidly
    than GDP is growing overall. And we have created more than a
    million private-sector jobs just in the last three quarters,
    much more and much more quickly than the last two recessions
    that were much milder recessions. And so, we have a long way to
    go, but we are making progress.
        Now, I would look at the overall mix of proposals in the
    President's budget on the tax side, because it is my view that
    if you look at their overall impact on businesses and
    competitiveness, they are very strong, very powerful, help
    improve incentives for investment in this country, help improve
    incentives for innovation, that we think those are good for
    growth long-term. But you have to look at the overall package
    of it, not just the specific tax cuts for businesses, but the
    broader reforms as a whole.
        Mr. DAVIS. Yeah, I appreciate your sentiment. I guess if I
    were in the personal and capital gains tax rate to 44 percent,
    combined with things like this, it might create a bit of a
    disincentive for that. But we will weigh in in a different
    place on that.
        And, with that, I yield back.
        Chairman CAMP. Thank you.
        Mr. Reichert is recognized.
        Mr. REICHERT. Thank you, Mr. Chairman.
        Mr. Secretary, welcome.
        I remember 2 years ago your first visit to this Committee,
    and I think my question was on trade. You may recall that. I
    was a little concerned there was only one sentence attached to
    the no-cost stimulus, as it has been referred to, to trade.
        And so I am happy to say that I am really encouraged with
    the President's position and latest action on his Export
    Initiative Council, which I am a member of, and then also his
    recent developments in negotiating the Korean trade agreement.
    So I am excited about the job possibilities, the doubling of
    exports, and the engine it will provide to our economy. So
    congratulations on that.
        It shows you how much can change in a couple of years.
    There is something that I am concerned about and am hoping that
    you might change a position that you have taken. I would like
    to remind you of a letter that 118 Members of Congress signed,
    along with myself and Eric Cantor, voicing our opposition to
    the tax simplification program, dubbed ``Simple Return,'' that
    you considered last Congress. This proposal would basically
    have the IRS prepare your taxes for you and mail you a bill.
        This is, in my opinion, hardly tax simplification. It is
    more like the fox guarding the henhouse. I think there would be
    a lot of people that might agree with that.
        I want to assure you that we are still aware of that
    proposal, and I wanted you to be aware of our opposition and
    hope that there might be some change in your thought as we are
    now a year or 2 later.
        I want to move on. I really want to get back to this small-
    business thing. I am concerned that the administration's budget
    targets small businesses, as has been said. Some of the figures
    have been already tossed about. But, as you said and I think
    most people recognize, much of the burden, really, is going to
    fall on these passthrough businesses, the S corporations,
    partnerships, and sole proprietorships, whose income is
    reported on their owners' individual tax return.
        And, as you said, that is 3 percent of small businesses.
    However, the Joint Committee on Taxation found last year that
    roughly 50 percent of the higher Federal tax revenue would come
    from small businesses.
        I am particularly concerned about its impact on the
    millions of small businesses that are located all over the
    State of Washington and across this country. So do you believe
    that this is 50 percent of our income?
        Do you believe that higher taxes on hundreds of thousands
    of small businesses, mom and pop stores, is really a way to
    create jobs?
        Secretary GEITHNER. Well, let me just start with where you
    started. And thank you for what you said about the export side.
    And I want to say, it is very encouraging, what you are seeing
    now, which is, export growth is very strong. It is leading the
    recovery. Exports are growing really quite rapidly. And it is
    really across the board, from agriculture to high-tech. And it
    shows how fundamentally strong and resilient this country is.
        And you are right to emphasize, though, the question for us
    for the future is how to make sure that continues. And for that
    to happen, you want to make sure that you see more investment
    in the United States by U.S. companies, by foreign companies.
    And that will help contribute to the stronger export growth. We
    need to do that alongside these trade agreements.
        And I heard you on your second concern.
        Mr. REICHERT. Thank you.
        Secretary GEITHNER. Now, the way I would think about it is
    this, which is--and, again, I think this is the fairest way to
    do it. Those proposals, again, apply to a very small fraction
    of small businesses, only 2 to 3 percent. And the incidence
    falls mostly, overwhelmingly on businesses in that category
    that make substantially more than a million dollars a year.
    So----
        Mr. REICHERT. How do you address the fact, though, that 50
    percent is from small business income?
        Secretary GEITHNER. Because that income that you are
    referring to, again, is concentrated in businesses that are
    actually not small. They are actually quite large. And,
    overwhelmingly, those businesses are businesses structured like
    law firms and firms similarly structured like that. You could
    say those are like communities of individuals that earn a lot
    of money because they are very productive, and they are allowed
    under our tax system to structure themselves that way to reduce
    their taxes.
        Mr. REICHERT. But is this really the way to encourage
    economic growth?
        Secretary GEITHNER. Oh, again, I think it is.
        I think, as many people on your side have said, again,
    future economic growth depends on two really important things.
    One is better incentives for investment in this country, and
    confidence that we are going to reduce our long-term deficits.
    We have to do both. If the business community, if the American
    people, if foreign investors are not confident we are going to
    reduce those long-term deficits, then they are going to invest
    less here, and future growth will be weaker.
        So we just have to balance these different objectives. And,
    again, those are the rates that prevailed during the 1990s,
    which was the best record for small-business creation, best
    record for investment growth, best record for productivity
    growth, best record for income growth, employment growth, than
    we have seen in more than 30 years.
        So we think that that is a prudent response at a time when
    we don't have unlimited resources.
        Mr. REICHERT. We will agree to disagree on that one.
        Thank you, Mr. Chairman.
        Chairman CAMP. Thank you.
        Mr. McDermott is recognized.
        Mr. MCDERMOTT. Thank you, Mr. Chairman.
        And thank you, Mr. Secretary, for coming.
        The President's budget has cuts in it that are huge cuts to
    the deficit but still invests in the country. The alternative
    plan by the Republicans--we are going to vote on it in about 48
    or 72 hours--is cut spending and use the savings to protect tax
    cuts for the wealthiest top 4 percent.
        Now, the Republicans' spending plan, in my view, is a dark
    view of the future, one that throws the middle class under the
    bus. The Republican plan, if you read it carefully, sends one
    message to America's middle class, to the unemployed, and to
    the working poor: We don't care about you.
        Now, for example, they want to cut spending for States to
    repair highways and bridges. They want to cut Social Security
    Administration, so Social Security offices close across the
    country for a month next year. These programs won't help put
    America back to work, they don't grow the economy, and they
    keep the lights out for senior citizens.
        For example, Republicans want to cut $758 million from the
    Women, Infants, and Children program, the WIC program. Now,
    that program provides funding to keep low-income mothers and
    soon-to-be mothers, as well as their children, get food and
    health care referrals. The program was signed into law by none
    other than the great icon, President Reagan, to which all the
    Republicans in the Congress pray every day as their patron
    saint.
        Now, these are just a few examples of the drastic and
    disastrous cuts the Republicans are proposing. They don't cut
    defense, even though the Secretary of Defense is desperately
    calling us to stop buying weapons his department doesn't need.
    They don't seem to think that the wealthy have any
    responsibility to this country or for those who have less
    fortunate lives in it.
        It also seems the Republicans don't understand the idea of
    investing. Now, Paul Krugman has called these Republican
    spending cuts ``eating the future.'' That comes from a Native
    American saying, that you can tell when a tribe is on its way
    down when they eat their seed corn. Now, basically, the
    Republican focus on cutting spending from these programs, they
    cut things that don't have an immediate benefit but they really
    take a hit in the long term. And the Republicans, as they eat
    our seed corn, are doing it at the expense of the middle class
    and the poor.
        Now, the President has taken meaningful steps to balance
    the budget and bring manufacturing back to the United States.
    And I would like you to talk about the question about the Build
    America Bonds and the other investments, and contrast that with
    what is in the Republican budget. There is, we understand, $2
    trillion sitting in private hands, and they won't invest it. So
    we have no alternative but to do it from the government level,
    because the private sector is not doing it.
        I would like to hear you talk about the President's
    investments.
        Secretary GEITHNER. Well, Congressman, I can't improve on
    the contrast you described, although I agree that the choice we
    face is a pretty stark choice in different strategy for the
    country. And what we are trying to lay out is a more confident
    vision of what it is going to take for us to grow in a world
    where we face a lot of competitive challenges.
        I want to just highlight, again, some of the proposals in
    the budget which we think are going to be good for investment
    and future growth. Again, we propose to make permanent an
    expanded credit for research and development; zero capital
    gains for small businesses; an expansion of a very valuable tax
    credit to help families afford college for their children; low
    taxes on dividends and capital gains so that we are, again, not
    hurting investment incentives; investments in education so that
    we improve the quality of education; investments in improving
    the overall quality of infrastructure. I mean, if you are a
    business in the United States today and you have to deal with
    our infrastructure, it is like a tax on competitiveness.
        So those things, we think, are critical to our capacity to
    grow in the future, to compete with these countries around the
    world that are getting very good at things that we used to be
    uniquely good at. And, again, we have to make sure that, as we
    think about the budget, we think about what is a better
    strategy for growth.
        And, of course, we have to do that in a way that is going
    to be viewed as fair to the overwhelming majority of the
    American people. We are coming out of a financial crisis that
    caused devastating damage not just to low-income Americans but
    across middle-class Americans. You see that in high
    unemployment rates, in millions of Americans still on food
    stamps, millions of Americans still at risk of losing their
    homes, and after decades of very substantial increases in
    inequality.
        And so we have to find a way to make these fiscal choices
    to restore a balance, restore a gravity to our fiscal position,
    but not at the expense of our ability to grow and compete in
    the future and not at the expense of some basic principles of
    fairness for a country that is still suffering deeply because
    of the recession.
        Could I say that the Republicans are going to have the
    chance, not just in the debate about the CR, but when they put
    together their budget resolution, they are going to have the
    chance to lay out a 10-year plan, like the President does, that
    explains how the Republican leadership in the House believes we
    can bring these deficits down over time and what mix of
    spending restraint longer-term, what mix of tax reforms that
    will help achieve that.
        And that will give us a chance to have a good debate. And
    we will have a good debate. And we won't agree on everything,
    but we will agree on some things. But the important thing is
    that the strength of the economy depends on us making sensible
    choices.
        Chairman CAMP. All right. Thank you.
        Mr. Nunes is recognized.
        Mr. NUNES. Thank you, Mr. Chairman.
        Just continuing your thought there, Mr. Secretary,
    President Obama, this is his third budget. And I just find it
    peculiar that you would state just now that you are waiting for
    us to lead. Isn't that why you----
        Secretary GEITHNER. No, no, I wasn't saying that. I am
    sorry, I didn't mean to imply that. Let me just correct that.
        Obviously, the President, as President, has the
    responsibility for laying out to the country and the world
    every year a budget that lays out a 10-year path to reduce
    deficits. And that is the beginning of the process----
        Mr. NUNES. You said you are waiting for us to come up with
    our ideas?
        Secretary GEITHNER. No, no, no, not at all. We have to take
    the lead and the initiative, and you are going to disagree
    about some of those choices, and we will have to figure out
    what makes sense.
        But what I meant is that I know that you are having this
    debate about current spending for this fiscal year, but as
    important as that debate is that you are going to have the
    chance to lay out an alternative vision about how we bring
    those deficits down.
        My point is, just to come back to where we began, you are
    focused, understandably, as we are, on how to demonstrate to
    the American people we can bring some restraint to spending
    that is unsustainable. That----
        Mr. NUNES. Well, Mr. Secretary, in your budget, on page 52,
    you state or I should say, the President's budget, not your
    budget--``Even with this fundamental change, however, an aging
    population and a continued high level of health costs will pose
    serious long-term budget problems. Medicare, Medicaid, and
    Social Security will absorb a much larger share of Federal
    resources than in the past, limiting what the government can do
    in other areas. The level of high debt to GDP that is projected
    risks unsustainability without further policy changes.''
        But you kind of punt on entitlement reform and other
    subjects in your budget.
        Secretary GEITHNER. No, no. Congressman, I have listened to
    your colleagues say that, but I guess I would say the following
    in response.
        We have an unsustainable deficit over the next 10 years,
    which we have to deal with. We have to bring that down to
    something that is sustainable. And after that decade, we face
    unsustainable long-term deficits primarily driven by health
    care costs.
        Now, the Affordable Care Act brings about very, very
    substantial cost savings that will help reduce those costs, but
    we recognize we need to build on those. The President made a
    few suggestions in the budget of how to go beyond the
    Affordable Care Act to build on those things--for example,
    reforming medical malpractice----
        Mr. NUNES. Well, Mr. Secretary, I am actually glad you
    brought up Medicare in your savings. When you look at page 281
    of the Medicare Trustees Report, which you are using for your
    brilliant savings that now have solved the Medicare crisis over
    time, where now it is only $2.4 trillion, according to your
    math--but, in the back, the chief actuary says this. The chief
    actuary doesn't believe the long-term projections, because here
    is what he says: ``For these reasons, the financial projections
    shown in this report for Medicare do not represent a reasonable
    expectation for actual program operations in either the short
    range or the long range.'' I am assuming that is because we
    didn't deal with SGR and unfunded liabilities, et cetera, et
    cetera.
        Now, do you agree or disagree with the chief actuary of the
    Medicare report?
        Secretary GEITHNER. A very important clarification: In the
    way the Congress works, in the way the laws of the land work,
    CBO is the judge of what reforms cost and save. What the
    actuary was doing is making a prediction about what future
    Congresses may or may not do. That is really your job, your
    decision and CBO's.
        Now, of course, if Congress does not enact these reforms or
    repeals them or modifies them, then they will save less money
    over time. And that is what that report refers to. That is a
    prediction about what Congress will do, not a prediction about
    what the law would do if Congress were to stick with it.
        Mr. NUNES. So you think, if we just stick with the
    President's current budget, without any policy changes to
    entitlements, that we are going to be okay.
        Secretary GEITHNER. No, no. I would say this. If you enact
    the President's budget, which is unlikely, because you will
    want to change it, but if you enact that degree of deficit
    reduction over the next 4 to 5 years, then you will stabilize
    our debt as a share of the economy at an acceptable level. And
    if you leave in place the Affordable Care Act, then you will
    have made a very substantial contribution to those long-term
    deficits that start to accelerate in the decades ahead.
        Now, what the President said----
        Mr. NUNES. Mr. Secretary, I think the last 3 years I have
    heard you say almost exactly the same thing, just worded
    differently. And every year, the budget problem gets worse over
    time.
        Secretary GEITHNER. No, actually, in some ways, it is
    getting better because the economy is doing a little better
    than we expected.
        But the way our Constitution works, the President proposes,
    Congress has to legislate. And you will now share with us the
    privilege of how to make decisions about these long-term costs.
        And, again, what I think is very important for us do, and
    this is a better way for us to do it, is to lock in multiyear
    savings over time. If you try do it in 1 year, you will kill
    the economy. And you need to give the business community and
    families the chance to look ahead and the chance to adjust to
    the change that is to come over time.
        But that is something we are going to have to do together.
    We can't do that on our own.
        Mr. NUNES. My time has run out. I yield back, Mr. Chairman.
        Chairman CAMP. All right. Dr. Boustany is recognized.
        Mr. BOUSTANY. Thank you, Mr. Chairman.
        And, Secretary Geithner, it is good to see you again before
    the Committee.
        Secretary Geithner, at a time when every American is
    concerned about our ability to compete, whether here or abroad,
    it is apparent to many of us that the administration has
    launched a full-scale assault on American energy security.
        Now, there have been denials by the administration that a
    moratorium on drilling exists, but permits are not being
    granted. And, in fact, just this past weekend, the second
    largest shallow-water drilling company in the United States
    filed Chapter XI. One thousand jobs are at stake.
        This is all solely due to the administration's policies. It
    is not because of the economy; it is not because of some
    foreign event. It is solely due to policy made in the White
    House.
        Now, I have questioned you before and we have gone back and
    forth through letters on energy policy. In a letter you sent to
    me a while back, there was one line in there that really
    bothered me. I will read it back to you. It says, ``To the
    extent the credits encourage overproduction of oil, they are
    detrimental to long-term energy security.''
        This is referring to the eight--I believe it is eight-
    different provisions in the budget that will be repealed. These
    are tax preferences for oil and gas that have been in existence
    for quite a long time.
        So my question is--it is a very simple starting question:
    Is there an overproduction of oil in the United States today?
        Secretary GEITHNER. Well, Congressman, I think I would come
    at that question this way: When you allow individual industries
    in the United States to pay much lower tax rates than other
    businesses pay, that means all other businesses pay higher
    taxes. And that makes the country, as a whole, less
    competitive.
        Mr. BOUSTANY. But do we really have an overproduction of
    oil in the United States today?
        Secretary GEITHNER. Well, you know, as you know, I don't--
    --
        Mr. BOUSTANY. It is really kind of a ``yes'' or ``no''
    question, isn't it?
        Secretary GEITHNER. Well, I don't run energy policy, don't
    feel equipped to address that question.
        But, again, what I would say is, it makes sense at a time
    when we have unsustainable deficits and we are worried about
    our long-term energy-security issues that we have to figure out
    ways to, frankly, clean the Tax Code out of special benefits
    that go to a limited number of industries that mean that the
    rest of Americans pay higher taxes. That is the rationale for
    this.
        Mr. BOUSTANY. But if we are looking to compete and grow,
    stimulate the economy and to grow the economy, do you believe
    that oil is a very necessary part of our energy security and
    our energy economy today?
        Secretary GEITHNER. I am sure it will be part of our energy
    security and meeting our energy needs for a long time to come.
    But, again, we think it is good policy for the country to not
    provide very generous incentives that encourage the production
    dependence on very carbon-intensive forms of energy.
        Mr. BOUSTANY. You say ``very generous incentives,'' but if
    you compare actual equivalent energy metrics with wind and
    solar, the subsidies for those are much higher on a per-unit
    basis of energy than they are for oil and gas.
        Secretary GEITHNER. True. But, again, I am not an
    economist, but I think we would argue that the overall return
    on those investments for the economy, as a whole, are higher.
        Mr. BOUSTANY. But that is not proven yet.
        Secretary GEITHNER. Well, you know, people may disagree on
    that, but, again, we think for the country, as a whole--and I
    know that this is going to be painful for parts of the energy
    industry. But I think overall----
        Mr. BOUSTANY. It is going to be painful for every American,
    sir.
        Secretary GEITHNER. No, I don't think so. I think that
    overall----
        Mr. BOUSTANY. I disagree with that. And, sir, if we tax our
    current energy production, then obviously prices are going to
    go up, whether it is electricity or fuel at the pump----
        Secretary GEITHNER. No. I think the problem with these tax
    benefits and the virtue of changing them is that they will not
    affect the price of energy for the American people. What they
    do do----
        Mr. BOUSTANY. I don't agree with that, and that is not what
    I am getting from economists that I have consulted with.
        Secretary GEITHNER. Well, unfortunately, about economists,
    you know about economists, they can disagree on almost
    anything. But we have to make these judgments.
        And, again, when you look at these industry-specific tax
    benefits, I think it is important to recognize that they only
    exist because other businesses pay higher taxes. So if you care
    about overall competitiveness of the American industry, you
    should care about trying to scale those back over time.
        Mr. BOUSTANY. There is also a provision with regard to
    dual-capacity companies. And this is going to affect U.S.
    companies that do drilling overseas, making them less
    competitive than American companies.
        Now, I have to question, why should U.S. tax law favor
    state-owned enterprises, Chinese state-owned enterprises, a
    Venezuelan state-owned enterprise, over and above U.S.
    companies?
        Secretary GEITHNER. I definitely would not support that,
    and I very much doubt that these proposals have that risk.
        But, again, Congressman, we are not going to agree on this,
    but I would be happy to talk to you about this. And I
    understand the concerns you began with, about the impact of all
    these changes on specific companies. And I would be happy to
    have my colleagues work would you on how best we can limit
    those effects.
        Chairman CAMP. All right. Thank you.
        Mr. BOUSTANY. Thank you, Mr. Chairman.
        Chairman CAMP. Mr. Neal is recognized.
        Mr. NEAL. Thank you very much, Mr. Chairman.
        Mr. Secretary, I am delighted with Dr. Boustany's comments,
    because I know now that I will be able to count on him with
    Bermuda and Switzerland as they compete in the reinsurance
    market in his part of the country with domestic companies.
        I am going to give you a chance to speak, Mr. Secretary, on
    this. Could you give us an idea of where we were with TARP,
    where we are with TARP, and where we are going with TARP?
        I am delighted with your modified proposal on reinsurance.
    You can already sense that the Bermuda and Swiss companies who
    are receiving a subsidy to compete with American companies are
    taking note of what you proposed.
        And the last issue is that the Department of Labor is
    proposing some new rules on fiduciaries, with their public
    hearing next month. And, at the same time, SEC is proposing new
    rules under Dodd-Frank to create a uniform fiduciary standard.
        I am hoping that Treasury will be involved in this
    rulemaking so that you will have some enforcement
    responsibility, as IRAs are solely in your purview. And you
    know I have your auto IRA that I have carried for the last two
    sessions.
        But I am asking, I guess, in the three instances here what
    the Treasury role will be in each instance.
        Secretary GEITHNER. Well, let me start with where you
    ended. We will follow that debate very closely. And, of course,
    we share your interest of trying to make sure these come out
    with a reasonable balance. But we will watch that stuff
    carefully.
        You understand what we are proposing on the reinsurance
    side. I don't need to go into that. But, again, we are trying
    to make sure there is just a level playing field for American
    companies.
        On TARP, where you began, let me just say a few things
    about where we are on TARP.
        When I came into office, the CBO estimated this program
    would cost us about $350 billion. We now believe that, outside
    of housing, these programs will show a positive return to the
    American taxpayer, very substantial amounts. And that is
    because we ran a strategy that had private capital, not the
    taxpayers' money, come in and bear the largest burden of trying
    to solve our crisis, recapitalizing the banking system, et
    cetera. And we have been very, very successful in managing
    those investments to generate, if you just look at the bank
    investments, for example, billions and billions in dollars in
    positive return that we can use to meet our long-term
    challenges.
        These programs were incredibly successful in restructuring
    the automobile industry, restoring it to profitability. And we
    have a much stronger private financial system today than we had
    going into the crisis because of the success of the President's
    strategy. We have not just saved, you know, hundreds and
    hundreds of billions of dollars of taxpayers' resources, but we
    are going to show a positive return, outside of housing, that
    is very substantial.
        I think it will prove to be the most successful financial
    rescue in modern history, even recognizing that we still face a
    lot of challenges ahead in digging out of this crisis,
    repairing the damage caused by it.
        Mr. NEAL. Well, as one who supported that initiative, I
    would point out and I think it is important to acknowledge
    again, that that legislation took place in October of 2008. So
    we are grateful for your efforts to make sure that the
    initiative worked, understanding that, even though it was
    proposed by the previous administration, that it is one of
    those instances in the House of Representatives where moderate
    Democrats and moderate Republicans cast the correct vote.
        Secretary GEITHNER. And the current Speaker of the House
    played a decisive role in helping make that happen. And there
    were a lot of courageous votes in this body in support of that
    legislation. It was very unpopular legislation, but it was a
    courageous and necessary act.
        Now, when we came in, we had to finish the job and get the
    money back. But it was absolutely essential to helping break
    the back of the financial crisis.
        Mr. NEAL. Thank you, Mr. Secretary.
        Thank you, Mr. Chairman.
        Chairman CAMP. Thank you.
        Mr. Heller is recognized.
        Mr. HELLER. Thank you, Mr. Chairman.
        And, Mr. Secretary, thank you for being here.
        You keep exempting housing every time you talk about the
    economy turning around, and I would like to home in on that for
    just a minute.
        As you are probably aware, I am from Nevada. We have some
    real housing problems in Nevada. In fact, for the last 4 years
    straight, actually 49 straight months, Nevada has continued to
    have the highest foreclosure rate in the United States. One in
    every 79 housing units in Nevada has received a foreclosure
    notice. We have one county, where I believe 1 in 49 homes has
    received a foreclosure notice.
        We have over 400,000 households that owe more on their
    mortgage than they are worth. To put that in better
    perspective, three-quarters of the people in their homes are
    owing more now than their homes are worth. A couple of
    examples: We have a housing unit in northwest Las Vegas that
    were originally priced at $735,000, built in 2006. One of them
    went for $62,500 at auction last year. There is also a condo
    unit in Las Vegas that was selling in 2006 for $625,000, now
    selling for $106,000. I am just trying to put this thing in
    perspective, help you understand.
        When I talk to my constituents, of course they blame the
    banking industry, saying they are not willing to negotiate.
    When you talk to the banking industry, they blame the FDIC.
    When you talk to the FDIC, they blame you. Now, I am not asking
    you who you blame; I am just trying to set this picture in a
    manner to which you can respond.
        I want to give you two quotes, two of your quotes. I don't
    disagree with these quotes, but I think you can help shed some
    light on them. You said, ``I personally believe that there is
    going to be a good case for the government preserving some type
    of guarantee to make sure that people have the ability to
    borrow to finance a house even in a very damaging recession. I
    think there is going to be a good case for that.''
        You also said, ``I think we are not going to preserve
    Fannie and Freddie in anything like their current form. We are
    going to have to bring fundamental change to that market.''
        Some people would say that those two conflict with one
    another. The more I read it, I think it makes more sense.
        For my sake and perhaps my constituency's sake, could you
    shed some light, perhaps, on where we are going in the housing
    industry? And so that we are not exempting housing every time
    we talk about the economy improving, that perhaps there is a
    direction that we are moving or this administration is moving
    that we can fully understand.
        Secretary GEITHNER. Excellent question. And I am glad that
    you emphasized this basic reality still, which is, again, the
    scars of this crisis are still very deep and broad, and they
    are present still across the country.
        But the housing crisis was very much concentrated in your
    State and three other States and in a series of cities across
    the country. And it is still very, very hard. And, to be
    realistic, I think it is going to take several more years to
    heal the damage caused by that crisis.
        Now, we are trying do two things. One is we are trying to
    make sure that we can reach as many Americans as we can to give
    them a chance to stay in their home if they can afford it. The
    programs we have helped put in place have helped roughly 2.5
    million Americans have a chance to take advantage of a modified
    mortgage that lowers their monthly payment and stay in their
    home.
        We can't help everybody, because a lot of people got
    themselves way overextended, and we don't think we can justify
    using the taxpayers' money to help them stay in homes they
    can't afford. But we are going to try to make sure we reach as
    many people as we can. Those programs that are still in place
    now are making a huge difference for millions of Americans. And
    we want to make sure that, again, they do as much as they can.
        Now, longer term, obviously we have a housing system that
    is a mess and did not work, overwhelmingly dependent on the
    government now still. And what we laid out last week was a plan
    to gradually wind down Fannie and Freddie, gradually restore
    this market to a market where private capital provides most of
    the mortgages in this country, but still has the government
    play a limited role, a targeted role in helping provide
    affordable housing alternatives, rental as well as ownership,
    to low-income Americans.
        And we proposed a variety of other models for trying to
    make sure that the government is providing some kind of
    protection against the risk of a very severe recession in the
    future. We are not going to do that with Fannie and Freddie,
    though. We don't think they can be part of that solution.
        And we want to begin a debate in Congress with the relevant
    Committees about how best to craft legislation that would
    achieve those objectives: wind down Fannie and Freddie; restore
    the private market to the dominant place in housing finance,
    but with better protections for consumers; more capital against
    risk; homeowners holding more equity in their homes; and some
    protection in a future crisis against the risk that you have a
    mild recession turn into a depression. That is a very difficult
    challenge to do.
        And, of course, for the reasons you began with, we want to
    make sure these reforms are phased in gradually. Because we are
    not going to take any risk that we slow the process of
    repairing the housing market or we damage the recovery.
        Chairman CAMP. All right. Thank you.
        Mr. Gerlach is recognized.
        Mr. GERLACH. Thank you, Mr. Chairman.
        Mr. Secretary, thank you for testifying today.
        One of the statements the President made in his State of
    the Union, which I felt was very positive, was his desire to
    address the corporate tax situation. And while he did not
    express, necessarily, where he felt the rate should be lowered
    to, it was a very positive statement that that is an issue he
    wants to work on.
        Do you have a sense of where the President wants to go,
    from the 35 percent corporate rate to what level?
        Secretary GEITHNER. Well, my own view is, for it to be
    worth it, you have to move it substantially lower. The
    average----
        Mr. GERLACH. So, in the 30s? Or below 30, into the 20s?
        Secretary GEITHNER. The average rate of our major trading
    partners now is in the high 20s. And for it to make a
    meaningful difference, you want to get it down substantially
    towards that level.
        Mr. GERLACH. Okay. And are you of the belief that, by doing
    that, you are incentivizing more domestic activity, economic
    activity, trying to encourage more investment here domestically
    rather than abroad?
        Secretary GEITHNER. Absolutely. I think that there are two
    very important rationales for doing this.
        One is, again, you want the market allocating investment,
    you want the market choosing which companies grow, which
    companies succeed. You don't want the tax system making those
    judgments, getting in the way of those judgments. And so, if
    you can clean up the tax system, lower the rate, broaden the
    base, you probably improve overall growth and efficiency.
        But as important as that, you want the Tax Code working
    with, not against, the objective of encouraging investment here
    in this country.
        Mr. GERLACH. Would those same goals apply to an individual
    taxpayer?
        Secretary GEITHNER. I think, generally, we are going to
    have to do comprehensive individual tax reform, too. And, as
    many people have proposed in the past, probably the best way to
    do that, to simplify the system, make it more fair, is to also
    lower the rates and broaden the base.
        Mr. GERLACH. Okay. As I understand it, under the
    President's 2012 proposal, he actually wants to raise the two
    top marginal rates from 33 to 36 and from 35 to 39.6, both of
    which would be over the corporate rate that we are talking
    about reducing. If those same goals apply to corporations as to
    individual taxpayers, why would the administration want to see
    an increase in those rates?
        Secretary GEITHNER. Well, again, what I would do is
    compare--if you think about those rates in context, they are
    the rates that prevailed in the 1990s, and we were doing fine
    as a country then. Actually, it is a record that was the envy
    of the world then and we would be thrilled to recreate today.
        So I think those rates are something that is completely
    consistent with the strategy of making sure we are more
    competitive, we are growing. And it recognizes that, again, as
    many of your colleagues have recognized, we have unsustainable
    fiscal deficits. And if we are going to save money together in
    reducing spending, we want to make sure those savings go to
    deficit reduction and improving incentives for investment in
    the country.
        Mr. GERLACH. Okay. Well, we don't have the same economy in
    2011 as we did in the 1990s. And I would hope that we would all
    work together to reconstruct a Tax Code that works for the
    current economy, both domestically and in the world, rather
    than going back to the 1990s and try to reconfigure the same
    kind of tax structure that may not be applicable to what we
    need do today.
        And I can't understand if we, on the one hand, agree that
    we need to lower the corporate tax rate to stimulate
    investment, why you also want to increase taxes on individuals
    if we want those same taxpayers to take their hard-earned
    money, invest it in the economy, create economic activity, and
    do the things that we all want to see happen to raise
    everybody's boat.
        So it seems to be a little incongruous that we would want
    to decrease or lower the corporate tax rate, and yet, at the
    same time, still in an economy with 9 percent unemployment, you
    want to increase taxes on people who we want to see invest in
    this economy.
        Secretary GEITHNER. Congressman, again, you are raising
    very important questions that just reflect the difficulty of
    the choices we face.
        But I will tell you, you know, my sense is, if you gave
    businesses the choice, they would choose that mix. They would
    say, we are comfortable living in an economy where we see a
    modest increase in marginal tax rates for only 2 percent of
    Americans and we see a more competitive tax system. I think
    they would prefer to play in that economy than the one we have
    today.
        Mr. GERLACH. Thank you, Mr. Secretary.
        Chairman CAMP. Thank you.
        Mr. Becerra is recognized.
        Mr. BECERRA. Thank you, Mr. Chairman.
        Mr. Secretary, good to see you. Thank you for being here.
        I am going to detour from asking you about the President's
    budget for next year for a moment, because the plan House
    Republicans released on Friday pertaining to this current
    year's budget could create an immediate crisis for millions of
    Americans who depend on Social Security.
        The Republican proposal cuts the Social Security
    Administration's operating budget for the rest of this current
    year by $1.7 billion below what the Social Security
    Administration needs for this current year, 2011. That is over
    $500 million below what the administration spent to serve the
    public last year with a smaller population of beneficiaries.
        As a trustee of Social Security, I am wondering if you
    could give me comments as to whether or not you think that is
    the way we should be stewarding the most important program that
    the Federal Government has for Americans, especially those of
    retirement age.
        Secretary GEITHNER. Well, again, Congressman, as you would
    suspect, I would not support those changes, for just the
    reasons you said.
        Mr. BECERRA. Okay. Now, my understanding is that, from what
    we are being told, that if the cut is made as the Republicans
    propose in their current-year budget proposal, it would mean a
    loss of 3,500 jobs, it would shut down the Social Security
    Administration's offices for 1 month, which means each and
    every one of us who services seniors in our office, disabled
    Americans, in our offices through constituent services would
    have to explain to members in our community that, for a period
    of about a month, there would be no one answering the phones,
    no one responding to queries, no checks going out to
    beneficiaries, no Social Security numbers issued to newborn
    babies.
        Over half a million retirees, widows, and severely disabled
    workers would face these delays, starting with the creation of
    a budget like this. Is that something you think, as a trustee
    for Social Security, that we can at this stage handle?
        Secretary GEITHNER. No. Again, I would not support cuts
    that would have that impact, for just the reason you have said.
        Now, again, I just want to be careful. I haven't seen those
    cuts. We don't know what the House is going to actually pass.
    And we would take a very careful look at anything the House
    passes and try to make sure that people understand the full
    implications.
        But the most important thing, again, is, as we find a way
    to restore gravity to our fiscal position, we are not cutting
    into basic services and critical investments that will hurt the
    economy longer-term--not just short-term, but long-term as
    well.
        Mr. BECERRA. And now, on a related note, our Republican
    colleagues are threatening to shut down the government unless
    certain cuts are made in certain programs. And that would come
    through a vote on the debt ceiling limit. And they would vote--
    some have said that they would vote against it.
        Some Members on the Republican side have said that they
    would vote against increasing the debt limit and keeping the
    government operating unless there were cuts to Social Security.
    I know that there are some who have made a proposal that
    would--I would call it the proposal to pay China first; that
    before you pay any money for any program, whether it is a
    Social Security beneficiary or Medicare beneficiary, you have
    to first pay other creditors, including China and others who
    have lent us money. That is why some of us call it the ``pay
    China first'' proposal.
        Do you believe that we should be holding the government and
    all those who depend on the services that the government
    provides hostage in order to make certain cuts that could
    ultimately have a devastating impact on Americans?
        Secretary GEITHNER. I don't, Congressman. As you know, I
    believe that America has to meet its obligations, that we are a
    country that pays its bills, we meet our commitments. And we
    cannot afford to do anything that would create a risk of
    jeopardizing this recovery, slowing the pace of expansion,
    slowing the pace of employment growth. And to create any
    uncertainty in the minds of the American people and the broader
    investment community that America will not meet its obligations
    would be very damaging to the recovery.
        And, again, just to take the more confident side of this,
    of course I am completely confident Congress will act, as it
    always does, to raise the debt limit. And I very much welcome
    the comments made by the Republican leadership, both in the
    House and the Senate, that recognizes that America has
    obligations and is going to have to meet them.
        Now, we are going to have to have a very important debate
    about how to restore fiscal responsibility. And we are looking
    forward to that debate, again, because that is a necessary
    debate for us to have. But we are going to have to work that
    out and still make sure the world understands that we are a
    country that meets its commitments.
        Mr. BECERRA. We are going to have a further discussion
    later on, not just through the discussion of the budget but in
    coming up with tax reform policies, on what we do with all
    these tax loopholes. The President's fiscal commission, which I
    was privileged to serve as a member of, called these tax
    loopholes ``tax earmarks,'' because essentially we are
    earmarking money to certain segments of the American economy,
    whether it is businesses or individuals. And they get the gain
    while the rest of the population doesn't.
        And you do touch on them some. In fact, you had a
    conversation with my colleague Mr. Boustany about the tax
    loopholes that go for the oil industry. Are those the types of
    things that you are going to continue to try to seek out some
    consensus and try to make reform to our Tax Code?
        Chairman CAMP. If you could just answer briefly. Time has
    expired.
        Secretary GEITHNER. Yes.
        Chairman CAMP. All right.
        Mr. BECERRA. Thank you, Mr. Secretary.
        Chairman CAMP. Dr. Price is recognized.
        Mr. PRICE. Thank you, Mr. Chairman.
        Mr. Secretary, thank you for joining us today on what
    really, I think, is one of the most important issues for our
    constituents. They understand that our fiscal house is not in
    order, and they are demanding that it be put in order.
        Just by way of clarification, I think it is also important
    to appreciate that the President is the one who holds the keys
    as to whether or not the government gets shut down. He has said
    that he won't sign something--fill in the blank. Whether or not
    this government gets shut down is squarely in the President's
    lap.
        You said just a moment ago that you thought it was
    appropriate for the market to decide which companies grow and
    succeed. Many of us on our side of the aisle and many Americans
    believe that this administration has grossly distorted the
    market and made it much more difficult for companies to be able
    to succeed in the way that the normal business processes work,
    where the government isn't coming in to bail out their
    competitor or to change the playing field.
        So I think it is incredibly important that we recognize
    that the kind of things that are being said here don't
    necessarily square with what the reality is, or at least the
    perception of folks out there.
        But I want to talk about what you have said and what the
    President said. This is a 10-year path. You said today, we need
    to take the lead and the initiative. And so, for so many of us,
    we are just dumbfounded, astounded by the fact that the
    administration hasn't taken this opportunity to address the
    issue of entitlements.
        Clearly, the automatic spending that is in the budget, in
    the Federal Government, just continues and continues and
    continues. And if there is no change, obviously that is what
    will make us Greece, with no pejorative opinion on Greece, but
    certainly the financial situation.
        Why didn't you all address the entitlement situation?
        Secretary GEITHNER. Well, Congressman, at the risk of
    repeating myself, what the President's budget does is reduce
    our deficits to roughly 3 percent of GDP over a 5-year time
    frame----
        Mr. PRICE. I got that.
        Secretary GEITHNER. --which is the level necessary to
    stabilize our debt burden at a level that is acceptable for us.
        Mr. PRICE. In 5 years, are we any more capable of
    addressing the challenges of Medicare and Medicaid than we are
    right now?
        Secretary GEITHNER. Well, you are right to point out, as we
    do, that that is just a first step, and solving the 10-year
    deficit, which is essential and important, does not, by itself,
    solve the long-term deficits.
        Mr. PRICE. So would you say----
        Secretary GEITHNER. But, again, this President and this
    body has already passed and put in place the most sweeping
    entitlement reform to reduce costs that we have considered as a
    country. And just contrast it with, for example, what this body
    passed in the previous decade, which was a large expansion of
    Medicare to cover pharmaceuticals without paying for it, adding
    to our deficit----
        Mr. PRICE. Actually, Mr. Secretary, I wasn't here when that
    passed, but----
        Secretary GEITHNER. You weren't. I don't blame you for
    that.
        Mr. PRICE. I would suggest that what was passed in the area
    of health care in fact will increase costs to the Federal
    Government, increase our deficit and our debt, as opposed to
    decrease it.
        So it really is remarkable, again, when you say, we need to
    take the lead and initiative. There is no evidence of this
    administration taking the lead and initiative on entitlement
    reform. You have taken the lead and initiative on expanding
    entitlements and expanding automatic spending.
        I want to address a particular issue in the area of health
    care as a physician, the issue of the sustainable growth rate
    and how physicians are compensated for the remarkably high-
    quality care that they deliver.
        My reading of the budget, and it is just recent, is that
    over the 10-year window, I think it is about $341 billion,
    somewhere in that range, to allow for the SGR to continue.
    Where are you getting that $341 billion? I haven't been able to
    determine that.
        Secretary GEITHNER. We identify ways to cover the costs of
    that for, I believe, the first 2 years----
        Mr. PRICE. Yes.
        Secretary GEITHNER. --but not for the remaining 8.
        Mr. PRICE. Correct.
        Secretary GEITHNER. And we are assuming--and it is an
    assumption, or it is a prediction, it is a hope that Congress
    will, as they have done the last 2 years, figure out a way to
    make sure they can sustain those rates at levels Congress seems
    to want to, and do it in a way that they pay for it. But we
    only identify how to do it in the first 2 years.
        Mr. PRICE. So the assumptions are that Congress will take
    care of that and that money will be there.
        Secretary GEITHNER. Not all on your own. We will probably
    have to join you in figuring out ways to pay that. But we don't
    solve it, we don't identify how to do it over the full 10
    years.
        Mr. PRICE. Okay. Well, let me just register, finally, my
    real concern about what I believe is a remarkable lack of
    leadership on the part of this Administration in not addressing
    the issue of Medicare and Medicaid reform.
        Chairman CAMP. All right. Thank you.
        Mr. Doggett is recognized.
        Mr. DOGGETT. Thank you, Mr. Chairman.
        And thank you, Mr. Secretary.
        The budget that the President has presented seeks to add
    some improvements in our fiscal operations both through revenue
    and spending changes. And, as important as those spending cuts
    are, some of them even painful cuts in spending, the revenue is
    also very important. In fact, it is the principal job of this
    Committee.
        You don't believe that we can achieve a balanced budget
    without some additional revenues, do you?
        Secretary GEITHNER. No, I don't. I don't think you can
    achieve the necessary reduction in deficits that are critical
    to long-term growth without looking at sensible, carefully
    designed tax reforms, as well.
        Mr. DOGGETT. Right. And with reference to those tax
    reforms, one that you have been involved in of late is
    corporate tax reform. We recently, as you know, had a hearing
    in this Committee on this.
        According to a Bush administration Treasury report, taxes
    on U.S. corporations represent a smaller percent of their
    profits, in fact, than in other developed countries across the
    OECD. I believe that last year there was a report out that
    corporate tax receipts represent a little over 7 percent of
    Federal tax revenues. Fifty years ago, it was about three times
    that amount that we got.
        President Reagan, which I think provides us some guidance
    here, when he approved the 1986 Tax Reform Act, he actually
    raised corporate tax revenues for the Federal Treasury by about
    $122 billion.
        You have said that the guiding principle here, and the
    President has said in his State of the Union, is that, at a
    minimum, we should not borrow money or shift more of the tax
    burden to individuals in order to have corporate tax reform.
    And I want to assure that that is a firm and unyielding
    position of the administration, that we will not be borrowing
    from the Chinese to finance such a reform, and we will not be
    shifting more of the burden to individuals.
        Secretary GEITHNER. That is right. When we say revenue-
    neutral, we mean we would not support tax reform that reduced
    revenues from the corporate sector, but it also means that we
    don't think it is realistic or achievable or desirable to try
    to raise revenues from higher taxes on businesses, because we
    live in a much more competitive world. And though what you said
    is right, the average effective tax rate on U.S. businesses
    today is about the average of our competitors, but our
    statutory rates are much higher, their statutory rates are much
    lower, and that creates a playing field that works to our
    disadvantage.
        And we don't think realistically we can shift more of the
    burden to the business community than they already bear because
    of that new competitive world. So when we say revenue-neutral,
    we mean revenue-neutral.
        Mr. DOGGETT. You are not going to have them contribute less
    than 7 percent.
        Secretary GEITHNER. Not going to reduce and not going to
    try to go materially higher.
        Mr. DOGGETT. You have included in this budget proposal,
    again, international tax loophole closures that you have had in
    the past. And one of those that I have been particularly
    interested in is the one that deals with corporations that
    develop intellectual property, patents, various other forms of
    intellectual property, formulas and the like here in the United
    States, perhaps even using our research credits, and then just
    before they are to be marketed they shift the ownership or they
    joint-venture it offshore.
        We had testimony on this last year at our hearing from
    Assistant Secretary Shay, who said that the administration
    would support moving forward to deal with this narrow but very
    costly problem that I believe your budget that you just
    submitted says costs us about $20 billion over 10.
        And my question to you is, does the administration continue
    to support dealing with this serious problem of shifting
    intellectual property overseas as a separate, independent
    matter from broader reform we hope to eventually achieve?
        Secretary GEITHNER. We do. We can do it in two different
    ways. We can do it by reforming the current system, as we
    proposed, to reduce the opportunity our Tax Code provides to
    shift income outside of the United States, income from
    intangibles like you suggested. Or we can do it through
    comprehensive reform.
        But, again, the overriding objective should be to make sure
    that we are reducing both the incentives and the opportunities
    in the tax system to shift income and investment outside of the
    United States.
        Mr. DOGGETT. And I believe that there are proposals not
    unlike the one Mr. Becerra talked about for Social Security in
    this continuing resolution to make significant cuts to Internal
    Revenue Service tax enforcement. I know some people who would
    like to see that amount cut to zero, but we have had testimony
    in the past that, for every dollar that we cut in tax
    enforcement, we are reducing revenues by $3 to $14.
        Does that remain true, that significant cuts to the
    enforcement will actually worsen our budget deficit problems?
        Secretary GEITHNER. Absolutely. The independent analysts
    that look at this say, for every dollar you put in to IRS
    resources, customer service enforcement, you raise at least $4.
        Chairman CAMP. All right. Thank----
        Secretary GEITHNER. Every dollar you cut has the same cost.
        Chairman CAMP. Thank you.
        Mr. Smith is recognized.
        Mr. SMITH. Thank you, Mr. Chairman.
        Thank you, Mr. Secretary, for your time and your service.
        We heard earlier commentary on Social Security and what
    could be accomplished or what could not, perhaps, speculatively
    be accomplished. Now, a furlough, as apparently was suggested,
    would that not be an administrative prerogative?
        Secretary GEITHNER. You know, I don't have the privilege or
    the responsibility of managing the Social Security
    Administration, so I can't--and I haven't had a chance to look
    at these cuts. So I was very careful in responding to that
    question by saying that, if the cuts had that impact, then I
    think it would be imprudent and unwise and unnecessary. But I
    haven't had a chance to look at them. And I don't know how we
    would meet whatever Congress would propose.
        Mr. SMITH. Okay. Well, I appreciate that. And I guess I
    would like to certainly do my part for not participating in
    hyperbole and, you know, ramping up rhetorical statements for
    various reasons. But, certainly, I think you can agree, we are
    facing some significant challenges.
        We have touched a bit on taxes here today. You know, the
    estate tax, I hear a lot of input on that from back home, rural
    Nebraska. They say it is double taxation. Do you agree with
    that?
        Secretary GEITHNER. Well, you know, I--I don't know what I
    would describe--how I would describe it. But what I would say
    is that the rates and exemptions we proposed would make sure
    that that tax only affected, we think, less than one-half of 1
    percent of estates in any given year.
        And, again, we are not proposing it because we like doing
    it. We are only proposing it because, as you are saying over
    and over again, we have unsustainable obligations,
    unsustainable deficits, and they will hurt future growth and
    make us weaker as a country if you don't fix them. And we are
    going to have to do a bunch of things to spread the burden of
    that.
        But, again, our proposals would only affect less than one-
    half of 1 percent of all estates in any given year.
        Mr. SMITH. Well, I can appreciate that. I mean, it
    certainly reduces the political pushback. I would hope that you
    would share the concern of many of my constituents, not just
    about the estate or death tax, but the narrowing of the tax
    base, that fewer and fewer people are paying taxes. Whether it
    is the Federal income tax that fewer and fewer people are
    paying or other taxes how do you think we could address that?
        Secretary GEITHNER. Well, if you look at our tax system
    today, there is lots of unfairness across the system. And you
    refer to one piece of it, which some people think is unfair,
    which is lower-income Americans pay payroll taxes but many
    don't have to pay the income tax as a whole. But the vast
    majority do pay the payroll tax.
        But I will take the other side of it. It is also true that,
    as many of our, you know, most successful executives have said,
    you can be a very successful businessman today and pay a much
    lower effective tax rate than people who work for you. And that
    doesn't seem fair either.
        And, again, we are trying to propose some initial reforms
    to help leave us with a more simple, more fair system.
        Mr. SMITH. All right. And I can appreciate that, as well.
        Now, on the capital gains tax rate, is there any concern
    that letting that go back up or even pushing it back up could
    actually result in fewer dollars of capital gains tax being
    recovered?
        Secretary GEITHNER. Not at 20 percent, no. Again, we are
    proposing to make sure that--but, you know, Congress has to
    make this choice--that we would only see, if those goes up for
    the highest-income Americans, they only go up to 20 percent.
    And we think that is a very modest rate on capital income.
        Mr. SMITH. But still by increasing the penalty per se of a
    transaction, there would be no risk or very little risk of
    actually having fewer transactions?
        Secretary GEITHNER. I don't think--I think it is a very
    small effect.
        You know, we are also, as I said, proposing to eliminate
    capital gains on investments in small businesses. We have some
    offsetting things that are good. But I think that would be a
    very modest change, and no material impact on the economy or
    investment decisions.
        Mr. SMITH. Okay. Thank you, Mr. Secretary.
        I yield back.
        Chairman CAMP. All right. Ms. Jenkins is recognized.
        Ms. JENKINS. Thank you, Mr. Chair.
        And thank you, Mr. Secretary, for joining us today.
        Chairman CAMP. If the gentlewoman would suspend, because of
    short time, as the Ranking Member and I have discussed, we are
    going to go to 3 minutes per member to try to accommodate every
    single Member.
        Secretary GEITHNER. And, again, I am happy to respond in
    writing to any questions. And I am sorry that I have to leave
    at 3:30.
        Ms. JENKINS. Thank you, Mr. Chair.
        Once again, thank you, Mr. Secretary, for joining us.
        As a result of an agreement last December, the estate tax
    for the next 2 years will be imposed at a top rate of 35
    percent with a $5 million exemption. And effective for 2013,
    President Obama has proposed to make permanent the estate tax
    parameters that were in effect in 2009, a top rate of 45
    percent, $3.5 million exemption, which would not be indexed for
    inflation.
        I am a sixth-generation Kansan, raised on the family's
    dairy farm in Holton. My kids are the seventh generation to
    grow up in eastern Kansas. Mr. Secretary, as you probably know,
    Kansas is an ag State. I hope you have an appreciation for the
    importance of the family farm to this nation.
        Do you even happen to know what the price of a new combine
    is?
        Secretary GEITHNER. I have never been a farmer, do not
    know.
        But I will say one thing, which is, the agricultural
    community in the United States today is one of the strongest
    parts of the economy today. And you are seeing in exports of
    agriculture, in basic growth in agriculture, a lot of
    encouraging signs of how strong this country is in agriculture.
    And we want to do everything we can to make sure we are
    reinforcing that.
        Ms. JENKINS. We feel like we are under attack here. A new
    combine costs over $300,000; a new tractor, over $225,000. That
    is with nothing attached to it. If you want to attach a high-
    priced implement, it is $170,000 on top of that. So, as you can
    see, the cost of the necessary equipment to manage a farm can
    be quite high. In fact, it can easily top $1.5 million just in
    equipment.
        Several years back, the USDA did a study. There were nearly
    11,000 Kansas family farmers that had land and buildings valued
    at over $2 million. So the cost of implements and land values,
    when added together, it is really not hard to get to the $3.5
    million cap on the estate tax that the President's budget is
    proposing.
        And, in addition, I want to note, the average net income on
    a family farm is approximately $45,000 a year.
        Now, I have heard the President state that everyone needs
    to pay their fair share of taxes, but under the President's
    proposal, it is not unreasonable to expect that a significant
    percent of Kansas family farms could be placed at risk when
    trying to comply with Federal tax laws and most likely could
    not meet the capital requirements to maintain ownership between
    generations.
        So I just would like to see if you realize how this
    proposal negatively treats family farms. I would ask you, how
    do you advise family farms address this challenging issue?
        And perhaps as a follow-up, it has been promised that taxes
    wouldn't be raised on those earning below $250,000. With the
    net income of the family farm being $45,000 a year in Kansas,
    again, how do you explain hitting them with a tax increase that
    could cost many of them their livelihood?
        Chairman CAMP. Just very briefly, Mr. Secretary.
        Secretary GEITHNER. Could I just say one thing?
        Chairman CAMP. Yes.
        Secretary GEITHNER. Again, the estate tax changes would
    affect only less than one-half of 1 percent of estates in any
    given year, including the families that you are concerned
    about. And we share those concerns.
        One very important point: In the tax package passed by the
    Congress at the end of the year, the President proposed, and it
    was included in that, a provision for 1 year, any business in
    the country can fully expense capital investment, fully write
    off against their taxes the cost of a new combine, a new
    tractor. And that is one reason you are seeing capital
    investment expenditures start to accelerate now in the
    beginning of the year.
        So, again, if you look at the overall mix of things we are
    proposing, we have put in place, they will substantially
    improve the capacity and the competitiveness of American
    businesses and American companies.
        Chairman CAMP. All right. Thank you.
        Mr. Thompson is recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman.
        Mr. Secretary, thank you for being here.
        And if the gentlewoman from Kansas is truly interested in
    saving family farms, I have a bill for you. See me after the
    hearing.
        I think it is important that we discuss this budget today,
    on the same day we are beginning the debate on the CR. And a
    couple of my colleagues have juxtaposed some of the
    differences. I think one of the major ones speaks directly to
    the issue that I think it was Mr. Herger raised, that he was
    interested in a budget that gets people back to work. And that
    is kind of the antithesis of what the CR does, given the early
    analysis that that would cost us about 800,000 jobs.
        And so, if you juxtapose what is happening today in the CR
    and the President's budget, specifically things such as the
    Build America Bonds, which were so successful--I know
    Sacramento airport used those. They generated 1,250 jobs. And
    probably every district across the country can say something
    similar. And I would like to hear how you deal with that,
    because that is certainly a job creator, visavis the job killer
    in the CR.
        And also, on energy issues, I notice the President's budget
    extends the 1603 Treasury grant program, which is so important
    for renewable energy, and the section 48(c) provision, the
    manufacturing tax credit, which is important to keeping those
    jobs here in America.
        And I would like to hear about that and what you see as an
    opportunity for us, through encouraging and investing in
    renewable energy, how we can use that to create more jobs.
        And I should also mention, because it was brought up today
    by someone on the other side about the potential loss in
    traditional energy jobs, that the CR makes some cuts that will
    make it impossible to get permits renewed and issued for those
    traditional energy jobs, which, again, puts us at an energy
    disadvantage.
        Secretary GEITHNER. Well, Congressman, you highlighted a
    range of things we think are some of the most important things
    we can do to help the economy recover, not just in the short
    term but long term.
        And I would share the caution that, as you look at how to
    make these tough choices across the deficit as a whole, be
    careful not to cut investments that will hurt jobs and be
    careful not to cut investments that will hurt our
    competitiveness in the future. And when you think about our
    broader fiscal challenges, make sure you bring a long-term
    perspective and that you are putting in place restraint that we
    can live with over time, that balances that need to make sure
    we are strengthening the recovery of the economy as a whole,
    and also brings some gravity to our fiscal position.
        Chairman CAMP. All right. Thank you.
        Mr. Buchanan is recognized.
        Mr. BUCHANAN. Thank you, Mr. Geithner, for being here.
        Thank you, Mr. Chairman, for this meeting.
        The biggest concern I have is about taxation, in terms of
    the President's budget, but I want to touch on a couple of
    things.
        One, we are all interested in jobs, because we know if we
    grow jobs, it cuts the deficit. So we have to do that. I think
    you agree with that.
        But let me tell you the reality. I am a guy who has been in
    business 30 years, had a thousand employees 4 years ago, so I
    understand the middle markets pretty well. I was Chairman of
    the Florida Chamber. I dealt in these middle-market and small
    companies.
        Let me give you my observations from Florida. One, there is
    a severe lack of credit for small- and medium-sized businesses.
    You know that; I have seen you acknowledge it numerous times.
    Compared to what was 4 years ago, it is very difficult to get
    credit. Today, they can talk about credit, but unless you are
    going to put up a half-million-dollar CD, you are not going to
    get that line of credit, whatever you need.
        The second thing is health care. To me, it is a big
    entitlement program for 32 million or 50 million people, but it
    doesn't do anything to bend the curve for small- and medium-
    sized business. I had one of our largest employers the other
    day in from Sarasota. They are getting ready, ideally, to hire
    300 people. They could hire more. Their health care bill went
    up a million and a half dollars. But that goes across the
    board, even with small companies. Everybody says, ``Vern, I
    just got my health care bill. It went up 20 percent.'' It is
    killing jobs. Lack of credit is killing jobs.
        Now, the third thing that comes to the budget with the
    President is increasing taxes. I want to go back to a point
    that you made. You said that it only raises taxes on 2 to 3
    percent of small businesses. That was in your opening comment.
    That might be true of the percentage of businesses, but how
    many jobs do they create? There are a lot of people, and most
    of them that might make a million dollars today, but they have
    700 employees. They need more capital. But this budget suggests
    we raise their taxes in a climate with a lack of credit and
    health care costs going up. A lot of these businesses, as you
    know, are passthrough entities.
        So how
    do you respond to the tax aspect of the President's budget?
        Secretary GEITHNER. Okay, again, very briefly, you are
    right about the credit problem. And I agree with you, it is
    very important. And, you know, after a period where credit was
    too easy, it is too tight now in pockets of the country,
    particularly for businesses that were unlucky in their choice
    of bank. Because their bank got overextended, they were the
    victims of the bank having to reduce leverage and strengthen
    capital.
        But we are hoping that is going to start to improve. The
    numbers suggest it is starting to improve. The price of credit
    is much, much lower than it was at any time in the last 2 years
    or so.
        And this small-business program that is now working its way
    through the system is going to help a little bit, help small
    banks get capital from the government, help States provide a
    little more financial power into their credit programs.
        And we have to make sure that the examiners, the
    supervisors, and the bank supervisors aren't----
        Mr. BUCHANAN. But getting to that tax piece, I really
    want--you said 2 or 3 percent. I want you to make a comment on
    that.
        Secretary GEITHNER. Now, again, it is very important to
    understand, so I am glad you asked it again. And I am just
    telling you the numbers that the independent tax people tell
    the Congress, or inform the Congress of.
        It is 2 to 3 percent of small----
        Mr. BUCHANAN. Of companies.
        Secretary GEITHNER. Of companies. And----
        Mr. BUCHANAN. That employ how many?
        Secretary GEITHNER. And you are right, they employ
    substantial numbers of people. But the vast bulk of those
    companies affected by that are companies that make substantial
    amounts of earnings.
        Now, you are right that their taxes----
        Mr. BUCHANAN. They are not all law firms and investment
    firms. I can tell you that----
        Secretary GEITHNER. No, they are not all law firms. But
    those that are not law firms and investment firms are
    overwhelmingly still earning substantial amounts of money.
        And, again, these are the rates that prevailed at a time
    when the small-business community in this country----
        Mr. BUCHANAN. But we don't have the circumstances we have
    today. That is my concern.
        Chairman CAMP. All right. The time has expired.
        And, Mr. Secretary, I know we agreed on a hard stop at
    3:30. We do have three Members on each side that have not had
    an opportunity to question. I don't know if I could prevail on
    you----
        Secretary GEITHNER. Could I listen to the questions and
    then, if I don't have time, I will respond to them in writing?
        Chairman CAMP. All right.
    Why don't we have them at least pre-
    sent their questions to you. I appreciate your generosity in
    staying.
        So Mr. Blumenauer is recognized. And then, once you
    complete your question, we will go on to the next person.
        And then if you want to try to summarize at the end, I
    would appreciate that, Mr. Secretary.
        Mr. BLUMENAUER. Mr. Secretary, first of all, I would just
    identify with my friend, Mr. Thompson, about the energy.
        But my specific question that I would pose to you deals
    with what my friend from Louisiana talked about, about
    potential downside impacts of the President's proposal to
    eliminate outdated fossil fuel subsidies for the oil companies
    and invest in energy for the future. By the way, some of us--I
    have introduced legislation that would do exactly that, and I
    have a number of cosponsors.
        I would hope that you could analyze for us, in a world oil
    market where a barrel of oil is fungible and a price is
    determined internationally that is in the range of $2 trillion
    to $3 trillion, or more if it keeps going up, what impact $8
    billion would have on the $2 trillion to $3 trillion--the
    extent to which it has any benefit, would that inure to
    Europeans or Chinese, if it made any difference at all.
        It seems to me that would be useful for us, to have this
    proper context.
        Chairman CAMP. All right. Thank you.
        Mr. BLUMENAUER. Thank you, Mr. Chairman.
        Chairman CAMP. Mr. Berg.
        Mr. BERG. My question comes from North Dakota. Back in the
    1980s, we had a real financial problem, and we increased taxes,
    and the problem just continued. A decade ago, we had the same
    problem, a lot of other States did, after the dot-com bubble
    burst. And, really, we took the opposite approach. We tightened
    our belt. We didn't raise taxes. We encouraged the private-
    sector growth. And today we are below 4 percent unemployment.
    We encouraged the oil and energy industries to grow, encouraged
    those kinds of jobs, and they have had positive growth.
        So my question to you really relates to the importance of
    small business. My own experience is, when you tax small
    business, that is negative for them. It creates uncertainty.
    And so, in this budget, I see the taxes going up on small
    business. A lot of small businesses, are passthrough entities,
    and so they are paying taxes at ordinary income rates. In fact,
    I think 50 percent of small business is paying their tax as
    ordinary income.
        So, again, my question to you is how can we increase the
    taxes on these small businesses, and how can that be good for
    our economy?
        Secretary GEITHNER. Again----
        Chairman CAMP. All right.
        Secretary GEITHNER. Well, I am sorry. I said I wouldn't
    respond, but I will come back at the end.
        Chairman CAMP. All right. Mr. Kind.
        Mr. KIND. Thank you, Mr. Chairman.
        And, Mr. Secretary, thank you for being here.
        I, too, have a follow-up question about the fiduciary
    definition that is being worked on by Labor and SEC, but I will
    submit that in writing and hopefully get a response from you.
        But I don't know if you are or are not aware, but the
    Economic Policy Institute, a nonpartisan, independent group,
    finally had a chance to analyze the Republican continuing
    resolution that is before us this week. And they determined
    that, if enacted as proposed, it would result in over 800,000
    jobs being lost in both the private and public sector, given
    the policy implications behind their continuing resolution.
        I find that 800,000 number very fascinating, because, the
    day President Obama was sworn in, you may recall that we were
    losing 800,000 jobs a day. Since then, we have had----
        Secretary GEITHNER. A month.
        Mr. KIND. A month, A month. Since then, we have had 11
    consecutive months of private-sector job growth. The day he was
    sworn in, $17 trillion of wealth had already been destroyed in
    the stock market. Since then, over $13.5 trillion has been
    restored.
        And the day he was sworn in, he inherited from the previous
    administration a $1.5 trillion budget deficit. Now, the first
    year in which you guys had control of the budget, it was
    revised downwards by $150 billion. It is going up again next
    year, but that is primarily due to the continuation of the Bush
    tax cuts that all of them supported on the other side.
        And I think we just have a very stark contrast between two
    different visions for our country right now: one that is
    offering a very cold, dark assessment about the future of our
    nation and the possibility of economic growth, and one that is
    more hopeful and optimistic.
        I see that in the budget that this administration has
    proposed, especially in the area of innovation and
    competitiveness. I agree, and I think most people would agree,
    with the President in the State of the Union when he says, we
    have to out-innovate, out-build, out-create, out-compete the
    rest of the nations in the world. And there are smart
    investments in doing it and bad spending that we have to get
    control of in order to bring balance to all of this.
        And I would be interested, again, if you want to submit a
    written response or whatever, to highlight some of the more
    important investments you feel we have to move forward on in
    order to create the sustainable long-term economic growth that
    we face in this nation.
        Thank you.
        Chairman CAMP. All right. Mrs. Black is recognized.
        Mrs. BLACK. Thank you, Mr. Chairman.
        Mr. Geithner, I want to read from your written testimony
    here. You say, ``Our deficits are too high, and they are
    unsustainable. Left unaddressed, these deficits will hurt
    economic growth and make us a weaker nation. And we must go
    back to living within our means.'' I couldn't agree with you
    more.
        But this budget predicts, over the next 10 years, that we
    are going to lower our deficit to 3 percent of GDP. And I am
    just thinking about my 14-year-old grandson. And 10 years from
    now, what I can say to him is, ``You know, Dylan, I am really
    sorry that we could only lower this to 3 percent. And, by the
    way, you are going to have at least a $15 trillion deficit that
    you and your family are going to have to pay back. And I am
    really sorry that I just couldn't get it quite done for you.''
        Why is that our goal, to still be at a deficit, not a
    balanced budget, and not growing our economy to the point where
    we can start paying down our debt? That just seems like not a
    very good goal to me.
        Secretary GEITHNER. Excellent question. I agree with you;
    it is a place to start, but it is not enough.
        Chairman CAMP. Mr. Pascrell is recognized.
        Mr. PASCRELL. Thank you, Mr. Chairman.
        Mr. Geithner, let's put to bed once and for all, if you
    would--and I think you need to address this directly--that we
    did not--maybe the President did not address it for the other
    reasons, the entitlements. But it is not true that Federal
    health care reform adopted many--they did adopt many of the
    recommendations from Congress' own independent advisory
    commission. I hope you read it. The Medicare Payment Advisory
    Commission, very specific recommendations. And that by having a
    Medicare center for innovation, Medicare can now test and use
    new payment models to improve patient care and to bring the
    cost down. I have never heard anything about that from Fox.
    Ever, ever, ever will I hope to hear that.
        And my second area I think you should address is, we are
    cavalierly talking about public employees like they are
    chattel. That is what we do with cops and firemen and teachers.
    And they are not. They have given their lives to this country.
    If they have some bad ones in the mix, get them out of there.
    But you can't paint with a wide brush.
        We are now having a weird situation of increasing private
    jobs and the public jobs going down. And if you don't think
    that is going to cost us money, you are wrong.
        Thank you, Mr. Chairman.
        Chairman CAMP. All right. Mr. Schock is recognized.
        Mr. SCHOCK. Thank you, Mr. Chairman.
        Thank you, Mr. Geithner, for being here.
        There are two questions I want to highlight, one dealing
    with what some are calling the TARP tax, the tax being levied
    on institutions with assets over $50 billion. I am specifically
    interested in a couple of things: one, why in one step we are,
    with a broad brush, taxing all institutions with assets above
    $50 billion, whether they took TARP or not; and then, at the
    same time, we exempt out some entities that actually took TARP.
        And then, I think the question that is begged is, when the
    administration says we are making money on TARP, why would we
    need a tax to begin with?
        The other question deals with the budget, which really
    seeks to penalize those companies that utilize deferral. And
    for those of us that have companies in our State that are large
    multinationals, I guess my question would be, how does that
    help create jobs? And, more importantly, how does it help us
    become competitive in a world climate? For a company that may
    only have 10 or 12 percent of their operations overseas, we may
    be able to get the skin, but if 70 or 80 percent of what they
    sell is manufactured and sold in other countries, I would
    suggest that perhaps they are just going to leave if we
    continue to make it more and more uncompetitive for them to
    remain in America.
        Chairman CAMP. Mr. Crowley is recognized.
        Mr. CROWLEY. Thank you, Mr. Chairman.
        And I will be brief. I was hoping to have more of a
    discussion with you, Mr. Secretary. I appreciate your being
    here today.
        With respect to the health care reform law that we put in
    place and that you so ably helped to lead the charge on and to
    talk about the impact on the U.S. economy, I would have liked
    to have had a conversation and heard from you and your thoughts
    about what we are hearing more about, the taxation on America's
    middle class that that bill will bring about, how it is going
    to kill jobs in America. I would have liked to have talked to
    you about that. Or how it is going to kill small businesses,
    that small businesses will never use the tax credits that they
    have been afforded under the new law.
        I would have liked to have had a conversation about a lot
    of the falsehoods that have been spewed about this, and
    continue to be, even though small businesses are using tax
    credits, even though we are not killing small businesses in
    this country, nor are we killing job creation and growth, as
    you have just said, that we have consistently over the last 11
    months continued to see growth in the private job market. And
    that there is not going to be an increase, because of that
    bill, on taxes in the middle class.
        I would have liked to have had an opportunity to talk to
    you about that. I wasn't able to, so I think I answered the
    questions for you. But thank you very much for being here
    today.
        Chairman CAMP. All right.
        Mr. Secretary, I want to thank you for your time. You were
    very generous. I will certainly give you the opportunity to
    respond now, if you like, to touch on any of those things or to
    respond in writing at your discretion. If you would like to
    comment now, you may.
        Secretary GEITHNER. Well, can I just say a few final
    things?
        Chairman CAMP. Yes.
        Secretary GEITHNER. Let me just make a few final points.
        If you care about entitlement reform and our long-term
    fiscal deficits, the most important thing Congress could do is
    to make sure the reforms that were put in place to reduce the
    rate of health care cost growth remain in place, are enacted,
    that Congress sticks to them. And if we can find ways to go
    beyond, we welcome a chance to do that.
        A second observation to make: We had a lot of discussion
    about the state of the economy and what is going to be good for
    future growth. I just want to emphasize that, by any measure
    you can look at the fact that the stock market is up about 100
    percent since when we came into office, or you can look at
    overall levels of profitability for the American business
    community as a whole the American private sector you look at
    productivity growth, you look at the dynamics of innovation,
    what is happening in expert growth, the American business
    sector is in a dramatically stronger position today because of
    the actions taken by Congress and the President and the Fed
    over this period of time. Our job is to help make sure we
    reinforce that, because we have a lot of challenges ahead
    still.
        On the TARP tax, just a quick response: The law that
    authorized the TARP requires the administration to propose a
    fee to cover any losses so that we hold the taxpayer harmless.
    And those costs have come down dramatically.
        And, as I said, outside of housing, we are likely to earn a
    positive return. But because the independent estimates still
    estimate we still have some risk of loss, we felt obligated to
    put in the budget how would we propose to recoup that so the
    taxpayers aren't exposed to that. And we have proposed a very
    modest fee, only on those firms that were eligible, the largest
    firms that were eligible for the emergency assistance.
        Just one final thing on deferral: As you think about
    deferral, think about it this way. The current tax system at
    the margin makes it more likely that a company in your State is
    going to build a plant outside of the United States rather than
    inside of the United States. And what it means is that, if you
    have two companies in your State competing together, the
    current tax system will favor, with a lower tax burden, the
    company that builds that next plant outside of the United
    States.
        This is a complicated thing to fix, and we are committed to
    fixing it. That is one reason why we are proposing
    comprehensive tax reform. But as you look at these changes, I
    think you want to join with us in making sure that the tax
    system is working with our broad objectives at trying to
    strengthen incentives for investment here in the United States.
        And, again, any time you give any particular industry a tax
    benefit, tax credit, it means all other businesses, on average,
    pay higher taxes. That is not fair, and it makes us less
    competitive. That is something worth changing.
        Nice to be here today. Thank you. Excellent questions, good
    discussions. I look forward to continuing them with you. And
    let's see if we can do corporate tax reform.
        Chairman CAMP. All right, thank you. And thank you for
    being so generous with your time.
        And if Members have questions, they will submit them to you
    in writing. And I hope that we could receive a response.
        Chairman CAMP. Thank you again, Mr. Secretary.
        This hearing is now adjourned.
         [Whereupon, at 3:46 p.m., the Committee was adjourned.]
        [Questions submitted by the Members to the witnesses
    follow:]
        The Honorable Pat Tiberi

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        The Honorable Dave Reichert
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        The Honorable Diane Black
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        The Honorable Ron Kind
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        [Submissions for the Record follow:]
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