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<title> - THE PRESIDENT'S FISCAL YEAR 2014 BUDGET PROPOSAL WITH U.S. DEPARTMENT OF THE TREASURY SECRETARY JACOB J. LEW</title>
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[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

THE PRESIDENT'S FISCAL YEAR 2014 BUDGET

PROPOSAL WITH U.S. DEPARTMENT OF THE

TREASURY SECRETARY JACOB J. LEW

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

HEARING

before the

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

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

__________

APRIL 11, 2013

__________

Serial No. 113-FC04

__________

Printed for the use of the Committee on Ways and Means

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

U.S. GOVERNMENT PUBLISHING OFFICE

21-126 WASHINGTON : 2016
____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001

COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman

SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota DANNY DAVIS, Illinois
KENNY MARCHANT, Texas LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

Jennifer M. Safavian, Staff Director and General Counsel

Janice Mays, Minority Chief Counsel

C O N T E N T S

__________

Page

Advisory of April 11, 2013 announcing the hearing................ 2

WITNESS

The Honorable Jacob J. Lew, Secretary, U.S. Department of the
Treasury, Washington, DC....................................... 6

THE PRESIDENT'S FISCAL YEAR 2014 BUDGET

PROPOSAL WITH U.S. DEPARTMENT OF THE

TREASURY SECRETARY JACOB J. LEW

----------

THURSDAY, APRIL 11, 2013

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

The Committee met, pursuant to call, at 10:10 a.m., in Room
1100, Longworth House Office Building, Hon. Dave Camp [Chairman
of the Committee] presiding.

[The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

FOR IMMEDIATE RELEASE CONTACT: (202) 225-3625
Thursday, April 4, 2013
No. FC-04

Chairman Camp Announces Hearing on

the President's Fiscal Year 2014 Budget

Proposal with U.S. Department of the

Treasury Secretary Jacob J. Lew

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 2014. The hearing
will take place on Thursday, April 11, 2013, in 1100 Longworth House
Office Building, beginning at 10:00 a.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 Jacob J. Lew, 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 April 10, 2013, the President is expected to submit his fiscal
year 2014 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, ``The Ways and
Means Committee is committed to comprehensive tax reform that
eliminates tax loopholes, simplifies the code, and lowers rates. Tax
reform that accomplishes these goals can strengthen our economy, create
more jobs and allow American workers to start seeing an increase in
their paychecks again. This hearing will provide both the Committee an
opportunity to review the President's tax proposals and Treasury
Secretary Lew the opportunity to describe how the Administration
intends to work with the Committee and Congress to pass and enact
comprehensive tax reform.''

FOCUS OF THE HEARING:

U.S. Department of the Treasury Secretary Lew 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
page of the Committee website and complete the informational forms.
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 Thursday, April 25, 2013. 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. For questions, or if you encounter technical problems,
please call (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
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.

1. All submissions and supplementary materials must be provided in
Word format and MUST NOT exceed a total of 10 pages, including
attachments. Witnesses and submitters are advised that the Committee
relies on electronic submissions for printing the official hearing
record.

2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.

3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental
sheet must accompany each submission listing the name, company,
address, telephone, and fax numbers of each witness.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

Note: All Committee advisories and news releases are available on
the World Wide Web at http://www.waysandmeans.house.gov/.

<F-dash>

Chairman CAMP. Good morning. The Committee will come to
order.
Well, good morning, Mr. Secretary, and welcome to the Ways
and Means Committee. The last time you testified before this
Committee it was as ``Mr. Director,'' and so please allow me to
publicly say what I have already said to you in private, and
that is to congratulate you on your new post. And, as you are
well aware, this Committee has broad jurisdiction and interacts
with many departments and agencies, none more important than
the Treasury Department. And, as such, it is my sincere hope
that we will be seeing a lot of each other and equally
important that our staffs will be working together a lot as we
move forward.
On Monday, the front page of the New York Times business
section read, ``Lew to Press for Growth in Europe.'' And, Mr.
Secretary, I appreciate and share your concerns over the fate
of the European economy, but I am first and foremost troubled
by the growth and lack thereof of the American economy. The
simple truth is far too many families are still struggling.
They face higher food prices, higher gas prices, and higher
tuition prices for their children. Meanwhile, many have had
their hours reduced and their wages frozen.
There is no cure-all, but there are real, achievable
policies that can strengthen this economy and turn things
around for American families; chief among those are fixing our
broken, outdated, and complex Tax Code and balancing our
budget.
I am sure you will hear from Mr. Ryan and others on the
need to balance the budget, which the Administration's budget
never does, so I will focus today on the Tax Code. America's
Tax Code is broken, and I am committed to working with anyone,
Republican or Democrat, to fix it. And that is why I was
encouraged the President put forward a plan to tackle a few of
the challenges facing our Tax Code in his budget.
But the simple truth is that the President's proposal isn't
the real reform we need, and it doesn't go nearly far enough to
address the needs of all job creators. The problem with our Tax
Code isn't how much money it makes for Washington. In fact, our
government is on track to double the amount of money it takes
from hardworking taxpayers over the next 10 years, proving that
government has all the revenue it needs.
Instead, the problem with the Tax Code is that it costs
American families too much, too much in time, too much in
money, to comply with it. And, Mr. Secretary, you know these
facts: Americans spend over $160 billion each year trying to
navigate through the complexities of the U.S. Tax Code. It
takes the average American taxpayer 13 hours to comply with the
Tax Code, gathering receipts, reading the rules, and filling
out the forms the IRS requires. And much of this is due to the
fact that over the last decade, there have been more than 4,400
changes to the U.S. Tax Code. That is more than one a day.
Instead of reversing that trend and trying to make the Tax
Code work for the American people, this budget adds new levels
of complexities and creates new credits and deductions. And,
Mr. Secretary, it is our job to make sense of this Tax Code,
and I hope you and the President will work with the Congress to
deliver real reform to the American people.
Our Tax Code needs to be genuinely user friendly. You
shouldn't have to pay a professional to figure out your taxes.
The code is so riddled with layer upon layer of complexity that
9 out of 10 Americans don't feel comfortable doing their own
taxes, they are forced to either pay a professional or go buy
commercial software. Americans should have faith that their
government is taxing them effectively and efficiently. Instead,
they fear the IRS and the potential of being audited.
Our Tax Code needs to be fairer at a time when American
families are just trying to make ends meet. We shouldn't be
taking more of their money to bail out Washington's inability
to control spending. Let's put an end to the special-interest
loopholes and the handouts and use that revenue to create a
simpler, fairer Tax Code that lowers rates for all Americans.
And, Mr. Secretary, across this country, people are sick of
Washington's gridlock. And that is why I will work with you,
the President, Republicans, and Democrats to simplify and fix
this broken Tax Code. This budget is the first step. But the
American people can do better than what the President is
proposing here. It won't be easy, but this Committee,
Republicans and Democrats, are willing and ready to do the
tough work our constituents sent us here to do.
And we don't have to settle for the same old game of giving
Washington more taxpayer money and calling it reform. It has
been 27 years since this town cleaned up the code. It is time
for us to do our job again. Hardworking taxpayers deserve real
solutions and we need to make our Tax Code simpler and fairer
for every American. And let's work together to accomplish that.
I want to thank you again for being here. Congratulations
on your new job. And I will now turn to Ranking Member Levin
for his opening statement.
Mr. LEVIN. Thank you, Mr. Chairman.
Welcome, Secretary Lew. We have to get used to that title
since we have always known you with other titles, but mostly by
your first name. I am tempted to ask you, when is the first
time you appeared before this Committee?
Secretary LEW. The first time I was in this room was
probably in 1973 on H.R. 2, pension reform.
Mr. LEVIN. I will go on.
Well, we have enjoyed so much working with you in the past,
only one of us I think goes back that far. And we all look
forward to working with you in the days ahead.
You are appearing today to discuss the Administration's
2014 budget--that is why you are here--which follows those
presented earlier by House Republicans, House Democrats, and
Senate Democrats. Clearly, the Administration's budget reflects
an effort to open up a search for some common ground.
Unfortunately, this has been rebuffed in the responses of the
House Republican leadership. The Administration made clear that
any search for common ground requires a balanced approach. My
guess is the President has used the word ``balanced'' perhaps
more than any other word, for good reason; a combination of
budget cuts and additional revenues.
The Republican approach is based on imbalance. The tax cuts
the Republicans propose in their budget would leave a $5.7
trillion revenue gap. Yet they have never provided specifics on
how they would fill it.
What we know is that it would almost certainly require
eliminating or dramatically cutting tax provisions that have
been vital to middle- and low-income families, including the
mortgage interest deduction and the exclusion for employer-
provided healthcare.
Their budget reaffirms their plans also to turn Medicare
into a voucher program and to repeal the benefit provisions, if
not the revenues which they propose keeping.
In its budget, the Administration has also come forth with
some further ideas on business tax reform. And in doing so, it
has highlighted that while lower rates are important, they must
not come at the expense of critical investments that American
enterprises need to thrive and to succeed.
I hope that foundation in the theme of tax equity, among
others, will guide us as we face the challenge of tax reform;
tax reform based on reality, not mainly on rhetoric.
The imbalance in the response from House Republicans is
further illustrated, even as we hear today the testimony of
you, by their unwillingness to appoint conferrees to consider
the budget bills passed by the House and Senate in conjunction
with the Administration's budget. This continued Republican
embrace of a budget deadlock is all the more worrisome, if I
might say, as the sequester continues to unfold and as the debt
ceiling once again approaches.
Indeed, it was made all the more worrisome by the House
Republican hearing yesterday that focused on the debt ceiling
in terms of the possibility of prioritizing our obligations,
obligations all emanating from congressional actions. We cannot
continue on this dangerous path.
Hopefully, this hearing will serve as a constructive
opportunity to embrace a different path.
I yield back.
Chairman CAMP. Thank you very much, Mr. Levin.
Again, it is my pleasure to welcome Secretary Jack Lew back
to the Committee on Ways and Means. We look forward to your
testimony. The Committee has received your written statement.
It will be made part of the formal record.
And, Secretary Lew, you are recognized for 5 minutes.

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY, WASHINGTON, DC

Secretary LEW. Thank you very much, Mr. Chairman, and thank
you, Mr. Chairman, Ranking Member Levin, for your gracious
welcome here today. It is an honor to appear and to present the
President's budget for next year. And I sit here, as the
Chairman noted, surrounded by four decades of memories of many
important occasions when bipartisan cooperation has moved the
country forward in the best interests of the American people.
And I sit here today looking forward to continuing in that
tradition this year and in my current role.
Our economy is much stronger today than it was 4 years ago.
But we must continue to pursue policies that help to create
jobs and accelerate growth. Since 2009, the economy has
expanded for 14 consecutive quarters. Private employers have
added nearly 6.5 million jobs over the past 37 months. The
housing market has improved. Consumer spending and business
investment have been solid and exports have expanded.
But very tough challenges remain. While we have removed
much of the wreckage from the worst economic crisis since the
Great Depression, the damage left in its wake is not fully
repaired. Families across the country are still struggling.
Unemployment remains high. Economic growth needs to be faster.
And while we have made substantial progress, we must do more to
put our fiscal house in order.
At the same time, political gridlock in Washington
continues to generate a separate set of headwinds, including
harsh, indiscriminate spending cuts from the sequester that
will be a drag on our economy in the months ahead if they are
not replaced with sensible deficit reduction policies.
This is my first opportunity to appear before you as
Treasury Secretary and discuss from this vantage point how we
need to confront these difficult challenges. But this is far
from the first budget I have worked on. In my experience, a
good budget offers practical solutions to problems of its time.
The President's budget does that by making the investments that
will drive a growing economy and by reining in our deficits
responsibly so we can replace the across-the-board cuts
immediately and restore fiscal stability over time.
A good budget must also be grounded in reality. And this
budget deals squarely with the world as it is now and as it
will be in the future. It reflects the need for compromise to
find a path that could command bipartisan support, and it
recognizes issues of major consequence: like the fact that our
demographics are shifting with the retirement of the baby
boomers, the number of retirees is growing; like the fact that
millions of Americans are living in poverty today; like the
fact that wages and incomes for middle class Americans have not
improved for more than a decade; and that, despite the
significant strides through the Affordable Care Act, healthcare
spending remains a key driver of long-term deficits.
This budget is animated by the simple notion that we can
and must do two things at once: Strengthen the recovery in the
near term while reducing the deficit and debt over the medium
and long term.
This has been the President's long-standing approach to
fiscal policy. And when you compare the trajectory of our
economic recovery with those of other developed countries in
recent years, it is clear why the President remains so
committed to this path.
As the Chairman noted, I just returned from meetings in
Europe. And it is clear that in countries where austerity
measures were implemented too quickly, those economies have
stumbled. Ours is a different story. Notwithstanding the need
to do more, our economy continues to expand with the support of
growth-oriented economic policies, even as we make meaningful
progress to reduce the deficit. And it is important to bear in
mind how meaningful that progress has been.
In the last few years, the President and Congress have come
together to hammer out historic agreements that substantially
cut spending and modestly raise revenue. When you combine these
changes with savings from interest, we have locked in more than
$2.5 trillion in deficit reduction over the next 10 years, and
today, we are putting forward policies that will lower the
budget deficit to below 2 percent of GDP and bring down the
national debt relative to the size of the economy over 10
years.
We restore the Nation's long-term fiscal health by cutting
spending and closing tax loopholes, taking a fair and balanced
approach. The budget achieves this balanced approach through
very specific steps, such as reforming agricultural subsidies
and eliminating tax preferences for companies that move
operations and jobs overseas.
At the same time, the budget incorporates all elements in
the Administration's offer to Speaker Boehner last December,
demonstrating the President's readiness to stay at the table
and make very difficult choices and find common ground.
Consistent with that offer, the budget includes things the
President would not normally put forward, such as means testing
Medicare through income-relating premiums and adopting a more
accurate but less generous measure of inflation, known as chain
CPI. It includes these proposals only so we can come together
around a complete and comprehensive package to shrink the
deficit by an additional $1.8 trillion over 10 years and to
remove fiscal uncertainty that has dragged on economic growth
and job creation.
This framework does not represent the starting point for
negotiations. It represents a fair balance between tough
entitlement savings and additional revenues from those with the
greatest income. The two cannot be separated and were not
separated last December when we were close to a bipartisan
agreement.
This budget provides achievable solutions to our fiscal
problems, but as crucial as these solutions are, we have to do
more than just focus on deficit and debt. Now, I know the
significance of balancing the budget, and I will not take a
backseat to anyone when it comes to fiscal responsibility.
Under President Clinton, I helped negoti-
ate the groundbreaking agreement with Congress to balance the
budget. As director of OMB, I oversaw three budget surpluses in
a row, and worked with many on the left and the right on our
plans to pay off our debt. It will come as no surprise that I
was profoundly disappointed to see those surpluses squandered.
But that does not mean we should make deficit reduction our
one and only priority, not when our world demands that we both
confront our fiscal challenges and make targeted investments to
propel broadbased growth. So in addition to ensuring that we
have sound fiscal footing, this budget lays out initiatives to
fuel our economy now and well into the future. Every one of
these initiatives is paid for in our deficit reduction package,
meaning they do not add a dime to the deficit.
As the President explained in the State of the Union, the
surest path to long-term prosperity is to strengthen the middle
class. This budget does that by zeroing in on three things:
Bringing more
jobs to our shores; making sure American workers have the
skills needed to do those jobs; and making sure hard work
amounts to a decent living.
To generate more jobs in the United States, we focus on
growing our economy by making it more competitive. The budget
launches advanced manufacturing hubs around the country,
invests in research and technology, and cuts red tape to expand
domestic energy production, including clean energy and natural
gas. It also puts people to work right away repairing our
deteriorating roads, railways, bridges, and airports so our
economy can compete in the future.
We have made considerable headway over the last few years
to improve education and worker training. And we can go even
further by helping students acquire the skills that today's
economy demands. That means joining with States to give every
child a solid preschool education. It means reconfiguring high
schools so students can get the high-tech, high-wage skills
businesses need. And it means making college more affordable.
Finally, the budget would help lift communities hit the
worst by the recession, and it would adjust the minimum wage so
that full-time workers are not stuck in poverty. The proposals
I just outlined are part of the President's framework for
growing our economy and cutting our deficits. And as this
budget shows, we do not have to choose between the two, and we
must not. We can adopt a powerful jobs and growth plan, even as
we embrace tough reforms to stabilize our finances. This is the
way a budget will make our economy stronger and help create
jobs now and in the future.
Before I close, I just want to say that the debate we are
engaged in is very important. It is part of a complex sorting-
out process that will determine our Nation's future. But
everyone on this Committee knows that the path before us is
going to be a struggle. It will require difficult decisions
that will directly affect the daily lives of millions of
Americans, entrepreneurs and immigrants, soldiers and veterans,
the young and the elderly, the working poor and the very well
off. And it matters that we get this right.
With that in mind, I come here today optimistic about what
we can accomplish. I believe we can find common ground to stop
the unnecessary standoffs and manufactured crises; that we can
come together to forge an agreement to right our fiscal ship
and that we can make the compromises that are necessary to meet
our obligations to future generations.
Thank you, Mr. Chairman, and I look forward to answering
your questions.
[The prepared statement of Secretary Lew follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman CAMP. Well, thank you, Mr. Secretary.
I am interested in making the Tax Code work for families,
instead of the special interests here in Washington. And I am
interested in fixing this Tax Code so families struggling to
get by and maybe save a little for their college education can
do so. And this budget talks about reforming the Tax Code for
corporate America, but it does not talk about reforming it for
families and individuals. I think we can do better.
For example, there are 15 different tax breaks for higher
education, including nine for current expenses, two for past
expenses, four for future expenses. The IRS publication on tax
benefits for education is 90 pages long. This isn't a Tax Code
designed for working families; it is a Tax Code designed to
make money for accountants and tax planners. Don't you think we
should make some sense of all of this and help working
families?
Secretary LEW. Mr. Chairman, I totally agree. And the
President's budget has in the past called for individual tax
reform as well. The President has laid out principles to guide
that. I think that the idea of tax simplification, broadening
the base, is very important. The President has put it in the
context of a fiscal plan where I think we have, you know, a
number of objectives that have to be achieved at the same time.
We have to get our fiscal house in order. As part of that,
we need to raise more revenue. And we think the tax reform
ought to produce that ability to both raise revenue, simplify
the Tax Code, and make it so that ordinary people don't need to
have complicated, hours-long processes or go to accountants for
simple tax forms. You know, I participated in 1986 in tax
reform. I know how hard it is to do. And I look forward to
working with you on a bipartisan basis to get that done.
Chairman CAMP. And I was pleased to see the Administration
taking more concrete steps toward tax reform in this budget.
And, again, I look forward to looking with you and the
President to make the code simpler and fairer for families and
individuals and to help strengthen the economy.
And when I talk to middle class Americans in Michigan, back
home in my district, they are frustrated by the current state
of the Tax Code. And, I mean, rightly so. They don't understand
the complexity. And they may not know that there have been
4,400 changes over the last decade, but certainly they know
that there have been a lot of them.
And it just seems unfair to me that the Tax Code forces
Americans to spend over $160 billion to comply and 6 billion
hours--almost 13 hours per person. That is the average
taxpayer. I mean, every year, complying with the code is more
expensive, more costly. And particularly when you look at the
very tight margins small businesses are on, I mean, this is a
huge cost to them. And, frankly, it should be their time and
money, not the IRS'. And I commend the Administration for
proposing revenue-neutral tax reform in the bill. But, again,
don't you think individuals and families deserve a tax reform
that makes the code simpler and fairer for them, too?
Secretary LEW. Mr. Chairman, I believe that we need to do
both individual and business tax reform. And in the context of
overall tax reform, to be clear, we do not think it can be
revenue neutral. We think that there needs to be additional
revenue to help get our fiscal house in order. And the budget
calls for $580 billion of additional revenue.
On the business side, our goal has been very clear. I could
not agree with you more that we need to really go at all of the
special provisions, the deductions, the credits that complicate
the business tax system. We need to enable ourselves to lower
the rates, so that our statutory rate could be more competitive
with the rest of the world. Our goal in business tax reform is
really to stimulate economic growth and job creation. And I
don't believe it can be separated from overall tax reform. I
think if you look at the decisions that small businesses make,
even how to organize, whether to be a partnership or a
corporation, it makes a big difference what their relative
treatment in the individual and business tax systems is.
So, just intellectually, one has to look at it as a whole.
I think that this is a big challenge. This is something that
will require Democrats and Republicans standing shoulder to
shoulder, because every one of the provisions that we would
eliminate to broaden the base has people and businesses that
support it. And, you know, that is a process that could only be
done through bipartisan cooperation.
Chairman CAMP. All right. Thank you.
Mr. Levin.
Mr. LEVIN. Thank you. When you look at business tax reform,
the President's budget suggests that we need to maintain
certain provisions that relate to manufacturing and
entrepreneurship.
But I want to focus, Mr. Secretary, on the gridlock in
Washington today--you are the Treasury Secretary--and what the
consequences are. So, just briefly, I want to start with the
sequester. Are you concerned?
Secretary LEW. Congressman, I think that the sequester is
very bad policy. You know, it was designed to be bad policy, to
motivate both sides to come up with a more sensible plan to
achieve deficit reduction. And I think one thing we can be sure
of is when you go out of your way to design bad policy, you can
produce bad policy.
The effect of the sequester is not anything that anyone
should choose. They are senseless across-the-board cuts. If you
look overall at the impact, at a time when we should be
worrying about growing the economy, it takes roughly a half
percent of GDP growth out of the economy. So it is not good
policy in terms of the impact of the individual cuts. It is not
good policy in terms of the overall impact on the economy.
I do believe we need to have a long-term, sensible path of
deficit reductions. The President's budget reflects that. It
has to be balanced, there has to be shared sacrifice. And the
sooner we do it, the better. I think if you look at the series
of deadlocks that we have had over the last few years, each one
has led to a loss of confidence in the economy, each one has
caused individuals and businesses making decisions on whether
to invest and grow their businesses and hire to worry about,
was government going to cause there to be headwinds that made
that not the right time to make an investment decision? I think
government should be helping, not hurting, in the economy
recovery, and replacing the sequester with a sensible, balanced
plan would do that.
Mr. LEVIN. And it should be done now?
Secretary LEW. The sooner the better. We don't have an
economic emergency in terms of deficit right now. Our budget
makes clear that we need to be on a path over the next 10
years. The cuts this year are not what matters so much as the
reliable path over 10 years. The sooner we get the sequester
out of the way, the sooner the economy will be relieved of the
burden of that half-percent cut in GDP, and the sooner programs
that people depend on will get back to normal.
Mr. LEVIN. So let me ask you about another piece of this
gridlock, the debt ceiling. It is going to once again be bumped
into. And there was a hearing yesterday about prioritization as
to the debts we pay. Could you give us the Administration view
on how we handle the debt ceiling?
Secretary LEW. Congressman, I think the President has been
clear that there is no choice but for Congress to extend the
debt limit. The debt limit does not commit any new spending.
All the debt limit does is it permits the government to pay the
bills that Congress has authorized to be incurred. And from the
beginning of our history, the United States has always paid its
bills. So there is no way to pick and choose about paying your
bills without being in default on one or another obligation. So
the only answer is to extend the debt limit, which is what we
expect Congress will do.
Mr. LEVIN. Lastly, you referred to growth, and there was
some reference to your trip to Europe and your concern
expressed there about their continued, I think at times, rigid
embrace of austerity. So why is there a major jobs component
within the President's budget?
Secretary LEW. I think if you look at the experience we
have had in the United States and compare it to Europe, we have
had a stronger recovery because we got our financial system
under control; we put measures in place quickly to deal with
the depth of the recession, and we have done our fiscal
consolidation, our deficit reduction over time. I think that is
a proven path. It is something that--we are experiencing growth
that is too low and growth in jobs that is too slow. But it is
much more than the general experience in Europe and in much of
the world.
I think that we need to grow the economy, create jobs, and
get our fiscal house in order. And that is a message I brought
with me in the meetings I had earlier this week. I think there
is a softening in some sense in Europe. They started out a
couple of years ago not worried about the impact of very high
unemployment as much as we thought they should be. I think
there is a growing concern in Europe that it is a serious
structural problem. We start out with that understanding in the
United States. We think that 7.5 percent is a high unemployment
rate. Double-digit unemployment rates are unthinkable, and you
have to have policies to deal with that.
Mr. LEVIN. Thank you.
Chairman CAMP. Mr. Johnson is recognized.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. Secretary, I realize you are time constrained, so on
some of these questions I would like you just to answer yes or
no, if you don't mind.
With respect to securing Social Security's future, in his
book, ``The Predictable Surprise,'' retirement expert Syl
Schieber said, ``If we fail to act, we threaten the prosperity
of younger generations, a prospect your former boss, President
Clinton, said would be horribly wrong and unfair.'' And I
appreciated that comment. That was 15 years ago, though.
And that said, I am encouraged that the President's budget
took a first step toward protecting Social Security for today's
workers by including the chained consumer price index to
calculate the annual cost-of-living adjustment. Do you think
this is a more accurate way of measuring inflation?
Secretary LEW. I think, as I indicated in my opening
comments, Congressman, there--it is something we are prepared
to do as part of a balanced deficit reduction package.
Technically, it can be justified, but it does have an impact in
terms of reducing rates of increase and benefits.
Mr. JOHNSON. Long term, yes. I hear a lot of talk from AARP
and others that using chained CPI cuts benefits. Is that true?
And I think it does.
Secretary LEW. It reduces the rate of growth in the cost-
of-living increases by about \3/10\ of a point.
Mr. JOHNSON. Basic benefits are not cut.
Secretary LEW. The underlying benefits are not cut.
Mr. JOHNSON. Right. Benefits still grow each year that
there is inflation.
Secretary LEW. There is no doubt that we have not supported
any measure that would cut the basic benefit.
But I don't want to be misunderstood. A reduction of the
rate of growth has an impact. And it is something that is very
significant. And I appreciate your recognizing that in your
opening comments.
Mr. JOHNSON. We do.
Secretary LEW. It is very significant. The provision
imposes a----
Mr. JOHNSON [continuing]. Long term, it reduces the Social
Security deficit by just 10 percent. It is not immense. Does
the President plan to close the remaining 90-percent cap, or is
he just going to pass the bill to our grandkids? And is he
serious about fixing Social Security?
Secretary LEW. The President's made clear over the last
several years that he would very much want to work with
Congress on a bipartisan basis on a long-term plan to make
Social Security sound for the long term. He has laid out clear
principles that guide that. And we would look forward to
working with the Congress on that. I think it is important for
all of us to remember that in dealing with Social Security the
fundamental goal has to be protecting Social Security, and
getting it out of the context of the budget to have a long-term
discussion is probably a good idea.
Mr. JOHNSON. I happen to agree with you.
Next week, the Subcommittee on Social Security will hold
the first hearing in the hearing series announced by Chairman
Camp on the President's and other bipartisan entitlement reform
proposals. And that hearing will focus on the chained consumer
price index, eliminating double-dipping with respect to
unemployment and disability benefits. And I am deeply troubled
the President's budget includes no proposal to prevent the 21
percent across-the-board cut disability insurance beneficiaries
face in 2016, just 3 years from now.
The Social Security Subcommittee has held seven hearings
over the last year on the disability insurance program, and I
hope you will work with us to secure the future of that vital
safety net.
And under current law, a person can receive both disability
and unemployment at the same time. And that isn't right. I
don't know how someone can be able and available to work and
also be unable to work due to disability. So today I am going
to introduce a bill to stop people from receiving disability
benefits at the same time they are receiving unemployment
benefits. And in his budget, the President proposes to stop
this, too, and I look forward to working with the
Administration to get this bill signed into law.
Thank you for your time.
I yield back, Mr. Chairman.
Chairman CAMP. All right. Thank you.
Mr. Rangel is recognized.
Mr. RANGEL. Thank you, Mr. Chairman.
Thank you.
Congratulations, Mr. Secretary.
In New York, we live in two different worlds, especially in
the borough of Manhattan; we have the world of wealth and
riches, and then we have the inner cities of poverty and
despair. And I just can't believe at a time of a national
crisis that those that are doing so well are protected and
those that--that are not doing well at all, it seems to be we
are moving backward.
With all due respect to the President's calculating the
chained CPI, at the end of the day, benefits that would be
received under the existing system would be reduced. And yet we
are living, I think, at a time where the stock market--is it
now presently at an all-time high?
Secretary LEW. It has been.
Mr. RANGEL. And would that not apply to the incomes of the
chief executive officers? Is it true that they are getting paid
millions of dollars for the work that they are doing? I mean,
you would know this better than most people.
Secretary LEW. Mr. Chairman, I don't follow day-to-day
corporate salaries.
Mr. RANGEL. I know. But, generally speaking, for a
corporate leader and the holder of our economy to receive $2
million or $3 million, it doesn't raise any eyebrows. Having
said that, everyone knows it. Everyone knows it.
And it just seems to me that when we take a look at the
Republicans' budget, that would indicate that at a time through
all of this crisis, we still find unemployment going down, we
still find minor increases in employment, that we would say,
now is the time to stop spending, now is the time to cut
Federal programs.
Now, cutting doesn't mean you are saving money. But at a
time that we are trying to come back with the economy, that
world that you spent a little time in, in the private sector,
where are their voices? If these people are not working, have
no disposable income and cannot buy, then small business cannot
sell. And where are they? They are not complaining about a tax
increase, but they are certainly not involving themselves in
trying to resolve this issue that we found ourselves in.
So I don't know what happens when you get out there, but do
you hear from the private sector in terms of how we can break
this gridlock?
Secretary LEW. Congressman, you know, I have to say that in
the debate that we had at the end of the year last year, I had
numerous CEOs tell me directly that they thought we should have
the rate increases that went into effect. They were not at
all--it wasn't just that they weren't opposing it; they were
more comfortable having the issue resolved that we go back to
the rates because they were embarrassed by the argument about
whether or not they could afford the tax rate that was enacted
in January.
I think that--you know, going forward, it is going to be
very important for the business community to stand up for the
kind of balanced approach we are talking about. Because they
care about the end result, which is having the deficit and debt
be sustainable, and they care about economic growth. We
certainly are making the case for the budget in every sector
that we can, including in the business world.
And I think the underlying problem that you identified is
one that is kind of central to what drives our budget. The
disparity of income in this country is a real problem. It is a
real problem.
Mr. RANGEL. Mr. Secretary, when we talk about increasing
the minimum wage, the private sector's voice is heard so loud
it is deafening about what would happen if the lowest people on
the economic ladder get an increase in the minimum wage. I
don't know what benefits my Republican friends get out of such
a small number of Americans receiving so much profit, so much
income, and they are willing to whisper to you that they are
prepared to make some sacrifice for the good of the Nation, and
yet they don't know how to communicate this.
I mean, it is totally unbelievable. With all of the money
that they spend on K Street, the people in the middle of my
district, they don't have people that come down here to protect
their interests, not even a fair, equitable way to determine
how we are going to cut money from them from Social Security.
But, having said that, do you respond when the people tell
you that, you know, the President's right, we should be paying
more, we should be involved in this deficit ending?
Secretary LEW. Well, I actually heard quite a lot from the
business community at the end of the year supporting the kind
of balanced approach we are proposing. I think they are a
little confused by the budget debate in Washington these days.
I mean, when I talk to business leaders now, they don't know if
there is still the chance of a bipartisan agreement, or if it
is completely on the sidelines. One of the things the
President's budget is saying is there is space in the sensible
center for a budget agreement. And I hope that will invite
those who care to come off the sidelines.
Mr. RANGEL. Give us the names of those cooperative
corporate leaders. I will bring them up here, and we will see
what we can do.
Chairman CAMP. Time has expired.
Mr. RANGEL. Thank you, Mr. Chairman.
Chairman CAMP. Mr. Brady is recognized.
Mr. BRADY. Well, it is not exactly a profile in courage
that big business leaders were willing to raise taxes on the
small businesses in America and not exactly a courageous move,
by any measure.
You know, this budget is not fair to taxpayers. The
President's budget never has to balance, so Washington never
has to live within its means. It is not fair to seniors. The
President refuses to save Social Security or Medicare for its
own sake, for the seniors, rather than attach all these
unrelated provisions that have nothing to do with those
important programs. And it is certainly not fair to the
unemployed, those who can't find a breadwinner in their family,
because this recovery has been the weakest in modern times. We
are missing 4 million jobs because of the growth gap that is
getting bigger. Food stamps, since the recession bottomed out,
Americans are more likely to be forced to the food stamp line
than to actually walk into a company that has offered them a
new job.
And those who have given up hope and just dropped out of
the workforce--we have gone backward to Jimmy Carter days--I
don't think this budget is fair to them because it stays the
course on just very weak, poor economic leadership.
Looking toward those areas where there may be common
ground, tax reform and saving Social Security and Medicare, I
think there is a path forward. I don't think we ought to close
loopholes so the government can spend more; we ought to close
loopholes so we can have higher taxes for everyone, families,
small business, big business, as well.
And so I have three questions for you, Mr. Secretary.
And, like Chairman Camp, I welcome you back to the
Committee, and I appreciate the work you have done in the past.
I think you can bring a valuable work ethic to this whole
effort.
My first question is, will you commit to sitting down with
Republicans today, starting now, to fix the broken Tax Code
this year?
Secretary LEW. Congressman, we are already working to
provide technical support for both the House and the Senate as
you do your work.
Mr. BRADY. So that closer--so you, Mr. Secretary, the point
man for the President on tax reform, are you willing to sit at
the table and stay at the table to finish fundamental tax
reform this year?
Secretary LEW. Congressman, in the context of our overall
fiscal plan, we have a disagreement on whether or not we need
to raise revenue. That is a legitimate disagreement. We are
going to have to work our way through that. In the context of a
fiscal plan that solves our deficit problems, we very much want
to engage on tax reform.
Mr. BRADY. Is that closer to a yes, that you will come to
the table and stay there?
Secretary LEW. I have always----
Mr. BRADY. Closer to a no?
Secretary LEW. I have always been prepared to talk, and I
remain prepared to talk. But I would also like to be very
clear, I can't paper over what is a significant difference.
Mr. BRADY. The question isn't that there are differences;
we have different ideas. The question is, will you commit to
coming to the table now to resolve those differences?
Secretary LEW. We have always been prepared to talk with
this Committee and other committees about the important
business before us. Nothing is more important than getting our
fiscal house in order. And as part of that, tax reform is a
very important part.
Mr. BRADY. Could you possibly be more vague at this point?
Second question: Will you commit to fixing the broken Tax
Code for families and small businesses as well as for big
businesses?
Secretary LEW. Again, as I responded earlier, we are very
much supportive of both individual and business tax reform. We
think they need to move together, and we would like to work
with you to do that this year.
Mr. BRADY. And so your point is we should not do--the White
House's point is we should not do corporate tax reform alone,
that we need fundamental reform, authentic reform for families
and small businesses as well?
Secretary LEW. Congressman, you are asking questions about
small business. Small businesses have to make the decision
whether they organize under the corporate tax laws or as
partnerships under the individual tax laws. I don't know how we
create a situation where they can make a sensible decision if
we don't deal with it----
Mr. BRADY. But the government's role is not to tell
businesses how they organize.
Secretary LEW. No, not at all.
Mr. BRADY. And so many of them file as individuals. So my
question is really simple: Will you commit to authentic tax
reform, fix this broken code for small businesses and families
as well as big businesses?
Secretary LEW. So, Congressman, I am trying to answer with
some precision. Small businesses do make their own decisions
how to organize. One of the reasons they organize as
partnerships is that our statutory rate is so high on the
business side. So as we go through business tax reform, that
will change the decisions that many of them make.
Mr. BRADY. Ten seconds: Will you commit to saving Social
Security and Medicare for its own sake?
Secretary LEW. I have for 40 years believed in Social
Security and Medicare----
Chairman CAMP. Mr. McDermott is recognized.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
We have been buried in this tsunami of propaganda that the
problem here is there is too much spending and there is not
enough tax relief for the people at the top. Hedrick Smith of
the New York Times has written a book called, ``Who Stole the
American Dream?'' You sat here through almost all of this,
because it started in 1971. And he chronicles the process by
which we have done that. And in the process, over the 30 years,
the middle class has been hollowed out. Their incomes have been
stagnant. Their job prospects are diminished. And their
retirements are less secure. It has been a long time coming,
what we have today. But the big start was under Reagan, with
the disastrous Reagan cuts of 1981 that favored the wealthy, it
never trickled down on the rest of the country. Reagan
introduced a trend of emptying out the middle class pockets,
and it has really gone on. In the 1980s, say, and 1990s,
401(k)s were popularized and pensions were ended, and for many,
many people in this country. So the retirement security of
Americans is deeply, deeply underfunded. Banking deregulation
started in the 1990s, along with the Reagan creation of the
sub-prime, sub-prime, high-interest rate housing loans that
started us into the disaster of 2007. The disastrous 2001 and
2003 Bush tax cuts have given us the chunk of the deficits--a
big chunk of the deficits.
Now, in this country, if you play by the rules and you work
hard, you are running in place, you are running in place; you
are not getting ahead, and you know your kids aren't going to
do as well as you did. That is what the American people think
today.
There is some stuff in this budget which I like. There is
investment in the future; that is, in worker retraining, the
infrastructure bank, money to end the sequester.
I worry about our healthcare history in the long run if we
don't continue to invest at the National Institutes of Health.
People get Ph.D.s; we don't make the advances. We simply allow
Singapore and other countries to take it away from us. And so
that whole question of investment gets lost in all this talk
about corporate tax reform. We lower the rates on corporate
taxes, we come down to 15 percent on capital gains, where are
we? The middle class is being destroyed in this country.
Now, what I want you to do is imagine that we are a bunch
of workers from Ohio, out of work for a year. What would you
say about this budget that would be aimed at letting them
understand that the President is charting a new course to save
the middle class, which they feel is being crushed--they can't
educate their kids, they are losing their houses, they haven't
been working for a year, and they are looking for some hope?
Secretary LEW. Congressman, I would say there is much in
this budget that I would point to, to that working family, from
our commitment to education from early childhood through higher
education, to make sure that every child has a chance to have
the skills to compete in the economy that they are going to
grow up in.
Mr. MCDERMOTT. That is a long-term thing. Give me
something----
Secretary LEW. It starts right away.
Mr. MCDERMOTT. Give me something I can see tomorrow.
Secretary LEW. For early childhood education, it starts
right away. We can't wait until people are 22 to ask if they
have the skills they need.
Our infrastructure proposals are to jump start
infrastructure spending. I can make the case for infrastructure
on so many levels. When I talk to CEOs, one of the first things
they usually say to me is, we are worried about our
infrastructure. Our airports, our water ports, our roads, our
bridges, we are not going to be able to compete in the 21st
century. Well, those are jobs today. To rebuild our
infrastructure is not way off in the future; it is something we
need to start immediately.
Mr. MCDERMOTT. Our Republican colleagues resisted all the
President's efforts or almost all the President's efforts in
infrastructure creation a couple years ago. Explain to me how
you are going to finance it, and how it can work. How will it
work?
Secretary LEW. Well, obviously, it has to be in the context
of an overall fiscal plan. We have to show we are on a path in
the long term, medium and long term, for bringing our debt and
our deficit under control. Our budget has made it clear that
when you make the tough decisions, you afford to do that.
In addition to everything else we are doing in this budget,
we are also ending a second war. And as we do that, we are
freeing up resources. And we would say that as we end the war
in Afghanistan, we need to invest here at home; as we end a war
in Iraq, we need to invest here at home. And we have a budget
that brings the deficit down to below 2 percent of GDP in the
10th year and invests in building our economy and creating jobs
today.
Chairman CAMP. All right. Thank you.
Mr. Tiberi is recognized for 5 minutes.
Mr. TIBERI. Growing up in a working family from Ohio, my
colleague from Washington State is really trying to engage me
in a little dialogue here, and I am not going to take the bait.
But I will remind him that back in 2010, Mr. LaHood
testified at the time opposed to a gas tax with respect to
infrastructure. But I am not going to go there. I don't want to
take my time today away from the Secretary. Thank you.
And I am going to be in a learning mode here. The first
question I have for you is, and you may not know the answer to
this, but if you could have your staff get back to me and try
to be constructive. It has come to my attention from some folks
in Ohio that the IRS is seeking to impose a ticket tax on
transportations of people in the air for management services.
And they are reinterpreting, last year, reinterpreting a law
that was passed during the Nixon Administration. And my
understanding is, if you look at this, they are legislating
rather than administering. And, clearly, in my opinion,
overstepping their authority as a regulatory agency.
The IRS argues that the new interpretation is correct and
that the tax has been due all along. Does ``all along'' mean
since 1970? I don't know. But I am concerned about it. And I
would like to have your staff maybe communicate with us on what
you believe the IRS is doing and if it is correct.
Secretary LEW. Congressman, I would be happy to look into
it.
Mr. TIBERI. Thank you. And I don't want to put you on the
spot. But it is an important jobs issue in not just Ohio but
all over.
I, along with my colleague, Mr. Kind, who I don't think is
here, are cochairing a group on retirement savings. And in the
President's budget, for the very first time, there appears a
provision that I would like to learn more about, and see if you
could maybe comment on it. It deals with retirement savings. It
deals with, it appears, capping the amount of dollars that an
individual can have in a retirement account, in terms of tax
benefit in a retirement account, and it appears it caps the
revenue stream in retirement at $205,000, cumulatively at $3
million. My question is now--and I am trying to learn, I am not
being critical--thinking back to my own TSP that didn't have $3
million in it, but thinking about what happened in 2007,
between 2007 and the end of 2008, and I am sure it represented,
my account represented what happened to most every American,
the value of that account, based upon the stock market collapse
in 2008, significantly went down. So if you are 58 years old
and you are not retired for 10 years and the stock market is
high and you have $2.9 million, do you stop saving to avoid
this for retirement? Do you worry about, well, is the market
going to go way up at this point, or could it go way down? And
it could go from $2.9 million to $1.9 million in a matter of
months, based upon the experience we saw. How do we--and I
include myself in this--how do we manage, administrate a
program like this to make sure that it is done without any
penalties being created or encouraging people to take an early
withdrawal to avoid some sort of penalty if they go over the $3
million? I am just thinking about where this is coming from in
terms of administering it. I think I know the politics of what
you are trying to get to, but I am concerned about those
impacts.
Secretary LEW. Congressman, retirement savings is a hugely
important issue. And for the average working family,
unfortunately, retirement savings are more like $50,000 to
$70,000 than $3 million. So for the average working family,
they are so far from that $3 million level, that they probably,
listening to this conversation, would wonder what we are
talking about.
Mr. TIBERI. Mr. Secretary, I get it. My dad has a sixth-
grade education, came to America, and for my entire lifetime,
starting as a kid, talked about saving for retirement. But what
our task force is up here for is to try to encourage everybody
to be self-sufficient. And what I don't want to do as a
policymaker is send the message, we are going to go after
somebody who is trying to be self-sufficient and create another
trap for them or penalty for them. I am just trying to figure
out, how do we administer that?
Secretary LEW. So we have for a long time looked at ways we
could encourage more people to participate in savings, and we
have a proposal that we would hope would be part of the
conversation that would have automatic enrollments, so that
people opt out instead of opt in. This is a simple behavioral
change that we think would very much improve the likelihood of
people saving early and through their careers.
The provision here, it really reflects a judgment that
there should be tax incentives up to a certain point. But
beyond that, we certainly encourage people to save beyond that.
The tax incentives have to be looked at in the context of the
tradeoffs. And to save for your retirement with tax benefits, a
limit of $3 million seemed like a reasonable place to draw the
line so that we are encouraging the vast majority of Americans
to save as much as they possibly can.
Chairman CAMP. All right. Time has expired.
Secretary LEW. Thank you.
Chairman CAMP. Mr. Lewis is recognized.
Mr. LEWIS. Thank you, Mr. Chairman.
Welcome, Mr. Secretary. I just want to take an opportunity
to thank you for your many years of service, not just to the
Congress, but to our country.
And, Mr. Secretary, the unemployment rate in the city of
Atlanta is at 8 percent. So, as you can guess, many people in
my district, like people all around our country, are very much
focused on jobs. Since first being elected, President Obama has
made it very clear that we need to invest in jobs and job
creation. Would you tell us how this budget reflects the
Administration's continued efforts to create jobs and help
people get back to work?
Secretary LEW. Congressman Lewis, thank you for the very
kind comments.
This budget is all about growing the economy and creating
jobs. In its kind of macro sense, it is about taking the steps
we need to this year and over the next 10 years to make sure
that there is the best environment for job creation that we can
produce. That is getting our fiscal house in order, yet
providing the support that is needed to make sure that we have
educated workers, we have an infrastructure that is sound and
that serves the needs of the future as well as the past, and we
need to get started with that right away. We have incentives
for manufacturing, and we have tax proposals that would
encourage investment in the United States and not the shipping
of jobs overseas. So I think, overall, if there is a single
theme that ties this budget together, it is about being able to
say that we are doing exactly what you are asking: We have a
path for economic growth. We have a path for job creation. And
we have tools in place to make that happen today and in the
future.
Mr. LEWIS. Mr. Secretary, in spite of all of the problems
that we faced in our country during the past few years, some
people have done very well and others have been left out and
left behind. Can you tell us what is in the budget that is
going to help those that have been left out and left behind?
Secretary LEW. I think that the disparity of income in this
country is a very significant problem. And we have to deal with
it at both ends. We have to deal with it at the end of those
who are struggling by creating the ladders of opportunity to
give them the ability to get the education they need and have
the skills for the jobs that they deserve. When they go to
work, we need to make sure that they get a living wage. Anyone
who works full time should be above poverty in this country,
which is why the President has put a proposal in his budget to
raise the minimum wage.
I think, at the high end, we very much need to make sure
that as we put in place the policies that will put our fiscal
house in order, that we raise revenues from those who are most
able to afford it because they have the greatest income. I
think, overall, this is a budget that doesn't instantaneously
fix a problem that has been decades in the making, but it moves
it very much in the right direction. And, frankly, the action
taken in January was the most significant step in that
direction, by raising the top tax rate, really in a generation.
Mr. LEWIS. Thank you very much.
I yield back, Mr. Chairman.
Chairman CAMP. Thank you.
And, at this point, I am going to go two-to-one. So I will
start with Mr. Reichert. You are recognized for 5 minutes.
Mr. REICHERT. Thank you, Mr. Chairman.
Mr. Chairman, my Subcommittee on Human Resources will be
holding a hearing next week on unemployment insurance. And so I
want to focus on--I have one question related to unemployment
insurance, but also want to use it as an example of a comment
that you made earlier that people, including corporations and
small businesses, are confused about the budget and our process
here and also sort of lack understanding as to really what is
going on.
Secretary LEW. That is probably something on which we can
all agree.
Mr. REICHERT. You are right, including myself. So I have
two documents. This is, I guess, part of what really creates a
little bit of confusion. First, a document from the White
House, and then I have a document from the Department of
Treasury. And these seem to be in conflict, to me. So the
President's budget has a proposal that would more than double
the wage base on which Federal employment taxes are applied,
from $7,000 to $15,000. Correct?
Secretary LEW. Correct.
Mr. REICHERT. All told, as displayed in your budget
documents, this would increase revenue by $51 billion over 10
years. I note that these tax increases would take the form of
higher Federal and State payroll taxes, which in my opinion are
taxes on jobs. My question is this: Why do you think a summary
document prepared by the White House says that that same policy
strengthening the solvency of the Unemployment Insurance Trust
Fund reduces spending by 50 billion? Can you clarify this
discrepancy, this sort of conflict, for myself and the rest of
the folks here in the room?
Secretary LEW. Congressman, I would have to take a look at
those two charts. I don't want to pretend to be familiar with
the comparison, and I couldn't read it from this distance. The
policy on unemployment insurance is one the Administration has
advocated for a number of years. It would restore the base for
the unemployment tax to where it was in the Reagan years, just
adjusting it for inflation. That is the essential policy.
Mr. REICHERT. Excuse me, just for a moment. So the $7,000
to $15,000 increase, is that a tax hike?
Secretary LEW. Well, the rate----
Mr. REICHERT. The rate reduction. Forget what this says.
What is your opinion?
Secretary LEW. The rate doesn't change. What it does is it
puts in place--right now, we have an unemployment----
Mr. REICHERT. Does it increase taxes? Yes or no.
Secretary LEW. Well, it increases the base of income----
Mr. REICHERT. I just want a yes or no answer. Does it
increase taxes----
Secretary LEW. It pays for unemployment that is not now
properly funded. And I think the reason for the confusion----
Mr. REICHERT. By increasing taxes?
Secretary LEW. It raises the base to Reagan levels.
Mr. REICHERT. Increasing taxes. But the White House is
saying it is reducing spending. I am confused.
Secretary LEW. The categorizations of these issues has
been----
Mr. REICHERT. So I can look forward to an answer that would
clarify this for me.
Secretary LEW. I will be happy to get back to you.
Mr. REICHERT. I want to move on to--you have used the term
``fiscal house in order'' several times here today. What does
that mean to you, getting our fiscal house in order? Briefly,
please.
Secretary LEW. Congressman, I think that the challenge we
face is to get our budget on a path to having the deficit and
the debt as a percentage of our economy at a point where it is
sustainable, which means the economy is growing faster and we
are not----
Mr. REICHERT. What percentage would you say that would be?
Secretary LEW. You know, our budget gets the deficit to
less than 2 percent of GDP in the 10th year. Our goal
originally was 3 percent, so we----
Mr. REICHERT. Sure, but your budget doesn't balance.
Secretary LEW. You asked me a different question. You asked
what----
Mr. REICHERT. Does the--but does----
Secretary LEW. It does balance in an out-year, not in the
10-year window----
Mr. REICHERT. Okay.
Secretary LEW [continuing]. Quite a ways out. The challenge
of balancing the budget----
Mr. REICHERT. The budget does not balance within 10 years--
--
Secretary LEW. No. It----
Mr. REICHERT [continuing]. Is that correct?
Secretary LEW. We have a--the deficit is 2 percent of GDP--
--
Mr. REICHERT. Can you explain to me--I want to be in a
learning mode just like my friend from Ohio. Can you explain to
me and the folks around the country why it is so important for
families to balance their checkbook, balance their budget--they
didn't see a deficit, you know, an emergency ahead, but they
lost their homes--but the Federal Government doesn't have to
balance their budget, they can continue to spend, and you don't
see an emergency down the road with the deficit?
Secretary LEW. Congressman----
Mr. REICHERT. I don't understand. People are trying to
understand this at home.
Secretary LEW. Congressman, as I said in my opening
remarks, I spent a big part of my career balancing the budget,
creating a surplus. I understand how important a balanced
budget and a surplus is. I also know that in the period before
President Obama took office----
Mr. REICHERT. Well, why is it important, though, for folks
at home to balance their budget----
Secretary LEW [continuing]. A deep, deep deficit was
created.
Mr. REICHERT. Excuse me. Why is it important for people at
home to balance their budget but it is not important for the
Federal Government to balance their budget?
Secretary LEW. Now, I can't----
Mr. REICHERT. That is what people don't understand, sir.
Secretary LEW. Families and government----
Mr. REICHERT. My time has expired.
Thank you, Mr. Chairman.
Chairman CAMP. All right.
Secretary LEW. Mr. Chairman, could I respond just very
briefly to the question?
Chairman CAMP. Yes.
Secretary LEW. Thank you.
Families and governments are fundamentally in different
positions. And governments around the world are measured by the
standard of whether or not they can afford to service the debt
that they have undertaken. And the measures that are used to
determine whether they can afford it are reflected in our
budget, and we meet them.
I totally agree with you, we should be on a long-term path
toward pursuing more deficit reduction and balance. What I am
saying is, if you try to get there too fast, you do more damage
to the economy, and you would end up making less progress, not
more progress, in terms of reaching the goal.
Chairman CAMP. All right.
Dr. Boustany.
Mr. BOUSTANY. Thank you, Mr. Chairman.
Welcome, Mr. Secretary.
Secretary LEW. It is good to be here.
Mr. BOUSTANY. The President's 2014 budget requests an 18.4
percent increase for the Department of Treasury and its
programs. And this includes a $1 billion increase, annual
increase, for the IRS budget. You know, we found information
just a few weeks ago about an IRS studio, production studio,
``Star Trek'' videos, things of that nature.
Now, as the economy continues to sputter, families across
America are having to make deep, painful cuts in their own
household budgets. And, at the same time, we are borrowing a
lot of money. We are borrowing a dollar for every--for every
dollar of spending, 60 cents is borrowed.
So, with this in mind, are there any other cuts under
Treasury that you could put forth other than what is in this? I
mean, the budget is proposing increased spending.
Secretary LEW. Congressman, the bulk of the increases that
are in the Treasury budget are really in IRS enforcement. I
think that one of the goals this Committee has traditionally
shared with the Treasury Department is making sure that our tax
laws are effectively enforced and that we have a fair system
where all taxpayers are treated alike. And there is an
understanding that if you don't obey the tax laws----
Mr. BOUSTANY. Well, I fully understand that, but, at the
same time, we are concerned about, on one hand, the IRS comes
to us and wants more resources, and yet we see obvious waste on
the other hand.
Secretary LEW. Congressman, I am aware of the situation you
are describing. I think we have made clear that action has been
taken to make sure that doesn't happen again.
You know, across government there is a need to, I agree
with you, tighten our belt and not do things that don't look
like they make sense. I spent a lot of time, when I was at OMB
and as chief of staff, doing that across the government. I will
continue to do that as Secretary of the Treasury.
But I don't think that it is right to confuse that with the
need to have IRS agents on the job. And that is what our--where
most of our budget is----
Mr. BOUSTANY. I understand the need for enforcement, but--
--
Secretary LEW. Yes.
Mr. BOUSTANY [continuing]. I guess my question is, are
there other areas within Treasury that you could come forward
with some proposals for cuts? I mean, obviously, there are
some. I mean, what about this production studio? I think it
costs $4 million a year. It has been--there may be--are there
others?
Secretary LEW. We are obviously taking a look at that
particular item. But I would point out that, you know, one of
the things that we do to try to control costs in the government
is do more business remotely and not have people travel when
they don't need to. One of the ways you do business remotely is
through video activities. So we have to be careful that we
don't cut off the ability to do the kind of work that gives us
the ability to operate more efficiently.
I am happy to take a look at that, along with other things.
But I don't think you would want to have every meeting be in
person in a city if somebody can sit in a studio and talk to
500 people----
Mr. BOUSTANY. I understand that, but we are going to
continue to conduct oversight to make sure these dollars are
being used appropriately.
Secretary LEW. I appreciate that.
Mr. BOUSTANY. Also, you have mentioned growth quite often.
And Mr. Brady was asking questions about our views on tax
reforms versus what we see from the Administration and the
budget proposal.
And one of the things I get concerned about is an approach
where certain pockets of money, in the form of tax provisions,
get pulled out to increase spending rather than really looking
at tax reform. We really do have an historic opportunity to
embark on tax reform, where we look at everything with the idea
of lowering rates and promoting American competitiveness.
For instance, as I look--let's just take the oil and gas
expensing provisions, which have been in the President's budget
continuously year after year after year. The impact of this is
going to be pretty strong in the oil and gas exploration
production at a time when we are seeing a shale gas revolution.
If these were to be put in place without actual reductions in
tax rates, I think you are going to kill the shale gas
revolution--a source of job growth, a source of American
competitiveness, new sources of exports.
So there is a little bit of an inconsistency here. And I
would just urge that you reconsider in the administration
working with us on real tax reform that looks at everything
with the idea of simplifying, making that code much fairer for
everybody concerned, lowering rates, and really focusing on
American competitiveness.
Secretary LEW. Congressman, as I said earlier, I really do
think that there is a common goal to broaden the base and lower
corporate business tax rates. I think that we have a thriving
industry now in the shale area. I think that the incentives
that were put in place for a nascent oil industry are probably
not what they need to be to thrive. We should work together on
this as we go forward.
Mr. BOUSTANY. And one last thing. In the transportation
bill that was passed last year, there was statutory language
about reporting on a plan for our ports and dredging. That is
not in the budget----
Chairman CAMP. Time has expired. Respond in writing.
Mr. BOUSTANY. I would ask that you respond to me in writing
on that issue.
Secretary LEW. I would be happy to.
Mr. BOUSTANY. Thank you.
Chairman CAMP. Mr. Neal is recognized.
Mr. NEAL. Thank you, Mr. Chairman.
I had resolved when I came in not to say anything in
partisan response, but the last two speakers cause me to state
an obvious fact, and that is that our Republican friends are
always in favor of balancing the budget when there is a
Democratic President. And to have heard the last two speakers
go on about how we arrived where we are with these deficits is
to miss the point that they didn't say anything during the
preceding 8 years. And I think that bears noting, as well.
Now, your DNA is in the legislative branch of government.
You worked for Tip O'Neill and you worked for Joe Moakley. You
know how to make a deal. You worked for the only President who
has balanced the budget four times since the end of World War
II. You understand precisely how this is done. And I think that
ought to be acknowledged, as well, today.
In February, you raised concerns, or the Department of
Treasury raised concerns, about an EU proposal to implement a
new financial transaction tax in 11 eurozone countries. And in
its current form, that will harm U.S. investors. It is more and
more likely that some eurozone countries will implement a very
broad-based FTT sometime next year. This proposed tax is
intentionally designed to have a broad global reach. It would
result in multiple levels of taxation, and the effective rate,
as you know, could be much higher than advertised.
Can you update the Committee on what Treasury is doing to
protect U.S. investors from this European tax? And could you
also update the Committee on your recent conversations, Mr.
Secretary, as you traveled to Europe?
Secretary LEW. Congressman, yeah, we have made a different
decision as an Administration than many others in Europe are
making. We have a financial responsibility fee that has been in
our budget. We think that is a better way to raise revenue from
the financial services side. And, you know, we have made that
point both here and in conversations overseas.
I think the design element that you are describing is a
very troubling one. What other countries decide to do in their
borders is their business. So we can disagree about the best
way to tax domestic financial services, but it is not an
acceptable policy, from our perspective, for other countries to
create a tax that has an extraterritorial reach and would levy
a tax on a transaction in the United States.
When I had my meetings earlier this week in Europe, I made
that point very clearly to a number of European officials, both
in the European community in Brussels and in meetings with
finance ministers, making it clear that, you know, we found
that to be unacceptable and we will continue to make that
clear. So we are engaged with them, they understand our view,
and we will continue to do so.
Mr. NEAL. Thank you.
And, Mr. Secretary, I am pleased that you included the
auto-IRA bill in the budget that I worked on for many, many
years. And a word of thanks to Treasury for recommending
another item that I worked on for 14 years, to kill AMT.
So it takes time around here to get these things done, but
the auto-IRA proposal, I think, is superbly positioned to help
with some of the issues that were raised by some of our friends
on the other side, as well.
Secretary LEW. I totally agree.
Mr. NEAL. A reminder that it is endorsed by The Heritage
Foundation. I am still waiting for a Republican to sign on to
my bill. And, in addition, it has broad bipartisan consensus
that it would address some of these issues.
Could you speak to the auto-IRA proposal, as well?
Secretary LEW. Yes. I think the auto-IRA proposal is a very
good idea. It is something that doesn't require that anyone
participate in an IRA. It just shifts the decision point, do
you opt in or do you opt out.
We think that, you know, if you make it an opt-out, which
is what auto-IRA would do, there are an awful lot of people who
do not start saving very early in their careers who will do so.
And if you save when you are 24, 25, all the way through, you
build up a much more substantial nest egg for your retirement
because of compounding over the years. You never can catch up
for the early years that you were out of retirement saving.
So I think it is a very good idea. It is something that we
have put in our budget and we continue to advocate. And perhaps
in the context of tax reform, it is something that would have
the ability to actually be given serious consideration.
Mr. NEAL. Well, the other part of the auto-IRA that has
particular appeal is that I think insurance agents, community
bankers, and credit unions, even though they are small
accounts, they would like the opportunity, with the potential
to expand business down the road, to sell that very concept.
Secretary LEW. Sure.
Mr. NEAL. And another word of thanks on the savers credit.
That is very important to me. I have worked on that for many,
many years here, and I am pleased to see that you have paid
attention to that again in the budget.
Thank you, Mr. Secretary.
Secretary LEW. All right. Thank you.
Chairman CAMP. Thank you.
Mr. Roskam is recognized.
Mr. ROSKAM. Thank you, Mr. Chairman.
Thank you, Mr. Secretary.
Mr. Secretary, you said something in your opening statement
that jarred me, and I wanted to confirm that you actually used
this language because it seemed internally inconsistent with
some of the other themes.
So, during the opening statement, you generally laid out a
theme of, look, I am Jack Lew, I have this experience and this
background on a bipartisan basis, and I have been successful in
other tasks in the past in bringing groups together. And that
is a good attribute, and it is an attribute that we all admire
and we aspire to.
Now, that bipartisan language is in contrast, it seems to
me, with this statement. You said, ``It is important to note
that this framework,'' the White House framework, ``does not
represent the starting point for negotiations.''
So here is the challenge. It is very declarative. It sounds
as if there has been some revelation that you have had that we
haven't participated in. And you are making a declarative
statement that this is a precondition for negotiations?
Secretary LEW. No, that is not what I said.
Mr. ROSKAM. Well, you did say----
Secretary LEW. I said it is not a starting point. I didn't
say it was a precondition.
Mr. ROSKAM. Well, so what do you mean by----
Secretary LEW. Sure. I am happy to----
Mr. ROSKAM [continuing]. Saying, ``It is important to note
that this framework does not represent the starting point for
negotiations?''
Secretary LEW. I think the last 2\1/2\ years have
represented a lot of movement from the starting point. I
certainly have the wear and tear to show for it, and I think
others do, as well. We are not at the beginning of the process.
This budget reflects where the President was after 2 years of
negotiation. And in December, we were perhaps one or two turns
of the wheel away from an agreement. It didn't come together,
but that doesn't mean we shouldn't keep trying.
What I was saying and what I believe very strongly is that
it would be very counterproductive to treat this somehow as if
it is kind of the beginning of the conversation, as if the last
2\1/2\ years had not happened. And----
Mr. ROSKAM. Okay. I understand that.
Secretary LEW [continuing]. To separate the parts would be
a very unconstructive response.
Mr. ROSKAM. I understand.
Secretary LEW. We are doing very hard things, and we are
asking for others to do very hard things.
Mr. ROSKAM. At the end of the year, the President was
making the argument about a consensus around protecting middle-
class taxpayers from a tax hike. And he basically said, look,
since we both agree on that, let's take them off the table. And
you remember that argument.
Secretary LEW. Uh-huh.
Mr. ROSKAM. It was a very compelling argument, a very
successful argument.
What is different about that argument with the notion of,
if there is consensus on both sides of the aisle around your
proposed changes on Social Security, why not move forward on
that in the same spirit, with the same approach, and with the
same goal?
Secretary LEW. Look, I think they are very different
policies.
Mr. ROSKAM. Why?
Secretary LEW. There was a broad bipartisan agreement that
middle-class taxpayers should not pay higher taxes. We are not
saying we want to raise this chained CPI issue. We are saying
we are prepared to do something very hard, and in a package
with additional revenues to solve our deficit problems, we
would do it.
It is very different. We all wanted to prevent taxes from
going up on middle-class workers. I am not going to sit here
and say I want to do the chained CPI, and I don't think most of
the Members of this Committee would. We may feel we need to as
part of a balanced plan, but I sat through 2 years of meetings
where I have heard one after another leader on your side say
chained CPI has to be part of a budget agreement.
The President put that in in December. He has kept it in
because he would like to reach a bipartisan agreement. But it
has to be connected to solving the whole problem, including
more revenue.
Mr. ROSKAM. The long-term discussion on Medicare is a
discussion that continues to, I think, get everybody's
attention. And yet your predecessor gave a presentation to the
House Budget Committee, it was February of last year, where he
basically--you know, it was one of those moments of clarity,
frankly, when he said, look, we don't have a long-term
proposal, but all we know is we don't like yours, meaning the
House budget proposal. That was his language, not mine.
You are basically doing the same thing now as it relates to
Medicare; isn't that right? Because at the end of office, when
the President leaves in 2017, according to the trustees, they
say, look, this solvency only goes out another 7 years after
your time in office. So isn't that exactly the same thing that
Secretary Geithner was doing?
Secretary LEW. I am not familiar with the exact comments
Secretary Geithner made. I----
Mr. ROSKAM. I will get to you. I didn't overcharacterize
it.
Secretary LEW. I will describe our policy, if I could, in
my own words, which is: You know, since the enactment of the
Affordable Care Act, we have seen substantial reduction in the
rate of growth of healthcare spending. With the implementation,
we will see more.
The President has put in this budget $400 billion of
Medicare savings, including some very difficult provisions like
income-related premiums, which are really means-testing
measures, and----
Mr. ROSKAM. That is all well and good, but the trustees say
2024, right?
Secretary LEW. And, you know, there is no doubt, as the
President has said many times, we have more work to do after,
but that is not a reason not to do this now. And we probably
don't agree on----
Mr. ROSKAM. Do what now?
Chairman CAMP. All right. Time has expired.
Secretary LEW. The policy the President has proposed.
Chairman CAMP. Okay.
Mr. ROSKAM. I yield back.
Chairman CAMP. Mr. Gerlach is recognized.
Mr. GERLACH. Thank you, Mr. Chairman.
Thank you, Mr. Secretary, for testifying today.
I wanted to focus on your comments regarding the R&D
investment issue. You state in your testimony on page 5 that
the President's budget increases funding for nondefense R&D
investment by roughly 9 percent over the 2012 level.
How does the President's budget propose to do that?
Secretary LEW. Congressman, this is the first year in a
long time where I wasn't responsible for the appropriation
account, so I am going to have to probably defer to my
colleagues at OMB to go through all of the specific increases
in R&D in the budget.
But I can tell you, the pattern of increases is that we
have very much put resources into energy and energy-efficiency
research. We have very much put resources into biomedical
research, into core basic research. We also have proposed
making, you know, the tax credits for R&D permanent. So we have
a balanced set of approaches.
We think that R&D is the key to American competitiveness in
the future and have, for the entirety of this Administration,
been pushing very hard to try to increase R&D as a share of
what we do.
Mr. GERLACH. We have a manufacturing working group ongoing
here in the Committee, and my colleague, Mr. Roskam, and, on
the Democrat side, Congresswoman Sanchez, have been holding a
number of meetings about a variety of issues involving
manufacturing, including research and development.
And one of the things we heard in our meeting on research
and development was how the IRS many times contests the efforts
by a company to get an R&D credit in a particular tax year,
where they have to constantly battle the IRS to justify that
innovative work, that research work, to establish that they, in
fact, are entitled to that credit.
Would it be possible for you to acquire information for us
that would demonstrate how many times, how many cases the IRS
really contests the efforts by companies to take the R&D tax
credit and where the company then has to take an appeal of that
process, of that initial determination, where that company ends
up being successful and, in fact, is entitled to that R&D tax
credit, so that we can get a better sense of it is not only the
permanency of the rate or what the rate itself is, but how hard
it is for these companies to have to go through the rigamarole
to actually get the credit to begin with, from a bureaucracy
standpoint?
Can you help gather that data for us and see if there is
some way that, not only with the rate itself, but also with the
language in the statute as to when and how you get the credit,
how that could be made more simple, more commonsense, and more
usable by companies so that they, in fact, can feel comfortable
moving forward with research and development, which is what we
all want to see happen in our domestic economy?
Secretary LEW. Congressman, I am happy to look into that. I
don't have the numbers----
Mr. GERLACH. Yeah. I understand.
Secretary LEW [continuing]. At my disposal today.
I agree with you, we ought to make the administration of
the Tax Code such that taxpayers and businesses trying to make
decisions can have clarity and understanding. At the same time,
we have to make sure that there is compliance with whatever
requirements we have.
I am happy to take a look at it.
Mr. GERLACH. Thank you, sir.
I yield back. Thank you.
Chairman CAMP. Thank you.
Mr. Becerra is recognized.
Mr. BECERRA. Thank you, Mr. Chairman.
Mr. Secretary, thank you very much, and congratulations to
you.
Secretary LEW. Thank you.
Mr. BECERRA. I am glad you clarified, once again, that some
of these provisions in your package are part of a previous
negotiation with Republicans, Speaker Boehner in particular, to
try to resolve our fiscal issues in a balanced way.
And I know you have mentioned in the past that there are
proposals by Republicans to include a chained CPI, which is a
different way of calculating the cost of living for anything
from Social Security benefits to veterans benefits to the Tax
Code, and how much people pay on their taxes would be impacted
by the so-called chained CPI.
Some $230 billion is saved by moving toward the Republican-
proposed chained CPI, so let me ask a couple of things. My
understanding is that by going to the chained CPI, you would
end up cutting benefits earned by seniors who paid into the
Social Security system, you would cut benefits earned by
veterans for their retirement, you would cut benefits earned by
disabled veterans who are receiving veterans disability
compensation.
And if that is not accurate, will you please, or Treasury
please, forward to me a response that would refute or explain
how those payments to seniors, veterans, and disabled Americans
will not be cut? I wish that we could go into detail, but I
know I would run out of time if we did.
Secretary LEW. Congressman, can I respond to that just
briefly?
Mr. BECERRA. No, I would like to--if you could respond in
writing, because I know there has been a lot of discussion and
I will run out of time, because I have several questions to ask
about the chained CPI. It is very disturbing that the folks who
are going to get hit hardest, the $230 billion that you save in
the budget from moving toward a chained CPI is by impacting
seniors, veterans, and middle-class Americans.
The next area is on the tax side. About half of the
savings, half of the savings of $230 billion in savings you get
by moving toward the chained CPI, aside from the cuts to earned
benefits to seniors and to veterans and disabled Americans, is
by raising revenues, raising taxes.
And most of that, my understanding is, is a revenue hit, a
tax increase for families who are middle-class or below. In
fact, my understanding is that, unless things have changed, the
biggest impact by the tax increase caused by the chained CPI
hits families who are earning somewhere between $10,000 and
$20,000 because they would be pushed up into the higher
brackets faster.
And so, as I look at my district, the median income in my
district is about $38,000. The median income of the national
American family, so not just my district but everywhere in
America, if you take the median income of American families, it
is about $53,000.
Now, I know the President fought very hard to protect
middle-class taxpayers, $250,000 and below. And, obviously, the
middle of America is way below $250,000. And we ended up, after
compromise with our Republican colleagues, at $450,000 in
income which would be protected from any of the Bush tax cuts
expiring. So, certainly, anyone within $53,000 in income would
be within that $450,000 cap.
Yet the person who makes $450,000 in income will see a very
small hit from the change to a chained CPI when it comes to
what they pay in taxes, whereas the person earning $53,000, the
middle of America, will see a much greater increase in their
taxes. And, certainly, folks in my district, who earn on
average, in the median, $38,000, will see a substantial
increase in their taxes as time goes on if you were to move to
the chained CPI.
Now, I have heard you say that the President isn't a fan of
moving to the chained CPI without a big, balanced approach. But
the facts are--and, please, in any letter you write to me,
please refute that, in fact, middle-class Americans, especially
those who are earning $38,000 like folks in my district, will
not see a tax increase which, my sense is, certainly is within
the $250,000 in income that the President said was the
threshold for protecting Americans from any tax increase.
My final comment is this. And you are a Social Security
trustee. In the 77 years that Social Security has been in
effect, Americans, from way back then until now, have
contributed $13.9 trillion in their taxes to the Social
Security system. We have also seen those contributions earn
$1.6 trillion in interest earnings by being saved in the trust
fund. The total--and I will end, Mr. Chairman, with this. The
total amount that has been spent in benefits for Americans is
$12.8 trillion. The result is a $2.7 trillion amount that has
never been used by Social Security. Yet the chained CPI gets so
much of its savings by hitting beneficiaries under Social
Security who earn those benefits by paying into them.
So I very much would like a response, if you could, in
writing as to how you would explain or refute that seniors,
veterans, and disabled would not be asked to pay more by
getting fewer of their earned benefits?
Mr. BRADY [presiding]. Mr. Secretary, if you would respond
in writing to Mr. Becerra, that would be wonderful.
Secretary LEW. I would be happy to do that.
Mr. BRADY. Mr. Buchanan.
Mr. BUCHANAN. Thank you, Mr. Chairman.
And I want to thank you, Mr. Secretary. And thank you for
your service----
Secretary LEW. Thank you.
Mr. BUCHANAN [continuing]. And congratulations.
Let me just mention, one of the things that we like to talk
about is the challenges that we have today. Everybody brings a
different background. I had been doing business for 35 years
before I got here. But one of the things--I had a chance to go
over to China in the late 1980s. And I think about, in terms of
the Clinton era, we were growing at 4.9, almost 5 percent a
year. You remember that? We are under 2 percent.
To me, we are looking to blame each other and looking at
what has happened in the last 10 or 12 years, but the world has
changed. I was in Beijing in 1989. I saw the reality there. I
have seen what is happening with India. It has become much more
of a global economy. How much of these factors are the
realities that we are dealing with today?
And I am concerned that people don't realize that the world
has changed, it is a global economy. We have to help our
businesses to be more successful.
And I will give you one more point on this, and then I
would like to get your response.
I met with the Minister of Trade in January. He and I think
the Vice Premier in two separate meetings told me the same
thing: We want to grow our economy 20 million jobs a year. That
is what we have been averaging; that is what we are looking for
for the next 5 or 7 years.
So I think Japan has been, obviously, a big factor, but
China and India have been coming online the last 10 or 20
years. And I am a blue-collar kid. I have watched what has
happened in the Midwest in terms of manufacturing. But, to me,
that is one of the biggest issues that we are not taking into
account, that the world has changed. We have to help our
businesses be more successful.
So what are your thoughts on that?
Secretary LEW. Congressman, I agree totally that we have to
compete in an increasingly global and competitive world.
You know, I was in China a couple weeks ago, and I made the
very strong case that we need to be able to compete in a fair
way, having our businesses have access to their markets. And
they also need to restructure their economic approach to
increase demand in China and to shift some of the focus from,
really, anticompetitive support of old industries to
contributing to demand. I mean, it is good for the U.S. economy
for demand to grow in China and in Europe.
Mr. BUCHANAN. Yeah. Let me just say, I have met with--they
have a delegation there, you know, of a chamber of 4,500
members. I had a chance to meet with many of them. So we need
to do more----
Secretary LEW. Yeah.
Mr. BUCHANAN [continuing]. In terms of our government to
help our businesses be more competitive there. They need to
open up their markets more. I agree with you there.
Secretary LEW. I met with about 20 representatives of U.S.
businesses in China and asked them what we could do to be
helpful to them. I agree with you, we have to make the case.
And we have found it slow, that you don't get everything you
argue for, but you do make progress when you engage on these
issues. And we need to compete on the world market.
Mr. BUCHANAN. Yeah. Let me just mention a couple other
things. I co-chair the Committee for Small Business,
Passthrough Entities, and Medium-sized Businesses. Two things:
When you look at small businesses, how do you define that? Just
quickly, because I don't have a lot of time, but I want to get
your definition of what a small business is.
Secretary LEW. There are a lot of different ways of drawing
the line. You know, sometimes it is by number of employees,
sometimes it is by total gross amounts of sales.
Rather than get into where exactly to draw the line, I
think I would like to emphasize----
Mr. BUCHANAN. Okay. Well, let me--let me move on. I just
want to say one thing. In terms of startup businesses, I don't
know what that number is, but that is something we have to do
everything we can to make sure we have proper tax incentives or
incentives to have people start up. I hear they are down about
20 or 30 percent, in terms of any kind of startup in
entrepreneurs. So that was one factor. They want more
simplification of the Tax Code, more certainty of the Tax Code.
And then I want to ask you another question. That was just
a general comment. One of the things that we are talking about
and the President has mentioned--I thought I heard two
different numbers, 25 and 28 percent, in terms of corporate tax
rate. Now, as someone that is one of the co-chairs heading up
and dealing with businesses in terms of passthrough entities, I
am concerned we don't leave small businesses and medium-size
businesses behind. They are effectively at 43, 44 percent.
How do we lower the rates to 25 or 28 ideally, eliminate
some of the loopholes, and not leave behind a lot of our folks
that generate a lot of the jobs in America that happen to be in
that tax bracket? Because I can tell you, talking to a lot of
friends, they would just all become C Corps. Because what has
happened, the evolution, my background, is we would start out
with C Corps, then we went to S Corps, and then we went to
LLCs.
So, how do you deal with lowering the rates on C Corps
without dealing with small/medium-size businesses, most of
which are passthrough entities that compete in the same
industries?
Secretary LEW. I am not sure I can answer it in 15 seconds.
I mean, one of the reasons we need to broaden the base and
lower the rates on the business side is to not have such a
skewed set of decisions as businesses choose how to organize.
We need to also look at reform on the individual side. And we
would look forward to working on a bipartisan basis on that.
Mr. BUCHANAN. What I would just have you suggest to the
President is have him understand there are a lot of businesses
that have 50 to 100 employees that are paying at the much
higher bracket.
Thank you, Mr. Chairman.
Mr. BRADY. Thank you.
Mr. Smith is recognized.
Mr. SMITH. Thank you, Mr. Chairman.
And thank you, Mr. Secretary, for your time here today.
I guess perhaps building off of those comments from my
colleague, I mean, I met with some bankers back home in my
hometown, locally-owned banks. Three bankers were present. Two
of them pay under subchapter S, and one pays under C Corp Tax
Code. And yet, you know, there would be reform for one but not
for the others, even though, I think, it is roughly half of all
private-sector employment in the U.S. that exists in
passthrough entities that pay tax under the individual rate.
Could you expand on that, perhaps?
Secretary LEW. Obviously, individuals and businesses choose
how to organize based on the tax system and based on the
comparison of individual passthrough kind of organization or
under the corporate system.
One of the reasons that so many firms have organized as
passthroughs is that we have high statutory rates, and a lot of
the deductions and credits on the business side are so targeted
at large firms that they are not really relevant to the
startups that you are talking about.
This is obviously a complicated set of issues, and the
relationship between them is very important. But, you know, we
want to work together on making the business Tax Code make more
sense.
We want to work together on tax reform on the individual
side, as well, to make it simpler. And, I mean, the thing that
I think we have universal agreement on is that it is just too
complicated. We have done an awful lot in this Administration
to encourage small businesses and small-business investment. I
can't say it is simple. I mean, for a small business looking at
what they have done, it helps them, but they need to go to
accountants and lawyers to take advantage of it.
We should get to a place where we have a simple Tax Code
where people sitting down trying to do business can look at how
they can do their business and not have to have all the costs
and time of the complicated compliance. If we simplified the
business Tax Code and lowered the rate, I think that would help
a lot.
Mr. SMITH. Okay.
Shifting gears a little bit to international tax, and we
know that U.S. companies--and it is a good thing--that U.S.
companies have done well marketing their products overseas.
They have generated some profits and some cash, and they
basically park that overseas because of a very punitive
corporate Tax Code, which I think corporate tax reform would
help address. Yet, I am still skeptical that, without some
further changes, we still would not be able to see U.S.
companies invest that cash that they generated overseas back in
the U.S. economy.
Would you disagree with that, or would you make some
proposals to suggest or to offer an incentive for U.S.
companies to bring that cash back into our economy?
Secretary LEW. Well, we are finding more and more that as
companies look at the overall pluses and minuses of investing
in the United States versus investing overseas, they are
deciding to invest in the United States, because of our
workforce, because of the ease of doing business in the United
States, and, notwithstanding our political problems, the
greater stability in the United States versus most other places
in the world.
So I think we are making progress. In the budget, we have
proposals that would have incentives to create jobs in the
United States in manufacturing, that would have disincentives
for offshoring jobs. As we lower the tax rate and the
differential and statutory rates between the United States and
other countries is reduced, that will help.
I think this is a challenging area. We have seen efforts in
the past that were designed to bring money back. They didn't
really serve to increase investment; they just cut taxes. And I
think our goal here is to grow the economy, grow employment.
And we look forward to working together and getting that done.
Mr. SMITH. Okay. Thank you.
I yield back.
Mr. BRADY. Thank you.
Mr. Doggett is recognized.
Mr. DOGGETT. Thank you very much, Mr. Secretary.
You know, of the many Americans who are out there right now
getting their taxes ready to file next week, I doubt there are
very many that think they will be able to pay a mere nickel on
the dollar. But, as you know and as your comments were just
referring to, there are many of America's largest corporations
that continue lobbying you, the Administration, and this
Congress to let them pay a nickel on the dollar in taxes on a
significant portion of their earnings.
I was pleased with your response just now and with
President Obama's comments here in the Capitol on March 14th
that, as to this so-called repatriation, we have looked at the
math and it just doesn't work. And it will, as your comments
suggested, never work in terms of creating jobs, as it failed
in 2004, though it may help to pad executive pay and corporate
share buy-back programs, that type of thing.
I am also pleased to see that you continue to include in
your budget rejecting that idea for your budget, the
repatriation notion, but you have included in your budget a
number of measures that address unjustified international
corporate tax avoidance. I believe you have incorporated
earnings-stripping provisions about companies that have
earnings here in the United States but they strip them to the
Caymans or some other nontax jurisdiction.
You have pointed to the problem of corporations that
develop patents and intellectual property here but then it is
owned and assigned abroad, with payments having to come for
some of the very intellectual property that was developed here
in America.
You have referenced the problems of corporations reducing
their income because of the way they allocate interest expense
on income they don't actually take right now.
On those three and other items in your budget, do you
continue to find a number of areas of unjustified corporate tax
avoidance on the international level?
Secretary LEW. Congressman, we do try to close down the
areas of tax avoidance that we see. We have put some of them in
our budget. We look forward to working with the Congress on a
bipartisan basis to do more. You know, there shouldn't be an
incentive to move U.S. jobs overseas.
Mr. DOGGETT. As you know, one of the problems in that
regard is that, over a 3-year period, 30 Fortune 500 companies
devoted more of their moneys to lobbying this Congress than
they did in paying taxes to the Treasury. Some have a negative
tax rate. Many of our largest corporations are paying effective
tax rates that are single-digit.
You are aware and I believe the Treasury is involved in the
comments recently of the top finance ministers in Germany, in
France, and in the United Kingdom calling for cooperation among
the G-20 countries to deal with this problem of corporate tax
avoidance. We want to be competitive. We want every American
company to be competitive, but not just to be competitive in
terms of corporate tax avoidance, where we seem to be the
world's leader at the moment.
I have several pieces of legislation that attempt to
implement some of these budget provisions and to go a bit
further than what I view as rather modest revisions. The
concern I have, Mr. Secretary, is that while I think some
adjustment in the statutory rate is appropriate to reduce it,
that you devote every cent of that reform right back to the
corporations.
We know the history this very year is that in the fiscal-
cliff negotiations and the law that was finally approved,
corporate America didn't contribute a dime. In fact, some
corporations got major tax cuts out of the fiscal-cliff
negotiations.
Isn't it reasonable to expect corporate America, having
paid such low effective rates, to contribute a little to
closing the budget gap and to the cost of our national
security?
Secretary LEW. Congressman, our budget and our policy very
much states that we think there ought to be a more fair
distribution of tax burden. Raising the top rates was a part of
that. Having individual tax reform that raises revenue by
limiting the value of deductions for high-income individuals is
part of it.
I think that when you look at the difference between
business and corporate tax reform, the beneficiaries of great
corporate income and wealth are the same people who are in the
very highest tax brackets. We have elected to try to do
business tax reform in a way that will really enhance
investment in the United States and job creation, and we have
done the revenue raising on the individual side. I am not sure
that they are different people who are paying the taxes in the
end, because corporations pay out, you know, to their
shareholders and they tend to be going mostly to people in
those top brackets.
Chairman CAMP [presiding]. All right. Thank you.
I know that we just have a few more minutes, and I will try
to get to as many people as possible.
Tomorrow, with Secretary Sebelius, we will start up where
we left off today. So we will start with those Members who did
not get a chance to question today tomorrow.
Mr. Schock is recognized.
Mr. SCHOCK. Thank you.
Mr. Secretary, thank you for being here.
First, I would like to bring up the issue of the estate
tax. You know that the current rate is 35 percent on all
estates over $5 million. This was the result of the agreed-to
legislation of the fiscal-cliff deal. Many of us in this
chamber, myself included, who voted for that fiscal-cliff deal
did so not because it was perfect, but for the sake of
consistency, for the sake of allowing small businesses and
farmers to be able to put that issue to rest and focus on
growing the economy and growing their business.
Why did the Administration choose to revisit this issue, in
my view, to go back on what we had agreed to just months ago,
and only add to the uncertainty of America's small businesses
at a time when, quite frankly, we need them focused on growing
their businesses and not worried about losing what they have
and the rules changing once again?
Secretary LEW. Congressman, I appreciate the question. And
we obviously did change estate taxes in January. It was a
difficult negotiation. It was one in which we made clear we
thought that the estate tax provisions were too generous. We
agreed to them. And we are sensitive to this question of, kind
of, the speed at which change is made.
I don't think we have ever had tax policy that is made for
all time. And in an area like the estate tax, where it has been
heavily debated, we thought that after 5 years it was time to
revisit. And our proposal is not for next year or the year
after, but it essentially says that in 5 years, when we revisit
a number of other issues, we ought to also revisit the estate
tax. And we don't propose a massive increase in the estate tax.
We go back to rates that were in place, you know, in the 1990s.
It is an area where I know there is disagreement on both
sides of the aisle, within each side of the aisle. We would
look forward to working with you. We very much agree that we
need to handle our tax discussions in a long-term way to create
certainty. I think, of all the planning horizons, you know, the
estate tax does not affect investment decisions the same way
other provisions in the Tax Code do. We don't----
Mr. SCHOCK. Would you--may I ask, wouldn't you agree,
though, that a business' decision on what they invest or don't
invest is tied precisely to what their presumed liability might
be if and when they have to pay an estate tax?
Secretary LEW. I think that most business decisions are
based on what the value of that decision is to the business.
The goal is to grow the business and to grow the income of the
business. And I don't think it is a disincentive to grow your
business that sometime in the future, at the point when there
is a passing, that the estate tax may be different. I think
that is different from things like current tax rates,
deductions, credits that are in the time of the investment.
Mr. SCHOCK. Thank you.
Another question is about this retirement income. I am
particularly interested in this because I thought I was doing
the right thing. At the age of 14, I opened my IRA and put in
what was then the maximum of $2,000. This body then passed the
Roth IRA, in which I had been putting the maximum of $5,000.
And if I am lucky enough to earn the same rate of return as my
counterparts who at the time were working for States and the
Federal Government and receiving those actuarial returns of 7
to 8 percent, in 30 years I should have in excess of $3 million
to retire from.
Why is the Administration so opposed to Americans like me
who want to save with our own money for our own retirement from
doing so?
Secretary LEW. Congressman, I think you may be the one
person who beats me in starting earlier with IRAs. I was about
17 or 18 when I started.
I applaud people starting early. We are not at all
discouraging people. We are, on the contrary, encouraging
people to start and stay in the pattern of saving for their
retirement.
The question of what the maximum amount is comes down to
the hard choices we have to make in a Tax Code, in a budget
where there are hard choices. In a time when most Americans
look forward to retiring with well under $100,000 of retirement
savings, $3 million is quite a high target.
This was an attempt to make balancing decisions. We don't--
you still can save for retirement without getting the extra tax
break. And I think people who have seen the value of
compounding on their savings will continue to do so.
Mr. SCHOCK. Doesn't this put private-sector employees at a
competitive disadvantage from public-sector employees?
Secretary LEW. I am not sure how you mean that.
Mr. SCHOCK. Well, you are saying that I can continue to
save as a private-sector employee with my own dollars, I will
just have to pay taxes on, in essence, the annuity or the nest
egg over $3 million. But if I am a public-sector employee, for
example, in the State of Illinois, that same employee, a public
school teacher or a public firefighter, whose income in 30
years may be in excess of $200,000, when they retire, in
essence, their annuity will be in far excess of $3 million and
will be able to have accrued that annuity at tax-deferred
rates.
Secretary LEW. Comparisons between savings plans and
pension plans are very hard to make. Obviously, the pension
plan doesn't have the kind of survivorship rights that a plan
like an IRA or a 401(k) would have. I would actually have to
look at that in more detail to make the comparison. I can't,
off the top of my head----
Mr. SCHOCK. All right.
Secretary LEW [continuing]. Do it.
Chairman CAMP. Time has expired.
Mr. SCHOCK. Okay. Thank you.
Chairman CAMP. Ms. Jenkins is recognized.
Ms. JENKINS. I thank the Chairman for yielding and for
holding this hearing.
And we thank the Secretary for being here.
Secretary LEW. It is good to be here.
Ms. JENKINS. The President continues to embrace a worldwide
system of taxing income, which potentially subjects overseas
income to double taxation. And this, despite the
recommendations of his jobs council, his export council, and
Simpson-Bowles to adopt a territorial system.
We are the last major industrialized country with a
worldwide system. Having the world's highest corporate tax rate
and being the only major industrialized country with a
worldwide tax system, it hurts our competitiveness.
I know many details remain, but are you willing to consider
a shift toward a territorial system?
Secretary LEW. Congresswoman, I actually think the choice
is not so stark as one or the other. Our system is a bit of a
hybrid already, and our proposal for a global minimum makes it
more of a hybrid.
We would welcome the conversation of how to set the dial in
the right place so that it has the right incentives without
losing revenue that we can't afford to lose. I think that there
is a solution in the middle here that, if we work together on a
bipartisan basis, we can find.
Ms. JENKINS. Okay. We will look forward to that.
And then I wanted to follow up on a question from my
colleague, Representative Reichert, when he asked if your
budget ever balanced and you said, yes, in an out-year. What
year does the budget balance?
Secretary LEW. I believe in our out-years, it is in the
2050s. It is quite a while away. It is not in the 10-year
window.
And we think that the attempts to reach balance in this 10-
year window force the kinds of choices that we think are not
right for the economy, that wouldn't grow jobs. And it would be
unfair to retirees and Medicare and other people who would lose
their ability to count on Medicare as a guaranteed benefit.
So these are hard choices. We need to get to a place where
our debt is sustainable, where we meet the internationally
accepted standards of what it is that an economy can have as
far as a deficit and a debt as a percentage of GDP.
And then we need to keep working together. You know, in the
1980s and the 1990s, we didn't reach balance in one shot. It
took year after year----
Ms. JENKINS. Well, is it safe to say that under the
President's budget, in our lifetime we will never stop spending
more money than we take in?
Secretary LEW. I am not going to sit here and estimate
either of our lifetimes.
Ms. JENKINS. You would be 100 years old, and I would be
pushing that. So is that safe to say? I don't intend to live to
be 100.
Secretary LEW. I think the question is not when we hit
balance. It is when do we have our budget in a place where it
is affordable, where we can pay our bills, and where the
economy----
Ms. JENKINS. And that is not in our lifetime.
Secretary LEW. And the economy is----
Ms. JENKINS. In----
Secretary LEW. No, no, I think it is. I think the economy
would----
Ms. JENKINS. Then, why wouldn't the budget reflect that?
Secretary LEW. No, I guess what I am disagreeing on is,
defining reaching balance in this short-term window----
Ms. JENKINS. I define it as----
Secretary LEW [continuing]. Is different. Yeah.
Ms. JENKINS [continuing]. Not taking--not spending more
money than you take in in any one year.
Secretary LEW. Yeah.
Ms. JENKINS. And that, according to the President's budget,
is 2055.
What date do you think it would be before we pay off the
debt that we owe?
Secretary LEW. You know, when I left the White House----
Ms. JENKINS. Wait. Just a second. Is there a date that you
could give me?
Secretary LEW. I would have to look it up, but, obviously,
it would be----
Ms. JENKINS. So we don't know.
Secretary LEW [continuing]. Very far in the future. We want
a path for paying down the debt.
Ms. JENKINS. Would you recommend that businesses, small
businesses in my district do business this way, to rack up debt
and have no clue when they can pay it off?
Secretary LEW. Governments are different than businesses.
Governments are able to pay their debt if they maintain a
growing economy and if they are able to keep current with that.
I am----
Ms. JENKINS. How can you say----
Secretary LEW. I am probably the only person in this room
who can say he balanced the Federal budget. I believe in a
balanced budget. I didn't believe in the policies in 2001, in
2003, and through 2008. They----
Ms. JENKINS. Do you have kids?
Secretary LEW [continuing]. Created a deficit.
Ms. JENKINS. Do you have kids?
Secretary LEW. I have two children, yes.
Ms. JENKINS. Okay. I do, too. How do----
Secretary LEW. I have grandchildren, as well.
Ms. JENKINS. How do you explain to them that you are not
willing to pay for the things that we are enjoying today, that
you are just going to send them the bill?
Secretary LEW. I am proud that I have spent almost 40 years
of my life trying to get our fiscal house in order, and I
balanced the Federal budget and ran a surplus three times.
Ms. JENKINS. But you are not willing to balance the budget
in your lifetime?
Secretary LEW. I think we inherited a situation with a deep
deficit, an economy that had no bottom, it was in free-fall. We
have stopped that, we are growing, we are making progress. But
we have to be honest with the American people. It is going to
take a long time before we can actually reach the goal of a
balanced budget again because we started so far behind. We are
making good progress.
Ms. JENKINS. Well, we started in the same place and were
able to budget----
Secretary LEW. I would be happy to have a----
Ms. JENKINS [continuing]. For balancing in 10 years.
Secretary LEW. I would be happy to have a debate on the
policies it takes to get there. I don't think the American
people will accept those policies because they are not good for
the country.
Ms. JENKINS. Well, I think they show huge growth in the
economy, a better GDP growth rate, and a higher employment rate
than the President's proposal.
Chairman CAMP. All right.
Ms. JENKINS. But we will look forward to the debate.
Secretary LEW. I look forward to working with you.
Chairman CAMP. The time has expired.
Mr. Larson is recognized.
Mr. LARSON. Thank you very much, Chairman Camp. Thank you
for this hearing. Thank you for the way that you have conducted
the business on this Committee, with Mr. Levin as well.
And what an honor to have Jack Lew here. And I think the
previous questioner just has to spark this question. I believe
it was under your leadership, as well, that the entire Federal
debt would have been paid off by 2009. And I think that was in
your lifetime. Is that not correct?
Secretary LEW. Yeah. I don't remember the exact year, but
it was very much in my lifetime.
Mr. LARSON. And so the policies, of course, that led to us
going into a situation where we have wars, never before in our
history, that weren't paid for----
Secretary LEW. Yeah.
Mr. LARSON [continuing]. Tax cuts that weren't paid for,
and a Medicare portion unpaid for, and then a serious financial
crisis that led to an enormous recession have caused us to be
in this situation. Is that a fair assessment?
Secretary LEW. Congressman, it is a fair assessment.
I think, as you know, when I left OMB in January 2001, we
projected a surplus of $5.5 trillion over the next 10 years.
There were a series of decisions that were made that caused
that surplus to go away. We then hit a terrible recession, and
our fiscal cannon, instead of being loaded, was emptied out.
So we got to the position we are in because of a
combination of policy decisions and economic conditions. And we
need to work together to get back on a path to a sustainable
deficit and then keep working, because, ultimately, we should
do more.
Mr. LARSON. And we all want to see us deal with the
deficit, and we all want to see that happen in as timely a way
as we can without placing the burden on the backs of
beneficiaries of our system.
Now, on one side, we hear this all the time, that we have a
group of people that would like to shrink up government so
small they could drown it in a bathtub. The people that they
are drowning, of course, are the recipients of Social Security
and Medicare, veterans, and the disabled, people that we would
like to help, especially in these very difficult times and
especially people who have served their country with honor.
It would seem to me that in the Administration's
application of its budget, it takes that into consideration.
And it especially takes that into consideration with the care
and need to make sure that we are not going into an austere
climate that would balance this on the backs of beneficiaries.
That is why I want to ask you this question, and I think it
is important, because the President continues to reach out time
and time again. For some of us, it doesn't seem logical,
because he is met with resistance time and time again. I
appreciate the President's optimism. I am an optimist, as well.
I would like to see us be able to grow this economy, but we
haven't seen the willingness to invest in our infrastructure or
innovation. And so we are more than skeptical when the
President lays out proposals for CPI and the other side seems
to say, yeah, we will take that, but we don't want to take any
of the balance that has to go along with that.
If that kind of attitude prevails, what will the President
do?
Secretary LEW. Congressman, I think the President has been
very clear. He put some very tough things in this budget,
consistent with the offer he made to the Speaker in December,
because he very much believes it would be the right thing to
have a sensible, balanced agreement that has both sides doing
difficult things. He is not prepared to do something like
chained CPI outside of the context of a balanced approach.
And I think that we are so close in terms of the positions
the President has articulated and what we have heard over the
last 2 years of what you need to reach an agreement in that
sensible center, that I am still going to be an optimist, and I
am going to push forward, as the President will, to try to get
this done.
But I don't want there to be any misunderstanding. And that
is why I said in any opening statement, it is not a starting
point; we have been at this for over 2 years. And it would be a
mistake to treat it as if you can just take one piece out of it
and reach an agreement.
Mr. LARSON. One last thing I would add just as a comment,
no need to respond, but Social Security and Medicare,
specifically, are not entitlements. This is insurance that
people pay for. You just go to your paycheck, everybody in
America, and check that out. It is insurance that you pay for.
Tell us you need to make an adjustment. Tell us we need to
pay more. Tell us there are different actuarial assumptions
that would lead to that. Let's get behind the science and math
that will allow us to reach that apex. But it is not an
entitlement; it is insurance.
Chairman CAMP. All right. Thank you.
And Mr. Paulsen for the last questions of this morning.
Mr. PAULSEN. Thank you, Mr. Chairman.
Mr. Secretary, I remember when the President gave his State
of the Union speech back in 2011. And I was actually really
encouraged that he mentioned at that time the need for
corporate tax reform, in particular. And he has mentioned it
and reaffirmed it in several more State of the Union speeches;
in fact, moving now to having this revenue-neutral component on
some business tax reform, which I think is great. And I look
forward to working with you on that.
I just want to follow up on one clarification, because you
mentioned earlier in your testimony about making sure that, you
know, we want to have a Tax Code that is simpler, fairer, and
more competitive. And you mentioned earlier about small
businesses having to hire accountants and attorneys and work
through a very cumbersome and complex Tax Code. I hear about
that all the time in Minnesota on a very regular basis.
And I just want to get a better sense, do you believe that
component of having more comprehensive tax reform should
include more small businesses and/or families, individuals as a
part of that comprehensive discussion, or should they be left
separately? Because the revenue-neutral component now, as I
understand it, is only on the corporate side but not including
small business.
Secretary LEW. Congressman, I have tried to be clear. We
think both sides of tax reform are important, individual and
business tax reform. Obviously, businesses choose to organize
either one way or the other, and they really need to know what
the world in each side of the Tax Code looks like.
So we look forward to working together on a bipartisan
basis. But it has to be in the context of a fiscal plan, and we
believe that is only going to work if we raise some additional
revenue out of tax reform.
I think it is an amount of revenue consistent with
discussions we were having last year. You know, last year,
there was a fairly broad, bipartisan--well, at least
Republicans were saying you could do a trillion dollars of
revenue by base-broadening. We didn't do any of the base-
broadening. So $580 billion ought to be achievable with base-
broadening.
Mr. PAULSEN. Well, I know there is going to be opportunity.
I just want to make sure that small business is not left off
the table and they will be included as a part of that
discussion. Because they are just as competitive as large
corporations, obviously, in promoting their sales and income
and expanding their operations.
Secretary LEW. Well, we have, from the beginning of this
Administration, worked as hard as we can to promote incentives
for small businesses. There have been 18 separate provisions.
Tax reform should very much address the needs of small
business. And if we can do comprehensive tax reform, as I hope
we can, I look forward to working with you on that.
Mr. PAULSEN. Good, good.
And I want to follow up on one other point, because, again,
I was elected the same year the President was elected, in 2008.
And I came in with open eyes, critical of my party for raising
the debt, for raising spending, and our deficits. So there is
bipartisan blame, and there has to be a bipartisan solution if
we are going to fix these problems.
But my concern is with the new budget. And I haven't looked
at all the details, but it does seem to be a little bit of a
reaffirmation of past budgets that have been proposed by the
Administration that do accelerate spending and don't really
deal with some of the deficit issues or the balancing issues
until much later in the out-years.
And so I just think we need to get ahead of it sooner. Do
you share that----
Secretary LEW. Well, I think this budget is actually
structurally different. And we may not agree on every aspect of
it, but we have the deficit-reduction plan that is what the
President offered to the Speaker in December. We do have
additional investments. We pay for them; everything is paid
for. If we can't agree on how to pay for them, we can't do the
investments. We understand that. We are going to make the case
that the pay-fors are correct. And we are in an environment
where, if we get on the path for a sustainable budget where the
deficit and the debt are coming down as a percentage of GDP, we
are going to have to pay for things that we do after that.
So I actually think it is a different approach. If you look
at the baseline, there is no doubt that there is growing
spending in the baseline because it is no news that the baby
boom is approaching retirement. Much as many of us would like
it to be otherwise, each year we are a year closer. And the
fact is, as the baby boom retires, there is going to be a huge
increase in the number of people on Social Security and
Medicare. And unless we take away their entitlement to those
benefits, that insurance that they have paid into, spending
will go up.
Mr. PAULSEN. Now, you spoke earlier, too, about reducing
deficits to a certain percentage of GDP. But, on the other
hand, debt is continuing to rise, and it is rising as a
significant percentage of GDP.
What is the appropriate level of our debt? Do you think
there is a debt crisis coming our way if we don't take action?
Secretary LEW. The President's budget would actually turn
the corner and bring down both the deficit and debt as a
percentage of GDP. We would bring the deficit down to below 2
percent of GDP. We would bring the debt into the mid-70s and
stabilize.
That is a huge difference, between growing and growing over
100 percent. And I think that is why it is so important that we
work together on this.
Mr. PAULSEN. Let me ask this: Is it your view--the
President said in the middle of March, on the 13th, he said,
``We don't have an immediate crisis in terms of debt. In fact,
for the next 10 years, it is going to be in a sustainable
place.'' Is that your view, we are in a sustainable place for
the next 10 years?
Secretary LEW. Well, I think we have proposed policies that
would ensure that we get there.
Mr. PAULSEN. Okay.
Thank you, Mr. Chairman.
Chairman CAMP. All right. Thank you very much.
And thank you very much, Mr. Secretary. We very much
appreciate your time. And I and all the Members of this
Committee look forward to working with you in the months ahead.
Secretary LEW. Thank you, Mr. Chairman. I look forward to
working with you and the other Members of this Committee as we
go forward.
Chairman CAMP. Thank you.
And, with that, this hearing is now adjourned.
[Whereupon, at 12:10 p.m., the Committee was adjourned.]