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+
+ - THE PRESIDENT'S FISCAL YEAR 2012 BUDGET
+
+[House Hearing, 112 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+
+ THE PRESIDENT'S
+ FISCAL YEAR 2012 BUDGET
+
+=======================================================================
+
+
+ HEARING
+
+ before the
+
+ COMMITTEE ON THE BUDGET
+ HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED TWELFTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ HEARING HELD IN WASHINGTON, DC, FEBRUARY 15, 2011
+
+ __________
+
+ Serial No. 112-4
+
+ __________
+
+ Printed for the use of the Committee on the Budget
+
+
+ Available on the Internet:
+ http://www.gpoaccess.gov/congress/house/budget/index.html
+
+
+
+ U.S. GOVERNMENT PRINTING OFFICE
+64-728 WASHINGTON : 2011
+-----------------------------------------------------------------------
+For sale by the Superintendent of Documents, U.S. Government Printing
+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
+20402-0001
+
+
+
+ COMMITTEE ON THE BUDGET
+
+ PAUL RYAN, Wisconsin, Chairman
+SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland,
+MICHAEL K. SIMPSON, Idaho Ranking Minority Member
+JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania
+KEN CALVERT, California MARCY KAPTUR, Ohio
+W. TODD AKIN, Missouri LLOYD DOGGETT, Texas
+TOM COLE, Oklahoma EARL BLUMENAUER, Oregon
+TOM PRICE, Georgia BETTY McCOLLUM, Minnesota
+TOM McCLINTOCK, California JOHN A. YARMUTH, Kentucky
+JASON CHAFFETZ, Utah BILL PASCRELL, Jr., New Jersey
+MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California
+JAMES LANKFORD, Oklahoma TIM RYAN, Ohio
+DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida
+REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin
+BILL FLORES, Texas KATHY CASTOR, Florida
+MICK MULVANEY, South Carolina HEATH SHULER, North Carolina
+TIM HUELSKAMP, Kansas PAUL TONKO, New York
+TODD C. YOUNG, Indiana KAREN BASS, California
+JUSTIN AMASH, Michigan
+TODD ROKITA, Indiana
+FRANK C. GUINTA, New Hampshire
+ROB WOODALL, Georgia
+
+ Professional Staff
+
+ Austin Smythe, Staff Director
+ Thomas S. Kahn, Minority Staff Director
+
+
+ C O N T E N T S
+
+ Page
+Hearing held in Washington, DC, February 15, 2011................ 1
+
+ Hon. Paul Ryan, Chairman, Committee on the Budget............ 1
+ Prepared statement of.................................... 2
+ Questions submitted for the record....................... 66
+ Hon. Chris Van Hollen, ranking minority member, Committee on
+ the Budget................................................. 3
+ Prepared statement of.................................... 4
+ Hon. Jacob J. Lew, Director, Office of Management and Budget. 5
+ Prepared statement of.................................... 8
+ Responses to questions submitted for the record.......... 66
+ Hon. John A. Yarmuth, a Representative in Congress from the
+ State of Kentucky, questions submitted for the record...... 81
+
+
+ THE PRESIDENT'S FISCAL YEAR 2012 BUDGET
+
+ ----------
+
+
+ TUESDAY, FEBRUARY 15, 2011
+
+ House of Representatives,
+ Committee on the Budget,
+ Washington, DC.
+ The committee met, pursuant to call, at 10:00 a.m., in room
+210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of
+the Committee] presiding.
+ Present: Representatives Ryan, Simpson, Campbell, Calvert,
+Akin, Cole, Price, McClintock, Chaffetz, Stutzman, Lankford,
+Black, Ribble, Flores, Mulvaney, Huelskamp, Young, Amash,
+Rokita, Guinta, Woodall, Van Hollen, Schwartz, Kaptur, Doggett,
+Blumenauer, McCollum, Pascrell, Ryan of Ohio, Wasserman
+Schultz, Moore, Castor, Tonko, and Bass.
+ Chairman Ryan. Director Lew, welcome back, I understand
+there is a traffic problem that tied you up, those things can
+happen. The President is fortunate that you agreed to a return
+assignment at Office of Management and Budget. This one is
+going to be a little different than the last one, I think,
+because the fiscal situation is so much worse. You have come
+under a darkening fiscal outlook. We are aware of the
+challenges that you face in putting this budget together, and
+we thank you for your hard work and for coming here today.
+ Having said all of that, the budget of the United States is
+more than just about arithmetic. It is a statement of national
+priorities. It is a gauge of our national health. Because we
+face a crippling burden of debt, this year's budget in
+particular presented the President with a unique opportunity to
+lead our country.
+ The President has disappointed us all by declining that
+opportunity. He punted. Instead of confronting our debt head-
+on, the President has presented us with a budget that spends
+too much, borrows too much, and taxes too much, and that costs
+jobs and opportunities. His budget would double the amount of
+debt held by the public by the end of this term, and triple it
+on the 10th anniversary of his inauguration.
+ To be sure, our country was already on an unsustainable
+fiscal trajectory before he took office. Our debt is the
+product of acts by many Presidents and many Congresses over
+many years. Both of our political parties share the blame in
+where we have come to. Nevertheless, the President's policies
+have accelerated us down this disastrous path. He has made our
+spending problems worse with policies such as the failed
+stimulus and a brand-new open-ended health care entitlement. He
+has argued for massive tax increases that would stifle economic
+growth and job creation, and make our fiscal picture worse. His
+budget alone contains $1.6 trillion in higher taxes on American
+families, businesses, and entrepreneurs. In our nation's most
+pressing fiscal challenges, the President has abdicated his
+leadership role.
+ First, he punted to a bipartisan Fiscal Commission to
+develop solutions to the problem. Then, when his own commission
+put forward a set of fundamental entitlement and tax reforms, a
+commission comprised of a majority of Democrats, he ignored
+them. He even failed to take the commission's advice on less
+sensitive subjects, such as discretionary spending. His budget
+would increase discretionary spending by $353 billion, relative
+to his commission's proposals.
+ Former Clinton Chief of Staff, and co-chair of the Fiscal
+Commission, a man who I have great respect for, a Democrat,
+Erskine Bowles said, quote, The budget goes nowhere near where
+they will have to go to resolve our fiscal nightmare. The
+President's budget disregards the drivers of our debt crisis
+and the insolvency of our entitlement programs. Every day that
+passes without leadership on this crucial challenge is another
+day of uncertainty for job creators, and a darkening economic
+prospect for millions of Americans living in the shadow of our
+growing and unsustainable debt.
+ The politically safe response, I suppose, is to do nothing.
+I wonder about that, though. Unfortunately, this is the path
+the President has chosen. We feel that it is our responsibility
+to do things differently, to lead where he has fallen short,
+and that is exactly what we plan to do.
+ With that, I will yield to Ranking Member Van Hollen for an
+opening statement.
+ [The statement of Chairman Ryan follows:]
+
+Prepared Statement of Hon. Paul Ryan, Chairman, Committee on the Budget
+
+ Director Lew, welcome back.
+ The President is fortunate that you agreed to a return assignment
+to OMB under a darkening fiscal outlook. We are aware of the challenges
+you faced in putting this budget together, and we thank you for your
+hard work.
+ The Budget of the United States is about much more than arithmetic.
+It is a statement of national priorities--and a gauge of our nation's
+health.
+ Because we face a crippling burden of debt, this year's budget in
+particular presented the President with a unique opportunity to lead
+our country.
+ The President has disappointed us all by declining that
+opportunity. He punted.
+ Instead of confronting our debt head on, the President has
+presented us with a budget that spends too much, borrows too much and
+taxes too much. His budget would double the amount of debt held by the
+public by the end of his term--and triple it by the tenth anniversary
+of his inauguration.
+ To be sure, our country was already on an unsustainable trajectory
+before he took office. Our debt is the product of acts by many
+presidents and many Congresses over many years. Both parties share the
+blame.
+ Nevertheless, this President's policies have accelerated us down
+this disastrous path. He has made our spending problems worse with
+policies such as the failed stimulus and the new health care
+entitlement.
+ He has argued for massive tax increases that would stifle economic
+growth and make our fiscal picture worse--this budget alone contains
+$1.6 trillion in higher taxes on American families, businesses and
+entrepreneurs.
+ And on our nation's most pressing fiscal challenges, the President
+has abdicated his leadership role. First, he punted to a bipartisan
+commission to develop solutions to the problem.
+ Then, when his own commission put forward a set of fundamental
+entitlement and tax reforms, he ignored them. Erskine Bowles, the
+Democratic chairman of the fiscal commission, said the White House
+budget request goes ``nowhere near where they will have to go to
+resolve our fiscal nightmare.''
+ He even failed to take the commission's advice on less sensitive
+subjects, such as discretionary spending: His budget would increase
+discretionary spending by $353 billion relative to the commission's
+proposals.
+ The President's budget disregards the drivers of our debt crisis
+and the insolvency of our entitlement programs.
+ Every day that passes without leadership on this crucial challenge
+is another day of uncertainty for job creators and darkening economic
+prospects for millions of Americas living in the shadow of our growing
+debt.
+ The politically safe response, I suppose, is to do nothing.
+Unfortunately, this is the path the President has chosen.
+ We feel that it's our responsibility to do things differently--to
+lead where he has fallen short. And that's exactly what we plan to do.
+ With that, I will yield to Ranking Member Van Hollen for an opening
+statement.
+
+ Mr. Van Hollen. Thank you, Chairman Ryan, welcome Director
+Lew. I know that President Obama, like President Clinton, will
+be well-served by having you at the helm of Office of
+Management and Budget. And I thank you for being here to
+discuss the President's budget. And while we are still
+reviewing some of the details, I want to commend the President
+for putting forth a budget that reduces our deficit while also
+investing in our future.
+ This is a tough-love budget. It cuts non-security
+discretionary spending by $400 billion, taking that category of
+spending to the lowest share of GDP since the Eisenhower
+Administration. And starting this year, it steadily decreases
+the deficit, and brings the budget to primary balance by the
+year 2017. But the President's budget cuts the deficit while
+making critical investments in areas like education, clean
+energy, infrastructure, and scientific innovation.
+ Last week, Chairman of the Federal Reserve Ben Bernanke
+testified before this committee about the importance of
+targeted national investments to help grow the economy and keep
+America competitive. He highlighted the need to pursue policies
+to foster economic growth, quote, By encouraging investment in
+the skills of our workforce as well as new machinery and
+equipment, by promoting research and development, and by
+providing necessary public infrastructure. This budget does
+that.
+ As we debate the best way forward, our conversation must
+include a comprehensive review of our national balance sheet.
+It is simply short-sighted to think we can try to balance our
+budget through cuts in domestic discretionary spending alone, a
+category that represents only 12 percent of the overall budget.
+We must look to other areas, including comprehensive tax
+reform, and eliminating special interest breaks in the tax
+code. The President's budget moves in the right direction by
+putting an end to taxpayer dollars going to subsidies for big
+oil companies at a time when gas is costing American families
+more than $3 a gallon, and oil companies are making huge
+profits; there is no reason to subsidize those companies and
+short-change investments in education and Head Start, as some
+of our colleagues are proposing to do today on the floor of the
+House.
+ This budget extends tax cuts for middle class tax families,
+but rejects tax breaks for those at the very top. It takes a
+balanced approach, much like the budgets under President
+Clinton. Under the Clinton Administration, the country enjoyed
+real economic growth of 3.9 percent per year, and the economy
+added 20.8 million private sector jobs. That balanced approach
+allowed us to not only stop running deficits, but actually
+achieve surpluses and begin to reduce our nation's debt.
+Unfortunately, those surpluses disappeared under the previous
+Bush Administration. They cut taxes for the wealthy and turned
+a $5.6 trillion surplus into a sea of deficits, lost 653,000
+private sector jobs over that eight year period.
+ In January, 2009, when the President raised his hand and
+was sworn in, he was handed an economy in free-fall that was
+losing 700,000 jobs a month, and a record $1.3 trillion
+deficit. Unfortunately, some of the first acts of the new
+Congress were to eliminate the PAYGO rule, and add $230 billion
+to that deficit in connection with health care reform.
+ Having spent the first two years working to rescue the
+economy, working with Congress and the American people, the
+President's budget is now focused on strengthening the economy
+with a plan of targeted investments and deficit reduction. It
+stands in stark contrast, I might say, to the approach that we
+are seeing by our colleagues on the floor of the House, which
+is to slash important programs immediately, disregarding the
+impact on the fragile economy and workers.
+ It is critical that our nation's budget strike the right
+balance with both spending and revenue, and I believe the
+President's budget makes an important effort to hit the right
+note. It is a starting point. I must say, it is interesting to
+hear many of our colleagues on the Republican side criticize
+the President for not putting more of the ideas of the
+Bipartisan Deficit-Debt Reduction Commission on the table, when
+in the House, the representatives to that commission voted
+against it.
+ That being said, and I am going to conclude, Mr. Chairman,
+in order to tackle our longer-term fiscal challenges beyond the
+10-year period of this budget, it is important that the White
+House and the Congress, Republicans and Democrats, come
+together to seriously discuss and consider the ideas in the
+Commission's proposal. Compromise is not a dirty word. Getting
+things done requires give and take. We should begin that
+conversation now. Thank you, Mr. Chairman.
+ [The statement of Mr. Van Hollen follows:]
+
+ Prepared Statement of Hon. Chris Van Hollen, Ranking Minority Member,
+ Committee on the Budget
+
+ Thank you very much, Chairman Ryan.
+ Welcome, Director Lew. I know that President Obama, like President
+Clinton, will be well-served by having you at the helm of the Office of
+Management and Budget.
+ Thank you for being here today to discuss the President's budget.
+While we are still reviewing some of the details, I want to commend the
+President for submitting a budget that reduces our deficit, while also
+investing in our future. This is a tough love budget. It cuts non-
+security discretionary spending by $400 billion over the next decade--
+taking that category of spending to the lowest share of GDP since the
+Eisenhower Administration. And, starting this year, it steadily
+decreases the deficit and brings the budget to primary balance by 2017.
+ But the President's budget cuts the deficit while making critical
+investments in areas like education, clean energy, infrastructure, and
+scientific innovation. Last week Federal Reserve Chairman Ben Bernanke
+testified before this committee about the importance of targeted
+national investments to help grow the economy and keep America
+competitive. He highlighted the need to pursue policies to foster
+economic growth 'by encouraging investment in the skills of our
+workforce as well as new machinery and equipment, by promoting research
+and development, and by providing necessary public infrastructure.'
+This budget does that.
+ As we debate the best way forward, our conversation must include a
+comprehensive review of our national balance sheet. It is simply short-
+sighted to think we can try to balance our budget through cuts in
+domestic discretionary spending alone--a category that represents only
+12 percent of the overall budget. We must also look to other areas,
+including comprehensive tax reform and eliminating special interest
+breaks in the tax code. The President's budget moves in the right
+direction by putting an end to taxpayer dollars going to subsidies for
+big oil companies. At a time when gas is costing American families more
+than $3 a gallon and oil companies are making huge profits, there is no
+reason to subsidize big oil companies and short-change funding for Head
+Start and education, as our Republican colleagues are proposing to do
+today on the House floor. President Obama's budget also extends tax
+cuts for middle class families, but rejects tax cuts for the wealthiest
+2 percent of Americans. At a time of huge deficits, we cannot afford to
+ask our children to pay for tax breaks for the folks at the very top.
+ The President's budget takes a balanced approach, much like the
+budgets under President Clinton. Under the Clinton Administration, the
+country enjoyed real economic growth of 3.9 percent per year and the
+economy added 20.8 million private-sector jobs. That balanced approach
+allowed us to not only stop running deficits, but actually achieve
+surpluses and begin to reduce our nation's debt. Unfortunately, those
+surpluses were squandered under the Bush Administration. The Bush
+Administration cut taxes for the wealthy and turned a $5.6 trillion
+surplus into a sea of deficits and lost 653,000 private-sector jobs
+over eight years. In January 2009 the Obama Administration was handed
+an economy in free fall that was losing over 700,000 jobs a month and a
+record $1.3 trillion deficit.
+ Having spent its first two years working to rescue the economy, the
+President's budget is now focused on strengthening the economy with a
+plan of targeted investments and deficit reduction. The President's
+approach stands in stark contrast to the House Republicans' plan being
+debated on the House floor today. That plan would recklessly slash
+important programs immediately--disregarding the impact to American
+workers and our fragile recovery. The President's Bipartisan Commission
+charged with reducing our national debt and deficit stated that 'in
+order to avoid shocking the fragile economy, the Commission recommends
+waiting until 2012 to begin enacting programmatic spending cuts.' The
+Rivlin-Domenici Commission rendered the same advice. Deep cuts now will
+not create a single job; in fact, Mark Zandi and other economists have
+warned against deep spending cuts that would put thousands of American
+jobs at risk. President Obama, on the other hand, has laid out a long-
+term, responsible path to fiscal sustainability. He has proposed
+significant but targeted cuts that stand in contrast to the House
+Republicans' hatchet job on the budget that will cost many Americans
+their jobs.
+ It is critical that our nation's budget strikes the right balance
+with both spending and revenue, and I believe the President's budget
+makes an important effort to hit the right note. It is an important
+starting point. That being said, in order to tackle our longer-term
+fiscal challenges--beyond the 10 year period of this budget--it is
+important that the White House and the Congress, Republicans and
+Democrats, come together to seriously discuss and consider the ideas in
+the Commission's proposal. Compromise is not a dirty word. Getting
+things done requires give and take. We should begin that conversation
+now.
+
+ Chairman Ryan. Mr. Lew, the floor is yours.
+
+ STATEMENT OF JACOB J. LEW, DIRECTOR,
+ OFFICE OF MANAGEMENT AND BUDGET
+
+ Mr. Lew. Thank you, Mr. Chairman. Ranking Member Van
+Hollen, members of the Committee, thanks for having me here
+today to present the President's 2012 budget. It is a real
+honor to be here again after 10 years, presenting the
+President's budget, and I thank the Chairman and the Ranking
+Member for the very kind personal words that they opened with.
+I have a great deal of respect for each of them, and look
+forward to working together in a bipartisan way as we move
+through the long and difficult process.
+ After emerging from the worst recession in generations, we
+face another historic challenge. We need to demonstrate to the
+American people that we can live within our means and invest in
+the future. We need to work our way out of the deficits that
+are driving up our debt, and at the same time make the tough
+choices to make sure that we are in a position to out-educate,
+out-build, and out-innovate our competitors. That is what it is
+going to take to return to robust economic health and to grow
+jobs in the future.
+ This is the seventh budget that I have worked on at the
+Office of Management and Budget, and the most difficult. It
+includes more than $1 trillion in deficit reduction, two-thirds
+of it from lower spending, and it puts the nation on a path
+towards fiscal sustainability so that by the middle of the
+decade, the government will no longer be adding to our national
+debt as a share of the economy. By the middle of the decade, we
+will be able to pay our current bills and remain in primary
+balance for many years after that.
+ The President has called this budget a down-payment.
+Because we still have work to do to pay down the debt and
+address our long-term challenges. But we can't start to pay
+down the debt until we stop adding to it. And that is what this
+budget does.
+ The budget lays out a strategy for significant deficit
+reduction, the most deficit reduction in a comparable period
+since the end of World War II. It will bring our deficit down
+to about three percent of the economy by the middle of the
+decade, and stay there for the rest of this budget window.
+ Changing the trajectory of our fiscal path is a significant
+accomplishment, but to do this it will take tough choices, and
+I would like to highlight just a few of them.
+ Our budget includes a five-year, non-security discretionary
+spending freeze that will reduce the deficit by over $400
+billion over the next decade, and bring spending in this
+category of the budget to the lowest level since President
+Eisenhower sat in the Oval Office. To achieve savings of this
+magnitude, it is not enough to just deal with programs that are
+outdated, or ineffective, or duplicative, though we do start
+there. It is also necessary to make reductions in programs
+that, absent the current fiscal situation, we wouldn't be
+looking for reductions. Programs like low-income energy
+assistance and Community Development Block Grants.
+ In national security, which we are not freezing, we are
+also making real cuts. Defense spending over the past decade
+has been growing faster than inflation, and we can no longer
+afford that. The budget cuts $78 billion for the Pentagon's
+spending plan over the next five years, which will bring
+Defense spending down to zero real growth. It cuts weapon
+programs that Secretary Gates and the military leadership says
+we don't need, and we can't afford. We are also capturing
+savings that come from bringing our troops home from Iraq,
+which, when you add it in, brings defense spending down by more
+than five percent, compared to the President's budget of last
+year.
+ Of course, cutting discretionary spending alone can't solve
+our fiscal problems. This budget also deals with mandatory
+spending and with revenue, and it takes significant steps to
+address our long-term fiscal challenges. For example, this
+budget shows that we can pay for solutions to two problems that
+we have been all too willing to kick down the road by putting
+on the national credit card. One is preventing a nearly 30
+percent reduction in reimbursements to doctors in Medicare, to
+keep doctors in the system and treating patients. Another is
+preventing an increase in taxes on middle class families
+through the Alternative Minimum Tax, commonly known as the AMT.
+ In December, there was bipartisan agreement to pay for a
+one-year extension of the so-called Doc-Fix, which was not
+required by budget rules, but it was the right thing to do. In
+this budget, we build on that, and we have $62 billion of
+savings to pay for the next two years of this fix. And those
+three years of paying for the Doc-Fix establishes a clear
+pattern and creates a window so we can work together, so that
+we can address this in the future without adding to the
+deficit.
+ With regard to the Alternative Minimum Tax, we have offsets
+in the budget to pay for three years of what is called a patch.
+And we could pay for it by limiting the amount that those in
+the highest tax bracket can receive for itemized deductions. It
+is a big step towards cutting back on spending in the tax code,
+and it is consistent with the Fiscal Commission
+recommendations. If we continue on this path of paying for the
+AMT patch after 2014, it alone will reduce the deficit by one
+percent of GDP by the end of the decade. These both are down-
+payments on long-term reform to reduce the deficit further, and
+the administration looks forward to working with Congress to
+permanently cover these costs once and for all.
+ Similarly, as the President said in the State of the Union,
+we are eager to work together on a deficit-neutral corporate
+tax reform that will simplify the system, eliminating special
+interest loopholes and level the playing field, and lower the
+corporate tax rate for the first time in 25 years. And while it
+does not contribute to our deficits in the short or medium
+term, the President has laid out his principles to strengthen
+Social Security, has called on Congress to work in a bipartisan
+fashion, to keep this compact with future generations.
+ As we take these steps to live within our means, we also
+invest in the areas critical to future economic growth and job
+creation: education, innovation, clean energy, and
+infrastructure. And even in these areas, the budget cuts
+programs in order to fund high-priority investments. For
+example, in education, we maintain the increased maximum Pell
+Grant level, which is enabling nine million students to pay for
+college education, and we pay for it with a $100 billion in
+savings that primarily come from eliminating summer-school Pell
+Grants and eliminating the graduate student in-school loan
+subsidy.
+ In the area of innovation, we support $148 billion in
+research and development investments, including $32 billion for
+the National Institutes of Health. And we need visionary goals
+to bring about a new clean energy economy to help pay for these
+investments. Lower priority programs are cut, and we eliminate
+12 tax breaks for oil, gas, and coal companies, that will raise
+$46 billion over 10 years.
+ And to build the infrastructure we need to compete, the
+budget includes a proposal for a $556 billion surface
+transportation re-authorization bill. Not only does this plan
+include the consolidation of 60 duplicative, often-earmarked
+programs into five, and it demands more competition for funds,
+but we insist that the bill be paid for, and we look forward to
+working in a bipartisan manner to do that.
+ Mr. Chairman, I am under no illusions how difficult it is
+to make the tough choices needed to put us on a sustainable
+fiscal path. As we make these choices, I believe that it is
+important that we not cut areas that are critical to helping
+our economy to grow, and making a difference for families and
+businesses.
+ Finally, cutting spending and cutting our deficits requires
+us to put political differences aside, and working together. I
+look forward to working with you and crafting a set of policies
+that enable us to live within our means and invest in the
+future. And I look forward to answering your questions. Thank
+you very much.
+ [The statement of Mr. Lew follows:]
+
+ Prepared Statement of Hon. Jacob J. Lew, Director,
+ Office of Management and Budget
+
+ Chairman Ryan, Ranking Member Van Hollen, and Members of the
+Committee, thank you for inviting me to testify this morning about the
+President's Fiscal Year 2012 Budget.
+ As the President has said, now that the country is back from the
+brink of a potential economic collapse, our goal is to win the future
+by out-educating, out-building and out-innovating our competitors so
+that we can return to robust economic and job growth. But to make room
+for the investments we need to foster growth, we have to cut what we
+cannot afford. We have to reduce the burden placed on our economy by
+years of deficits and debt.
+ This is the seventh budget I have worked on at OMB and the most
+difficult. It is a budget of shared sacrifice across the Federal
+government. It is a budget that makes tough choices to begin to tackle
+our major fiscal challenges. It is a budget that transitions from
+rescuing the economy to investing in our future. It is a budget that
+lives within our means in order to compete effectively in the world
+economy.
+ then and now
+ The world has changed since I last served at OMB. When I left OMB
+in January 2001, we had balanced the budget and projected a surplus of
+$5.6 trillion over the next decade. In fact, we projected that the U.S.
+would effectively be debt-free by 2013. Unprecedented economic growth
+was certainly a key driver of budget surpluses. But in a virtuous
+cycle, a commitment by the President and the Congress to maintain a
+surplus reinforced expectation of Federal fiscal responsibility, which
+had a positive impact on interest rates and further helped to spur
+economic growth. This surplus was the result of year after year of
+fiscal discipline including budget agreements in 1990, 1993 and 1997.
+Presidents and congressional majorities from both parties reached
+across the aisle to make tough policy choices.
+ When I returned as OMB Director last November to a projected
+deficit of $10.4 trillion--a sixteen trillion dollar swing in just over
+ten years--the fiscal picture could not have been more different. Large
+deficits were driven by two main factors: first, the worst economic
+downturn in a generation and policy response necessary to rescue the
+economy, and second, the decision in prior years to give two large tax
+cuts without offsetting them and to create a Medicare prescription drug
+benefit without paying for it.
+
+
+ Clearly, the challenges we face today are very different than those
+we faced more than a decade ago, when many of us worked together to
+balance the budget.
+ our record
+ Bringing the Economy Back from the Brink
+ It is useful to begin by reviewing the state of our economy,
+because it shows how far we have come but also how far we need to go.
+ When the President took office the economy was in freefall. Real
+gross domestic product (GDP) was dropping at an annual rate of 4.9
+percent after falling at an annual rate of 6.8 percent the previous
+quarter. The economy was losing an average of 783,000 private sector
+jobs per month. A steep decline in the stock market combined with
+falling home prices led to a significant loss of household wealth.
+Between the third quarter of 2007 and the first quarter of 2009, the
+real net worth of American households declined by 28 percent--the
+equivalent of one year's GDP.
+ In the last year, we have seen some encouraging signs that the
+trajectory has changed and that a recovery is beginning to take hold.
+An economy that had been shrinking for nearly a year is now growing
+again--over the past six quarters, through the first quarter of FY
+2011, real GDP has grown at an average rate of 3.2 percent. After
+nearly two years of job losses, more than one million private sector
+jobs were added to the economy in 2010. Capital and credit markets are
+functioning and gaining strength. And after teetering on the brink of
+liquidation just two years ago, America's auto industry is posting
+healthy gains and returning money to the taxpayers who helped it
+through a period of turmoil.
+ What changed?
+ Just 28 days after taking office, the President signed into law the
+Recovery Act to create and save jobs and to invest in an economy able
+to compete in the 21st century. Approximately one-third, or $288
+billion, of the Act's funds went to tax cuts for small businesses and
+95 percent of working families. Another third, or $224 billion, was
+used for emergency relief for individuals and state and local
+governments. The final third was invested in projects to create jobs,
+spur economic activity, and lay the foundation for future sustained
+growth.
+ This investment had a powerful impact. The White House Council of
+Economic Advisers (CEA) estimates that the Recovery Act raised the
+level of GDP as of the third quarter of 2010 by 2.7 percentage points,
+relative to what it would have been absent intervention, and raised
+employment relative to what it otherwise would have been by between 2.7
+and 3.7 million jobs in the same time frame.
+ And we have acted together to build on this growth. In March 2010,
+the President signed the Hiring Incentives to Restore Employment (HIRE)
+Act that provided subsidies for firms that hired workers who were
+unemployed for at least two months and other job creation incentives.
+In August, he signed into law $10 billion in additional aid to States
+to prevent the dismissal of 160,000 of teachers, police officers, and
+firefighters nationwide. In September, the President signed the Small
+Business Jobs Act. At the end of 2010, the President signed into law a
+bipartisan agreement on taxes that prevented a tax increase for middle-
+class families, extended unemployment insurance benefits for millions
+of Americans hardest hit by the recession, provided powerful incentives
+for business investment and job creation, and temporarily reduced the
+payroll tax which also would help spur macroeconomic demand. Economists
+from across the political spectrum agree that this bill will boost
+economic growth in 2011 by 0.5 to 1.2 percentage points.
+ From the Recovery Act to our financial stabilization plan, the
+President's tough choices over the past two years have helped to save
+the economy from a second Great Depression. But we are keenly aware
+that the recovery is not happening fast enough for the millions of
+Americans who are still looking for jobs, and our immediate task is to
+accelerate economic growth and job creation to get our fellow Americans
+back to work. That is why the President has proposed an up-front
+investment of $50 billion in building new roads, rails, and runways to
+upgrade our infrastructure and create new jobs. It is why the President
+is making key investments in innovation, clean energy, and education
+that will create jobs and make our workforce more competitive. And that
+is why the President laid out a commonsense approach to regulation that
+is pragmatic and evidence-based, and that will protect our health and
+safety and help lay the groundwork for economic growth and job
+creation.
+ restoring a sound fiscal policy
+ While taking steps to rescue the economy, the President has also
+worked to restore accountability and fiscal responsibility. In his
+first Budget, the President confronted directly the fiscal situation we
+inherited, eliminating trillions of dollars in budget gimmicks. He made
+a commitment to restoring fiscal responsibility, while recognizing that
+increasing the deficit in the short term was necessary to arrest the
+economic freefall. The President pledged to cut the deficit he
+inherited in half as a share of the economy by the end of his first
+term, a commitment this Budget keeps. He signed into law pay-as-you-go
+(PAYGO) legislation that returned the tough budget rules of the 1990s
+to Washington. The principle behind PAYGO is simple: all new, non-
+emergency entitlement spending and revenue losses must be offset by
+savings or revenue increases, with no exception for new tax cuts.
+ In addition, the President signed into law the landmark Affordable
+Care Act (ACA), enacting comprehensive health insurance reforms that
+will hold insurance companies more accountable, lower health care
+costs, guarantee more health care choices, and enhance the quality of
+health care for all Americans while reducing the deficit. According to
+CBO analysis, the Affordable Care Act will save more than $200 billion
+over the next ten years and will reduce the deficit by more than $1
+trillion over the second decade. This is more deficit reduction than in
+any legislation since the 1990s. At the same time, the ACA's savings
+provisions tackle the single biggest contributor of our nation's long-
+term deficits--rising health care costs.
+ While taking major steps to bring down our deficits, the President
+also demanded that the Government spend every taxpayer dollar with as
+much care as taxpayers spend their own dollars. The President proposed
+legislation to create an expedited rescission authority so that
+unnecessary spending can be struck swiftly and constitutionally.
+Through his Accountable Government Initiative, the Administration has
+launched a host of initiatives to streamline what works, cut what does
+not, and eliminate wasteful spending. These initiatives include
+focusing agencies on identifying and delivering on their top
+priorities, a comprehensive strategy to reform Government contracting
+that will save $40 billion by the end of 2011, an initiative to reduce
+the amount of improper payments made by the Government by $50 billion,
+a review and reform of information technology use and procurement, an
+initiative to reduce administrative overhead by billions and improve
+performance, and an effort to dispose of billions of dollars of
+unneeded and under-utilized real property assets.
+ Each year since entering office, President has asked his
+Administration to go line-by-line through the Budget to identify
+programs that are outdated, ineffective, or duplicative. In his first
+two Budgets, the President identified more than 120 terminations,
+reductions, and savings, totaling approximately $20 billion in each
+year. These terminations ranged from a radio navigation system for
+ships made obsolete by GPS to new F-22 fighter jets. While recent
+administrations have seen between 15 and 20 percent of their proposed
+discretionary cuts approved by the Congress, the Administration saw 60
+percent of its proposed discretionary cuts become law for 2010.
+ Finally, in April 2010, the President created the bipartisan
+National Commission on Fiscal Responsibility and Reform, and charged
+the Commission with identifying policies to improve the fiscal
+situation in the medium term and to achieve long-term fiscal
+sustainability. The Commission made an important contribution,
+beginning the process of building a bi-partisan consensus on the nature
+of the challenge we face and expanding the debate to include a broader
+range of options. While the Administration doesn't agree with every
+recommendation in the report, there are many areas of this budget that
+reflect the work of the Commission.
+ living within our means and investing in the future
+ Now that the country is back from the brink of a potential economic
+collapse, our goal is to win the future. But we cannot do so if we are
+saddled with increasingly growing deficits. This Budget builds on
+recent progress and lays out a comprehensive and responsible plan that
+will put us on a path toward fiscal sustainability for the rest of the
+decade--a down payment that will build a strong foundation to tackle
+our long-term challenges.
+ The projected deficit this year is nearly 11 percent of GDP, the
+highest level since World War II, reflecting the severity of the
+recession and our temporary measures to generate jobs and growth. The
+Budget lays out a path of rapid deficit reduction--the most deficit
+reduction in a comparable period since World War II. In the second half
+of the decade and beyond, debt is no longer growing as a share of GDP--
+a key indicator of fiscal sustainability. Redirecting our fiscal path
+on this downward slope is a significant accomplishment, one which will
+take tough choices and shared sacrifice--and is essential for the long-
+term competitiveness of the American economy.
+
+
+ The first step to reducing our deficit is maintaining a strong
+economy, which is a key priority for the Budget. As the baseline
+projections show, with economic growth we begin to make substantial
+progress at reducing the deficit even before we make additional policy
+changes. However, even with a sustained recovery, simply continuing
+current policies does not get the job done--it would leave us with
+deficits of between 4 and 5 percent of GDP--with debt growing at an
+unsustainable rate through the end of the decade and beyond.
+ To stay on a path towards sustainable deficits on the order of 3
+percent of GDP, we make tough choices across all areas of the Budget to
+identify more than $1 trillion in savings--two thirds from spending
+reductions. This requires decisions beyond just separating the good
+programs from the bad. It means broadly sharing sacrifices in all areas
+of the Budget in order to make critical investments in areas most
+important to growth and competitiveness. And it means reducing spending
+in areas where we continue believe there is still important work to do.
+It cannot be achieved by simply looking at discretionary spending--we
+need to look at mandatory and revenue policies as well. An overview of
+key decisions in the FY 2012 Budget is as follows:
+ Non-security discretionary. The Budget proposes to freeze
+non-security discretionary spending for five years, which saves more
+than $400 billion over the next decade and brings this category of
+spending to its lowest level as a share of the economy since Dwight
+Eisenhower was in office.
+ Security discretionary. The Budget reflects tough
+decisions in areas outside of the non-security freeze--bringing Defense
+spending down from a long period of significant real growth to zero
+real growth, saving $78 billion over the next five years relative to
+last year's plan. Reflecting the winding down of military operations in
+Iraq, the Overseas Contingency Operations (OCO) budget for DOD in 2012
+will be about 26 percent lower than levels in the President's 2011
+request. As a result, the overall defense budget, including OCO, will
+be down by 5.2 percent from last year's request.
+ Health care. The Budget fully pays for a two-year
+extension of current Medicare physician payment rates with $62 billion
+in health care savings, preventing a payment cut of over 25 percent.
+The Budget also proposes incentives for States to implement medical
+malpractice reforms to further reduce the growth of health care costs.
+ Revenues. The Budget pays for three years of AMT relief by
+cutting the value of tax expenditures for high-income taxpayers by 30
+percent. The Budget also opposes any further extension of the
+unaffordable upper-income tax cuts to two years.
+ Fiscal stewardship. The Budget includes several proposals
+to reduce the risk of future liabilities. These include giving the
+Pension Benefit Guaranty Corporation (PBGC) the ability to adjust
+premiums to reflect all risks facing the pension insurance system and
+proposing reforms to encourage State responsibility and improve the
+solvency of the Unemployment Insurance Trust Fund.
+ shared sacrifices, hard choices
+ To be competitive in the 21st Century, the United States cannot be
+weighed down by crippling budget deficits, ineffective programs that
+waste tax dollars, and a government that is not accountable to the
+American people.
+ Five-year non-security freeze. It would be short-sighted to cut
+spending across the board and shortchange critical areas for growth and
+competitiveness--such as education, innovation, and infrastructure--or
+carelessly slash programs that protect the most vulnerable. This means
+that some cuts must be deeper to make room for key investments. In his
+2011 Budget request, the President proposed a three-year, non-security
+discretionary freeze. As the economic recovery takes hold, the
+President believes that it is important to go further and is now
+proposing a five-year, non-security discretionary freeze. This is an
+extension of the freeze proposed last year, based on 2010 enacted
+levels. This freeze would be the most aggressive effort to restrain
+discretionary spending in 30 years and, by 2015, would lower non-
+security discretionary funding as a share of the economy to the lowest
+level since Dwight D. Eisenhower was president. Over the decade, the
+five-year freeze saves more than $400 billion.
+ Program terminations, reductions, and savings. In part to meet this
+freeze, the Budget includes over 200 terminations, reductions, and
+savings totaling more than $33 billion in savings for 2012 alone. On
+their own, these cuts will not solve our fiscal problems, but they are
+a critical step to creating a more responsible and accountable
+Government and a key component of a comprehensive deficit reduction
+strategy. It is never easy to end or cut programs; they all have
+advocates. Some programs are duplicative, outdated and ineffective. But
+we also had to choose programs that, absent the fiscal situation, we
+would not cut:
+ Low-Income Housing Energy Assistance Program (LIHEAP). The
+Budget cuts LIHEAP by more than $2 billion, returning LIHEAP funding to
+2008 levels, prior to the energy price spikes. However, in this
+difficult fiscal environment, we cannot afford to maintain the
+expansion to the program.
+ Community Services Block Grant (CSBG). CSBG has helped to
+support community action organizations in cities and towns across the
+country. These are grassroots groups working in poor communities,
+dedicated to empowering those living there and helping them with some
+of life's basic necessities. These are the kinds of programs that
+President Obama worked with when he was a community organizer, so this
+cut is not easy for him. Yet for the past 30 years, these grants have
+been allocated to virtually the same organizations, using a formula
+that does not consider how good a job the recipients are doing. The
+Budget proposes to cut financing for this grant program in half, saving
+$350 million, and to reform the remaining half into a competitive grant
+program, so that funds are spent to give communities the most effective
+help.
+ Grants-in-Aid for Airports. The Budget lowers funding for
+the airport grants program to $2.4 billion, a reduction of $1.1
+billion, by eliminating guaranteed funding for large and medium hub
+airports. The Budget focuses the traditional Federal grants to support
+smaller commercial and general aviation airports that do not have
+access to additional revenue or other outside sources of capital. At
+the same time, the Budget would allow larger airports greater
+flexibility to generate revenue with increased non-Federal passenger
+facility charges.
+ These cuts are not limited to a few agencies. Rather, these cuts
+reflect shared sacrifice across the Federal government--even for
+agencies that are central to out-competing, out-building, and out-
+educating in the 21st century. For example, the Department of Education
+has made difficult decisions in order to maintain historic increases
+for Pell Grants, which are critical to creating future generations that
+are well-educated and globally-competitive. The Administration would
+put Pell Grants on firm financial footing through steps that include
+eliminating the in-school interest subsidy for loans to graduate
+students and ending the new year-round Pell Grant, which offers
+students a second Pell Grant in one year, but has cost ten times more
+than anticipated. The Budget also eliminates 13 discretionary programs
+at the Department of Education and consolidates 38 K-12 programs into
+11 new programs that emphasize using competition to allocate funds.
+ Federal civilian employee pay freeze. Federal workers are patriots
+who work for the Nation often at great personal sacrifice. They deserve
+our respect and gratitude. But just as families and businesses across
+the country are tightening their belts, so too must the Federal
+government. On his first day in office, the President froze salaries
+for all senior political appointees at the White House. In his Budget
+last year, the President proposed extending that freeze to other
+political appointees, and he eliminated bonuses for all political
+appointees across the Administration. Starting in 2011, the President
+has proposed and Congress enacted a two-year pay freeze for all
+civilian Federal workers. This will save $2 billion over the remainder
+of 2011, $28 billion over the next five years, and more than $60
+billion over the next 10 years.
+ Savings in discretionary security programs. The President's Budget
+also demands cuts and savings in security programs. DOD, in particular,
+has seen an average increase to its base budget of 7.4 percent a year
+over the past decade. Moving forward, DOD is pursuing a variety of
+strategies to set the course for zero real growth in defense spending,
+and saving $78 billion in its base budget (including $13 billion in FY
+2012) relative to FY 2011's request for the next five years. Secretary
+Gates will oversee a package of terminations, consolidations, and
+efficiencies in operations to slow this growth, and these savings will
+be used to fund programs and efforts critical to the armed forces and
+the security of the Nation. Reflecting the winding down of military
+operations in Iraq, the Overseas Contingency Operations (OCO) budget
+for DOD in 2012 will be about 26 percent lower than levels in the
+President's FY 2011's request. As a result, the overall defense budget,
+including OCO, will be down by 5.2 percent from last year's request.
+ Administrative savings. Allowing waste is never right, and it is
+especially intolerable in a time of tightening belts and tough
+decisions. Continuing the President's Accountable Government
+Initiative, the Budget cuts $2 billion in administrative overhead like
+travel, printing, supplies, and advisory contract services; establishes
+a process to quickly sell excess and under-utilized Federal real
+estate; and embraces competitive grant programs based on the Race to
+the Top model. This model is applied to programs from early childhood
+education through college; to allocate grants for transportation; to
+bring innovation to workforce training; and to encourage both
+commercial building efficiency and electric vehicle deployment.
+ Reorganize government. We live and do business in a global economy,
+but the organization of our government has not kept pace with the
+private sector advancements of the 21st century. Many of our government
+organizations have strayed from their original or core missions,
+evolving out of inertia rather than in response to the changing needs
+of the groups they serve. This has resulted in duplicative and
+ineffective programs that persist and grow over time, and an
+organization of functions that doesn't always make sense. For example,
+as the President stated in his State of the Union address, there are
+twelve different agencies that deal with exports. Americans deserve a
+streamlined, efficient and well-functioning Federal government that is
+responsive to the needs of its citizens and of the private sector.
+ The Budget reflects the President's commitment to reorganizing the
+Federal government to ensure that our resources are being used
+effectively and efficiently, with a particular focus on making the U.S.
+more competitive. In the coming months we will be working to identify
+where we can merge, consolidate and cut in order to better facilitate
+the needs of all American companies, entrepreneurs, and innovators and
+give these engines of economic growth a leg up in the global economy.
+The President plans to submit a proposal to Congress to enact the
+changes necessary to reorganize the Federal government in a way that
+best serves the goal of a more competitive America.
+ investments in our future
+ The best antidote to a growing deficit is a growing economy, which
+spurs expanded employment, higher revenue collection, and lower demand
+for spending on safety net programs like unemployment insurance
+nutrition assistance. Putting the Nation on a sustainable fiscal path
+and getting our deficits under control are critical to making the
+United States competitive in the global economy, and the Budget lays
+out a strategy to do this. At the same time, it also recognizes that we
+cannot cut back on investments that will fuel future economic growth
+particularly since sustained and robust economic growth plays a very
+significant, long-term role in reducing deficits. While the Budget
+identifies cuts and savings and asks for shared sacrifices across the
+government, it also invests in areas critical to helping America win
+the race for the jobs and industry of the future.
+ We must target scarce Federal resources to the areas critical to
+winning the future: education, innovation, clean energy, and
+infrastructure.
+ Educate a competitive future workforce. In an era where most new
+jobs will require some kind of higher education, we have to keep
+investing in the skills of our workers and the education of our
+children. This Budget continues to support the President's commitment
+to once again have the highest proportion of college graduates in the
+world by 2020, and continues the reform agenda not just by devoting
+significant resources to where they are needed, but also by ensuring
+that those funds are being invested in programs that deliver results
+efficiently and effectively. This Budget calls for:
+ Maintaining the Pell Grant maximum award at $5,550. Since
+2008, the Administration has increased the maximum Pell Grant by $819,
+ensuring access to postsecondary education for over 9 million students
+from low-income families.
+ Supporting reform of K-12 education with expanded Race to
+the Top and other innovative, evidence-based programs that encourage
+innovation and reward success, and expands the Race to the Top concept
+to early childhood education with $350 million to establish a new,
+competitive Early Learning Challenge Fund for States.
+ Establishing a Workforce Innovation Fund that will
+encourage States and localities to break down barriers among programs,
+test new ideas, and replicate proven strategies for delivering better
+employment and education results at a lower cost per outcome.
+ Investment in R&D and transformational technologies. To compete in
+the 21st century economy, we need to create an environment where
+invention, innovation, and industry can flourish. That starts with
+continuing investment in the basic science and engineering research and
+technology development from which new products, new businesses, and
+even new industries are formed. We must focus in areas that show the
+greatest promise for job creation to position ourselves to get ahead of
+our competitors and be a leader in emerging industries. This Budget
+makes significant investments in clean energy technology and research
+and development to nurture the United States as a world leader in
+innovation. To meet these goals, the Budget calls for:
+ Providing $148 billion for research and development. This
+level of funding continues the effort to double investments in basic
+research at the National Science Foundation, Department of Energy
+Office of Science, and the National Institute for Standards and
+Technology (NIST); provides robust investment in biomedical research at
+National Institutes of Health (NIH); and doubles energy efficiency
+research and development.
+ Making the Research and Experimentation (R&E) tax credit
+permanent to give businesses the certainty they need to make these
+important investments. In addition, the Administration proposes to
+expand the credit by about 20 percent, the largest increase in the
+credit's history, and simplify it so that it is easier for firms to
+take this credit and make the investments our economy needs to compete.
+ Bolstering economic rejuvenation in hard-hit areas of our
+country with new Growth Zone program. Growth Zones will deliver
+expanded tax incentives for investment and employment and a more
+streamlined access to government assistance to 20 new areas facing
+economic distress as well as growth potential.
+ Providing $8.7 billion for clean energy technology
+research, development, demonstration, and deployment. This includes
+more than doubling energy efficiency investments and increasing
+renewable energy investments by over 70 percent. The Budget seeks to
+reinforce new approaches to energy research by adding three new energy
+innovation hubs and expanding investment in the Advanced Research
+Projects Agency--Energy (ARPAE). In addition, the budget provides $5
+billion for Section 48C tax credits for renewable energy manufacturing
+facilities.
+ Build a 21st century infrastructure. To compete in the 21st
+century, we need an infrastructure that keeps pace with the times and
+outpaces our rivals, and for too long we have neglected our Nation's
+infrastructure, its roads, bridges, levees, waterways, communications
+networks, and transit systems. In the Recovery Act, the Administration
+made the largest one-time investment in our Nation's infrastructure
+since President Eisenhower called for the creation of a national
+highway system. We need to continue to build on those efforts--and to
+do so responsibly by paying for what we build. We cannot strengthen our
+economy with a modern infrastructure if at the same time it weakens our
+fiscal standing. To give America the world-class infrastructure our
+economy needs, the Budget:
+ Proposes a six-year surface transportation reauthorization
+that increases average annual investment by $35 billion per year, in
+real terms, over the previous six year authorization plus passenger
+rail funding in those years; this represents a total inflation-adjusted
+increase of sixty percent over the life of the bill. To bring the trust
+fund under budget enforcement mechanisms, the Budget proposes to
+reclassify trust fund spending on surface transportation as mandatory,
+subjecting it to PAYGO rules and closing score-keeping loopholes.
+ Provides $1.2 billion for the Next Generation Air
+Transportation System, the Federal Aviation Administration's multi-year
+effort to improve the efficiency, safety, and capacity of the aviation
+system.
+ Invests in smart, energy-efficient, and reliable
+electricity delivery infrastructure. The Budget continues to support
+the modernization of the Nation's electrical grid by investing in
+research, development, and demonstration of smart-grid technologies to
+spur the transition to a smarter, more efficient, secure and reliable
+electrical system.
+ Builds next-generation wireless broadband network to
+provide access to 98 percent of the population, creates a Wireless
+Innovation Fund, and establishes an interoperable broadband network for
+public safety. These proposals will be fully paid for with proceeds
+from proposed ``voluntary incentive auctions'' of underused spectrum
+and other spectrum management measures, which will generate more than
+$27 billion over the next decade. In addition to funding the programs
+above, nearly $10 billion of these proceeds will be dedicated to
+deficit reduction.
+ building on our progress
+ Now that the recovery is beginning to take hold, taking further
+steps to ensure responsibility has to be a priority--not because fiscal
+austerity in and of itself is virtuous, but because there is no way
+that we can compete and win in the world economy if we are borrowing
+without an end in sight.
+ The President's Budget is a down payment. It puts the government on
+a path to reach sustainable deficits over the next ten years. This
+means that for the first time in 10 years, the government will again be
+fully paying for all of its programs and the debt will stabilize as a
+share of GDP. This is an important milestone--but not the finish line--
+on the path to a balanced budget.
+ We cannot achieve sustainable levels with ever deeper cuts in non-
+security discretionary spending, which is simply not a large enough
+share of the picture either to cause or to solve the whole problem. The
+President has been clear that we must work on a bipartisan basis to
+find long-term solutions across all areas of the Budget, including
+Medicare, Medicaid, and tax reform.
+ Continue efforts to restrain the growth of health costs. Health
+care comprises one-quarter of non-interest Federal spending, and it is
+the key driver of future deficit growth. According to CBO analysis, the
+Affordable Care Act will save more than $200 billion over the next ten
+years and will reduce the deficit by more than $1 trillion over the
+second decade. This is a pivotal achievement, and the President is
+resolutely committed to implementing the ACA fairly, efficiently, and
+swiftly. But the job is not yet done. The Budget builds on the ACA with
+additional proposals to contain health care cost growth:
+ The ACA made important advances in the area of program
+integrity, but there are other important opportunities to reduce fraud,
+waste, and abuse in Medicare and Medicaid. The Budget includes ideas
+pulled from external sources, including recommendations from the
+President's Fiscal Commission and from legislation that has received
+bipartisan support. The $62 billion in health savings in the Budget
+focus on increasing program integrity, efficiency, and accountability--
+not reducing beneficiary access or benefits. For example, the Budget
+extends efficiencies from Medicare competitive bidding for durable
+medical equipment to Medicaid, and prohibits brand and generic drug
+companies from delaying the availability of new generic drugs (``pay-
+for-delay '').
+ At the same time, these health savings pay for two years
+of relief from the Sustainable Growth Rate (SGR) formula--preventing a
+decrease of nearly 30 percent in physician payments that would hurt
+Medicare. This paid-for extension is on top of the three previous paid-
+for extensions of the SGR fix, including the one-year extension enacted
+in December, establishing a pattern of practice that we hope to
+continue as we work with Congress to achieve a permanent fix.
+ Fully implementing the Affordable Care Act achieves cost
+savings and promotes efficient care, including reimbursing doctors and
+hospitals as Accountable Care Organizations, and adjusting payments to
+hospitals with high readmissions or hospital-acquired conditions.
+Implementing the Act also has the potential to fundamentally transform
+our health system into one that delivers better care at lower cost--a
+potential that is not fully captured in the ACA savings estimates. In
+particular, the Act incorporates the most promising ideas from
+economists and leaders from across the political spectrum to control
+health care costs.
+ The President's Budget includes $250 million in grants to
+States to reform their laws on medical malpractice through various
+approaches such as health courts, safe harbors, early disclosure and
+offer programs, or other legal reforms. These grants would be awarded
+and administered by the Bureau of Justice Assistance (BJA) in
+consultation with the Department of Health and Human Services. The goal
+of any reform would be to fairly compensate patients who are harmed by
+negligence, reduce providers' insurance premiums, weed out frivolous
+lawsuits, improve the quality of health care, and reduce medical costs
+associated with ``defensive medicine.'' This proposal is in line with
+the Fiscal commission's recommendation for ``an aggressive set of
+reforms to the tort system.''
+ Make a Down Payment on Tax Reform. To foster a competitive economy,
+we must have sensible and affordable tax policy that is consistent with
+our overall objectives of deficit reduction and economic growth. Since
+the last comprehensive overhaul nearly three decades ago, the tax code
+has been weighed down with revenue-side spending in the form of special
+deductions, credits, and other tax expenditures that do little for
+middle income families, and burdened with generous upper income tax
+cuts and more generous estate tax cuts for families making more than
+$250,000 a year. To compete and win in the world economy, we cannot
+sustain a tax code burdened with these unaffordable benefits. This is
+why the President has called on the Congress to undertake a fundamental
+reform of our tax system. As progress towards this goal, the Budget
+calls for:
+ Allowing the 2001 and 2003 High-Income and Estate Tax Cuts
+to Expire. The Administration remains opposed to the permanent
+extension of these high-income tax cuts past 2012, as now scheduled,
+and supports the return of estate tax to 2009 rates and exemption
+levels. These policies save nearly a trillion dollars over the decade
+including interest effects. We cannot afford these unpaid-for tax
+breaks for the wealthiest Americans and we are committed to limiting
+the current extension to two years.
+ Beginning the Process of Corporate Tax Reform. The United
+States has the highest corporate tax rate in the world. Part of the
+reason for this is the proliferation of tax breaks and loopholes
+written to benefit a particular company or industry. The result is a
+tax code that makes our businesses and our economy less competitive as
+a whole. The President is calling on Congress to work with the
+Administration on corporate tax reform that would simplify the system,
+eliminate these special interest loopholes, level the playing field,
+and use the savings to lower the corporate tax rate for the first time
+in 25 years--and do so without adding a dime to our deficit.
+ Paying for the Alternative Minimum Tax (AMT). This Budget
+provides for a three year extension of AMT relief, and is offset by an
+across-the-board 30 percent reduction in itemized deductions for high-
+income taxpayers. This is the first time an extension of AMT relief has
+been fully paid for. While our base projections do not assume that we
+continue to pay for AMT relief after 2014, the President is committed
+to working with Congress to fully pay for AMT relief beyond this
+window. Doing so reduces the deficit by an additional 1 percent of GDP
+by the end of the decade relative to the deficit reduction in the
+Budget.
+ Take Steps Now to Reduce Future Liabilities. Looming debts and
+unfunded liabilities can put taxpayers on the line for bailing out
+programs in the future. The Budget promotes fiscal stewardship by
+restoring responsibility to key areas. First, the Budget proposes to
+give the Pension Benefit Guaranty Corporation (PBGC) Board the ability
+to adjust premiums and directs PBGC to take into account the risks that
+different sponsors pose to their retirees and to PBGC. This will both
+encourage companies to fully fund their pension benefits and give the
+PBGC the tools to improve its financial soundness without over-
+burdening the companies it ensures, saving $16 billion over next
+decade. Second, the 2012 Budget provides short-term relief to States by
+providing a two-year suspension of State interest payments on their
+debt and automatic increases in Federal unemployment insurance (UI)
+taxes. At the same time, the Budget proposes steps to encourage States
+to put their UI systems on firmer financial footing and pay back what
+they owe to the Federal government. Beginning in 2014, the Budget
+increases the minimum wages states can subject to unemployment taxes to
+$15,000. Finally, the Budget proposes to gradually reduce the loan
+portfolios and eligible loan sizes of Fannie Mae and Freddie Mac and
+end the conservatorship of these companies, scaling back government
+support in a way that allows private capital to return without
+undermining the housing market recovery.
+ Begin a Dialogue on Social Security Solvency. The President
+considers Social Security to be one of our most successful programs,
+and indispensable to workers, people with disabilities, seniors, and
+survivors. The President has been clear that we need to strengthen
+Social Security to make sure that Social Security is sound and reliable
+for the American people, now and in the future. The Budget lays out the
+President's principles: Reform should strengthen the program and its
+protections for the most vulnerable, without putting at risk current
+retirees and people with disabilities, without slashing benefits for
+future generations, and without subjecting American's guaranteed
+retirement income to the whims of the stock market. The President
+believes that the best way forward is for leaders of both parties to
+come together to discuss the way forward on a bipartisan basis.
+ Social Security is not contributing to our deficit any time soon.
+Our goal is to make sure that current and future generations are
+assured that the system will remain sound for the long term as well--to
+provide the peace of mind that is one of the important benefits of
+insurance.
+ a way forward
+ There has been a vibrant national conversation on fiscal
+responsibility over the past several months. The President's Fiscal
+Commission made important progress in launching a serious bipartisan
+discussion last year, and I commend them for resetting the debate on
+further deficit reduction. While the President has not embraced all of
+their proposals, many of them are included in this year's Budget.
+Federal employee pay freezes, medical malpractice reform, a call for
+government reorganization, and the elimination of in-school subsidies
+for graduate student loans are just a few examples. Our Terminations,
+Reductions, and Savings volume includes numerous proposals that were
+also recommended for termination or reduction by the Fiscal Commission.
+And like the Commission, we make proposals to improve budget
+discipline, including subjecting the Transportation Trust Fund to PAYGO
+rules and providing for program integrity cap adjustments. We must take
+serious steps to both cut spending and cut deficits. We must address
+these issues in a bipartisan way. And we must do so in a way that is
+consistent with our core values.
+ The Fiscal Commission was clear that that the only way to tackle
+our deficit is to cut excessive spending wherever we find it--in
+domestic spending, defense spending, health care spending, and spending
+through tax breaks and loopholes. Now that the worst of the recession
+is over, we have to confront the fact that our government spends more
+than it takes in. That is not sustainable and we need a comprehensive
+approach
+ The five year non-security freeze achieves significant savings with
+a dramatic reduction in discretionary spending over the coming decade,
+and it will require commitment from both the Administration and
+Congress to live within that framework. But we have to remember that
+this category of spending represents a little more than 12 percent of
+our Budget. To make further progress, we cannot pretend that cutting
+this kind of spending alone will be enough. Looking forward, we will
+have to make hard decisions to further reduce health care costs,
+including programs like Medicare and Medicaid, which are the single
+biggest contributor to our long-term deficit. Health insurance reform
+will slow these rising costs, which is part of why nonpartisan
+economists have said that repealing the health care law would add a
+quarter of a trillion dollars to our deficit. Still, we need to look at
+other ideas to bring down costs, and the proposals in this year's
+Budget are a first step. And we cannot afford a permanent extension of
+the tax cuts for the wealthiest two percent of Americans if we are
+committed to achieving a sustainable deficit.
+ This Budget builds on the work of the last two years, and makes a
+down payment on a strong American future. Much work remains to be done.
+We need to take steps to reduce our future liabilities. And we need to
+work to shape our government into one that is more affordable, more
+effective, and more efficient.
+ I look forward to working with both houses of Congress in the
+coming months as we work to put our fiscal path back on a sustainable
+course.
+
+ Chairman Ryan. Thank you. Mr. Lew, before I get into this,
+how long do we have you for? I understand you have to testify
+over in the Senate later this afternoon.
+ Mr. Lew. I believe we have until 12:30.
+ Chairman Ryan. But a little bit longer than that, since you
+were a little late, how does that sound?
+ Mr. Lew. I apologize for being late. I hadn't allowed for
+the new security rules.
+ Chairman Ryan. No, don't apologize. I am just trying to
+manage time so everybody gets a shot at their questions.
+ Mr. Lew. Actually, Mr. Chairman, the issue was, the
+gentleman in front of me in line had to take his shoes off as
+he went through the metal detector, and it took a few minutes.
+ Chairman Ryan. Okay. I am reading in the Washington Post
+today, an editorial board which is, you know, more often
+thought as favorable toward the administration's point of view,
+quote, the title of the editorial is, President Obama's Budget
+Kicks the Hard Choices Further Down the Road, quote, The
+President punted. Having been given the chance, the cover and
+the push by the Fiscal Commission he created to take bold steps
+to raise revenue and curb entitlement spending, President
+Obama, in his fiscal 2012 budget proposal, chose instead to
+duck. To duck, and to mask some of the ducking with the sort of
+budgetary gimmicks he once derided.
+ We just heard from the Congressional Budget Office director
+and the chairman of the Federal Reserve, one of the best things
+we can do for the economy today is put in place a plan that
+gets this deficit and debt under control. Why did you duck? If
+George Bush brought this budget to the House, I would say the
+exact same thing. You know the drivers of our debt, you
+understand the issues. I think the fact that the President even
+gave us this Fiscal Commission to start with acknowledged, we
+agree on the size and the scope and the nature of the problem.
+Why did you duck, why are you not taking this opportunity to
+lead?
+ Mr. Lew. Mr. Chairman, I think the President's budget, if
+you look at the bottom line, addresses the fiscal challenges
+that we face in the short and the medium-term, and he has
+called it a down-payment, acknowledging that we need to work
+together in the long-term. If you look at what the mandate of
+the Fiscal Commission was, it was to bring the deficit down to
+three percent of GDP by the middle of the decade. Our budget
+does that.
+ Surely there are things in our budget that we will have
+disagreements about. I know that we are going to have a serious
+debate about priorities. But the President's budget
+accomplishes the goal. And I think if you look at the budget,
+it does it with some very, very tough decisions. The spending
+reductions are very real, the revenue provisions are very real,
+and the mandatory savings are very real. There certainly are
+other things that we will need to work on together to address
+the long-term challenges, but if our goal is to get to a
+sustainable deficit by 2015, I think the President's budget
+puts down a comprehensive deficit reduction path.
+ Chairman Ryan. Okay, using your own table S-4 on page 176
+of your budget, you don't get the primary balance in your own
+numbers until 2017, and then immediately thereafter you have
+more problems.
+ Mr. Lew. So, let us look at S-4. If you look at S-4, where
+it starts, the deficit is 10.9 percent of GDP. It comes down to
+3.2 percent of GDP in 2015. We then stay between 2.9 and 3.2,
+3.3, in that area around three percent of GDP for the rest of
+the decade, and if you had a series that went beyond, it would
+go on for years beyond that. I think it is a mistake to think
+of three percent of GDP as a bulls-eye. I think if you compare
+10.9 percent to 3.2 or 3.1 or 3.0, it is a world of difference.
+And I think we achieved primary balance in this budget.
+ Chairman Ryan. So let us get into what is behind that
+primary balance, behind your claims of balance. And I can go
+through the tables. Am I correct that the budget proposes
+revenues that are $819 billion greater than your current policy
+baseline, and that within your policy baseline, you have an
+$807 billion, 10-year tax increase built into it, because it
+assumes the expiration of the 2001 and 2003 tax cuts for higher
+income earners, and assumes the estate tax reverts back to 2009
+level? Am I correct that that is what your baseline assumes?
+ Mr. Lew. Mr. Chairman, our baseline assumes, consistent
+with where there was bipartisan agreement in December, that we
+would permanently extend the middle class tax cuts, and that we
+would have estate tax relief. We did not have long term
+agreement on the upper income rates, or on the richer estate
+tax relief.
+ Chairman Ryan. I just wanted to make sure we have an equal
+understanding.
+ Mr. Lew. Yeah. We tried to construct a baseline so that the
+difference would be clear.
+ Chairman Ryan. So, adding the additions in the baseline
+revenue increases, that is about $1.6 trillion in additional
+revenues from where we are today, correct?
+ Mr. Lew. Well, the upper-income tax cut is $709 billion,
+and the estate provision is $98, and then there is some debt
+service on top of that.
+ Chairman Ryan. Right, so 1.6, okay.
+ Mr. Lew. It is 953, actually, I believe.
+ Chairman Ryan. What about debt service?
+ Mr. Lew. It is 709 for the upper-income, 98 for the estate,
+and 147 in debt service.
+ Chairman Ryan. So, let me get to this because you have to
+go, and I have a lot of questions, and I am going to send you
+more. Your economic assumptions, which are how you achieve
+primary balance, which is how you achieve the claims you are
+making. I want to walk you through this and ask you why you
+make these economic assumptions.
+ You are expecting very robust growth in the coming years.
+Your forecast calls for real GDP growth well above four percent
+in 2013 and 2014, much, much higher than the private sector
+Blue Chip consensus or Congressional Budget Office, but I find
+it interesting that 2013 also marks the year where you are
+calling for a big rise in taxes across all segments of our
+economy. You basically are raising taxes on successful small
+businesses, on investment, as part of the expiration of the
+2001-2003 tax cuts and the health care tax cuts. Specifically,
+there is a new 3.8 tax increase on investment. As of 2013, the
+top income tax rate will rise from its current level of 35
+percent all the way to 44.8 percent. The tax on dividends could
+triple from its current level of 15 percent to 45.4 percent.
+And the tax on capital gains will rise from 15 percent to 23.8
+percent.
+ But you are calling for robust economic growth in that very
+year. Do you think that the tax increases that you are planning
+on in 2013 on mostly successful small businesses in the
+investment community in America, on job creators; you think it
+is not going to impact the economy? You think that is the year
+when the economy takes off? Because if it doesn't, then you
+never reach primary balance, as you are claiming.
+ Mr. Lew. Mr. Chairman, there was, in December, an agreement
+that we should extend certain tax provisions for two years. And
+there are some provisions that do take effect, or go out of
+effect, because of that. I think if you look at our economic
+assumptions, the economic assumptions in the short-term are
+actually a little bit more pessimistic than some of the outside
+observers. In the long-term they are a little bit more
+optimistic, and it is driven by one key difference, which is an
+important conceptual difference. The question is will we
+recover from this recession the way we have recovered from past
+recessions?
+ If you look historically, financially-led recessions have
+had slightly longer periods of recovery, but in the end we get
+back to where the economy would have been. We assume that that
+is the case. We are within the range of recoveries from past
+financially-led recessions, and we think that they are very
+prudent, reasonable assumptions. Undoubtedly, and I apologize I
+am a lawyer not an economist, so I could get into a level of
+detail here which is probably beyond my own training. But
+economists can disagree about what year it would happen and
+they can disagree about whether or not we will get back to what
+was the potential GDP before. We think it is the right thing to
+do, to get our economy back. That is one of the reasons we have
+put forward a budget that invests in the things that it takes
+to keep growing the economy; and we think that education,
+innovation, and infrastructure are key to it.
+ Chairman Ryan. Here is what does not add up to me; you are
+saying, in 2013, you are going to have economic growth 1.3
+percent higher than what the Congressional Budget Office
+believes, 1.4 percentage points higher than what the Blue Chip
+believes, and you are claiming this explosion of growth in a
+year where you are raising taxes across the board on
+entrepreneurs, small businesses, investors, investment.
+ History doesn't square with your comments. And if we are
+right and you are wrong about this, then you will never reach
+primary balance. The $1.7 trillion you are claiming in extra
+revenue because of the higher economic growth, you are claiming
+above and beyond what the Congressional Budget Office claims,
+doesn't materialize then, and we are in a world of trouble.
+ And I will just finish with this. What is so frustrating
+about this is, you know the drivers of our debt are the
+entitlement programs. And yet, you are doing nothing to address
+that. We are in different parties; that is fine. But when
+people elect a President, they expect a President to lead, to
+take on the country's biggest challenges before they become
+actual crises. And we all know that this debt is becoming a
+crisis. And you are not even touching these programs. You are
+assuming the economy is going to take off in a year in which
+you are raising taxes everywhere, all over the economy. And if
+your math doesn't add up, then we are all in a world of hurt,
+and this will cost us jobs.
+ Mr. Lew. Mr. Chairman, if you look at tax provisions, the
+vast majority of the revenues that you are talking about are
+associated with the tax rate at the top end; the tax rates for
+people who earn $250,000 a year or more. I would just note
+that, during the last administration I served, and during the
+Clinton Administration, at those tax rates we had the longest
+period of uninterrupted growth in American history. So they are
+not tax rates that have been historically challenging to
+growth. If you look inside our budget, where there are new
+proposals, we have a lot of tax cut proposals that are designed
+to promote the kinds of investment that we need in this
+country. And we, net, have $360 billion of new revenue. So it
+doesn't amount to a large amount in 2013.
+ Chairman Ryan. Yeah. I don't know where you are from, but
+where I come from, most of our jobs come from successful small
+businesses. In Wisconsin, you drive to any city, and there is
+going to be an industrial park with a Sub-S, a LLC with 100,
+maybe 200, 300 employees. They file taxes as individuals. Most
+of the top tax rate is actually small businesses. And when we
+are taxing our small businesses at rates above 50 percent in
+most states, like Wisconsin, 44.8 percent in this country,
+where most of our competitors are taxing their businesses at
+rates lower than we are, how do we expect to win global
+competition? How do we expect to create jobs when we are taxing
+the engine of economic growth and job creation, small
+businesses, at rates in excess of 50 percent in most states?
+ Mr. Lew. I think that if we look at who are the taxpayers
+in that class, at $250,000 or above, and where the revenue
+goes. I am from New York, a lot of it goes to finance and a lot
+of it goes to law. And I think that it is not the case that the
+top rate is something that is principally a small business
+issue. I think that we have a lot of tax proposals that would
+make taxes easier for small businesses. The right way to target
+small business is to make sure that we do the things that are
+targeted to investment, and not to the kinds of income that
+drives people into that top bracket, in the most cases.
+ Chairman Ryan. All right. Mr. Van Hollen.
+ Mr. Van Hollen. Thank you, Mr. Chairman. Director Lew, as I
+indicated in my opening statement, I think it is an important
+achievement that in this budget you reach primary balance by
+the year 2017 and begin to stabilize the problem. But I also
+indicated that I think we all need to work together, especially
+to take actions, now, to deal with what are going to be
+projected deficits in the next 20 years, and I think that
+conversation should begin now.
+ But I do want to point out that this is not easy to do when
+you have dug yourself as a country in a deep hole, digging
+itself out, that there are other alternatives out there. And
+the Chairman of the Committee has put forward an alternative
+road map, in good faith, in a sincere effort to reduce the
+deficit. So it is in that spirit that I just want to point out
+that when the Congressional Budget Office, last January, scored
+that budget proposal, that deficit proposal, that they
+indicated that in the year 2020, the deficit would be 3.7
+percent of GDP. And that the budget would not be in primary
+balance under that plan, as of that day. And that, in fact, if
+you go out another 20 years, until 2040, the deficit in percent
+of GDP is 4.5 percent, and the budget is just then getting into
+primary balance.
+ And I point that out, Mr. Chairman, to show you how hard it
+is. As some criticize the President's effort, just recognize
+that other sincere efforts that were made actually brought the
+deficit into primary balance later than the President's budget.
+And there are going to be conversations about different
+assumptions, but my point is, these deficit numbers were the
+result of a good faith effort, and I think the President has
+made a good faith effort. We do all need to get together.
+ Now I want to discuss the longer-term outlook. I want to
+discuss what is happening today on the floor as it draws
+contrast with the approach that the Obama Administration is
+taken with respect to the deficit. As you indicated, you are
+talking about significant cuts in domestic discretionary
+spending. As you know from listening to many of my colleagues,
+these are going to have a real impact, and a painful impact on
+many people's lives. But you have decided that, in order to get
+deficit under control, we are going to have to make these tough
+decisions, and we agree.
+ At the same time, today on the floor, there are proposals
+to cut immediately and deeply. I just want to read to you a
+statement from the President's Bipartisan Deficit Commission,
+that we are hearing lots of positive things about, from our
+colleagues, about their recommendations and approach. Here is
+what they said, and I quote, In order to avoid shocking the
+fragile economy, the commission recommends waiting until 2012
+to begin enacting programmatic spending cuts.
+ Another bipartisan commission, the Rivlin-Domenici
+Commission, rendered the same advice. Mark Zandi and other
+economists have indicated that deep, immediate cuts, in
+contrast to responsible and planned cuts over a period of time,
+those deep, immediate cuts, could harm the fragile economy, and
+hurt job growth. If you could please comment on the proposals
+today, for very deep and very immediate cuts and the impact
+they would have on the economy and job growth, in your opinion.
+ Mr. Lew. Mr. Van Hollen, I think we have a tough balance
+that we have to strike. We agree that it would be a mistake to
+do drastic deficit reduction in this year that we are in,
+beginning in next year. We had bipartisan agreement in December
+on the tax bill, largely because of the concern that we needed
+to keep the economy moving, that we couldn't afford the drag
+that a tax increase in January would have had. At the same
+time, we need to focus on reducing spending, we need to focus
+on making decisions that will turn the corner on the deficit,
+and we can't really wait years to do that.
+ I think our budget has a frame that we think is the right
+frame for making the tough trade-offs. And we are going to have
+to work, as we go through the remainder of the legislation for
+fiscal year 2011, and then as we work together on next year, to
+come up with the right balance. I think it is important that we
+have the right balance. You don't need to make the kinds of
+cuts that you are describing in order to get on the right path,
+but you do need to tighten the belt, which is what our budget
+is saying.
+ And we are watching carefully as the House continues work.
+We will be working with the House and the Senate, and then
+ultimately together, to do the responsible thing and fund the
+government. But I think it is a question of not mixing too many
+things together. The long-term challenge is what we have got to
+keep our eye on. When I say long-term, in this window of the
+next 10 years, we have got to look to the middle of the decade.
+And are we on a path towards getting down to a deficit where we
+stop adding to the debt? That is what we have tried to do with
+the budget.
+ Mr. Van Hollen. Some of our Republican colleagues have
+indicated that, if they don't get their way, in terms of these
+very deep and immediate cuts that could harm the economy, that
+if they don't get their way on those cuts, that they would shut
+down the government. Now, we have seen this movie before, I
+know you have. If you could just make clear what some of the
+impacts of that would be on things like the Social Security
+Administration and other essential functions of government.
+ Mr. Lew. Well, I take the Congressional leadership at their
+word, that we all want to avoid a situation like that. It is
+not the right way to run the government, and I think we have a
+broad agreement that we have to keep essential services going.
+When the government shut down in the mid-1990s, it was very
+unpleasant. It was unpleasant when people needed to apply for
+passports because a relative was ill or passed away overseas,
+and they couldn't get a passport. People started to appreciate
+things that they just took for granted, but when the government
+shut down, they stopped.
+ I hope we don't get to the point where we have to go
+through that again. And I think if we all work together in a
+bipartisan way to look for the things we can agree on, and take
+some of the things that we can't agree on, and put them off to
+the side, we can accomplish a great deal.
+ Chairman Ryan. Thank you, Mr. Van Hollen. I will just
+simply say for the record, it is not our desire to see the
+government shut down, but equally we don't want to rubber-stamp
+these elevated spending levels. We want to see a beginning of a
+down-payment on spending reductions. With that, Mr. Simpson.
+ Mr. Simpson. Thank you, Mr. Chairman, and I would just
+reiterate what you just said. It is nobody's desire to shut
+down the government; what we want to do is reduce spending. And
+that is what we are trying to do with the budget that we are
+bringing to the floor. Everybody talks about draconian cuts.
+You have got to remember, this is on top of enormous increases
+that have occurred over the last couple of years, so it is not
+as draconian as a lot of people would like. But I appreciate
+your testimony; I appreciate your hard work on this budget. I
+know it is hard to put together a budget, even if it is one
+that most people, I want to say this respectfully, but most
+people don't take seriously.
+ Most people don't think this is ever going to be enacted.
+All the right words are used. I think the Ranking Member said,
+this is a tough-love budget. If this was the tough-love that my
+father had shown me when I was young, I would still be a
+juvenile delinquent. Some people think I still am; I understand
+that.
+ I have heard that we have to make tough choices; they are
+going to be necessary. We have to live within our means. Let me
+ask you, this budget, theoretically, goes to balance in, what,
+16 years?
+ Mr. Lew. Well, it is going to take a long time to go to
+balance, we first have to stabilize the debt.
+ Mr. Simpson. Is there ever a balance projected out there?
+ Mr. Lew. To get to balance will require a set of decisions
+that are beyond what anyone is discussing right now.
+ Mr. Simpson. Why is no one discussing that?
+ Mr. Lew. Well, I will tell you the last time I testified
+before this committee, I presented a balanced budget with a
+surplus. I understand what it takes to get to a balanced
+budget. We have gone through 10 years of a combination of
+things that have driven the deficit up. We have had an economic
+crisis, but we also had decisions to not pay for what we were
+doing. We now have to deal with the results of that, and it is
+not going to be a quick process. I know that I left things in
+pretty good shape 10 years ago, and I look forward to leaving
+things in better shape when I am done this time.
+ Mr. Simpson. I do not deny that you did. We have a tendency
+in this committee to sit and look back at certain indicators
+that prove our point of view. All of those don't really matter.
+What matters is where we are today, and where we are going to
+be in the future. And what the American people are saying is,
+get your fiscal house in order. I don't see this getting our
+fiscal house in order. I have noticed that everybody says, Well
+we are going to have $400 billion in cuts and savings in this
+budget, like that is some big deal. Four-hundred billion
+dollars, yeah it is a lot of money, that is over 10 years,
+right?
+ Mr. Lew. Yes.
+ Mr. Simpson. That is like $40 billion a year. The budget
+this year's proposal is $3.73 trillion? Forty billion in
+savings? Less than one percent, or around one percent in
+savings? This is not tough-love. This is continuing the path we
+are currently on with no future balanced budget ever, in this
+proposal, and the American people are rejecting it, frankly.
+ Mr. Lew. Congressman, let me just say a couple things.
+First, we have put what we believe to be a very serious
+proposal, it is comprehensive, forward. We don't think we have
+a monopoly on all knowledge and wisdom; we look forward to
+seeing the ideas that are put forward. And when you put forward
+a budget that reduces the deficit, I am sure there will be
+things in it that we can agree on, there will be things that we
+can't agree on. This is the first step in the process. I know
+that it is easy for pundits on the outside to dismiss the
+starting point, but the President's budget is the starting
+point. It is a frame, it is a comprehensive frame. And I think
+that it does achieve something very important, which is it
+stabilizes the deficit at three percent of GDP by the middle of
+the decade, and while I totally agree that we need to be on a
+path that goes beyond that, and I wish we were on a path where
+we could, together, talk about balance. Until we stop adding to
+the national debt, we can't talk about getting to balance, and
+this budget would get you there.
+ We won't agree on all the details. And I know that some of
+the actions that have been taken in this House do cut spending.
+I haven't seen the actions yet that reduce the deficit. And I
+look forward to that. I know that it is the beginning of the
+process, and we will work together when we see your proposals.
+ Mr. Simpson. Well we all understand that you are not going
+to get to balance by simply cutting spending. The spending is a
+portion of how you get there. You also have to look at the
+entitlement programs which this budget totally left out, in
+terms of reform of the entitlement programs. And everyone, I
+think the American people understand, that we have to address
+entitlement reform, and leadership has to come from the White
+House to do that, quite frankly.
+ Mr. Lew. Congressman, we agree that we need to reduce
+spending. I think if you look in this budget, this is possibly
+the toughest budget that certainly a Democratic President has
+ever put forward, cutting things that are very, very important
+priorities, things that many of us have worked for decades to
+grow. We have said we have got to tighten our belt; we have got
+to do what every American family does and make the tough
+choices. So I think there are real tough choices in this
+budget. I don't think that it is fair to say that we haven't
+dealt with entitlements. We certainly haven't dealt completely
+with entitlements, but $62 billion of savings to pay for
+Medicare in the next two years is something. It is real, it is
+a first step, it is a down-payment.
+ I think that if we are going to work together on
+entitlements, we also have to acknowledge that Social Security
+is not driving the deficit between now and 2021. You know, I
+worked on Social Security Reform. In 1983 I was working on the
+reform bill. So I deeply, deeply believe that we have an
+obligation to current workers, to future retirees, to current
+retirees, to have a system that is sound and reliable for
+decades and decades to come. But it is not contributing to the
+short-term deficit. We should do it because it is the right
+thing to do.
+ Mr. Simpson. Right. Appreciate it, thank you.
+ Chairman Ryan. Ms. Schwartz.
+ Ms. Schwartz. Thank you very much. Good to have you here
+and thank you for your good work on this first budget that you
+are presenting. And I appreciate, and it was more in your
+written remarks than what you said here, but you reference, you
+did reference how we got here. And I don't want to dwell on
+this, but I appreciate the fact that you laid out very, very
+clearly that the national debt and the economic crisis that the
+President inherited. And the work that the President and the
+Democratic Congress did in the last two years to bring us out
+of what was obviously a really deep, really broad, and in many
+cases, devastating recession for this country. But being clear
+that the President inherited a $10 trillion debt; this didn't
+all happen in the last two years. And of course, the recession
+actually meant that there were few people paying taxes, too; so
+this reduced our revenues.
+ The President's budget really does, I believe, make very
+clear that we can't accept the status quo; that where we have
+gotten to is a better place. We are beginning to see a growth
+in the economy, beginning to see some growth in jobs, which is
+good, and we just can't sit on our hands. Nor do I think that
+we, and I think you have rejected this, the notion that we can
+get to a place where we can balance the budget and grow the
+economy simply by spending cuts. My Republican colleague did
+acknowledge that, and I appreciate that, because that is their
+proposal right now. The only thing we can do is spending cuts,
+and actually tax cuts, but that alone is not going to get us
+there. And that is what is being presented by the Republican
+majority.
+ But I also will agree, those made by the Republican side,
+that budgets are about priorities and values, and I think this
+is something that the President has made very clear: that we
+cannot only focus on deficit reduction. We need to reduce the
+deficit, but if we are going to grow the economy, put people
+back to work, then we have to invest in the future. And that is
+what I wanted to ask you about. I wanted to acknowledge, of
+course, that the budget does reduce the deficit by $1.1
+trillion, and that is real money for most of us. And it is not
+easy to get there. And it brings fiscal stability to the nation
+in 2017, primary balance, again none of this is easy.
+ But the budget also does make strategic investments in the
+future. For many of us in our districts across the country, if
+we are going to see growth in this economy, the focus on
+energy, on innovation, on education, on infrastructure, is
+important. And every business I talk to says to me, We need, we
+look at, we locate, do we have incentives for innovation? Do we
+have the kind of infrastructure that allows us to move our
+products and our workforce? Is there an educated workforce?
+They ask about taxes, too. But they want to know, and it starts
+with, where is the infrastructure? Where are the advantages for
+innovation?
+ And so, I think we need to talk about that. Because
+otherwise we are really just looking at a slash-and-burn,
+willy-nilly, let us just cut spending right now. And again, the
+Budget Deficit Commission said, not a good idea in a fragile
+economy. So I would like you to elaborate a bit on the tax
+credits that are available to businesses to incentivize
+research and development, key to our growth. Because it is the
+private sector in this country that does create the new
+discoveries, the new technologies, the new products. But they
+often look to us for that helping hand.
+ Mr. Lew. Thank you. I think that, if you were to ask most
+businesses that are in the high technology area, what is the
+single thing we could do that would give them stability looking
+forward, it would be to make permanent the R&D Tax Credit. The
+uncertainty from year to year is a very difficult way to do
+business. And while, in Washington, there is a kind of
+conventional wisdom that we know it will be extended because it
+has to be extended, if you are a business person trying to make
+a decision, trying to go get financing, trying to get
+investors, having that ambiguity out there can be life or death
+as far as your business is concerned. So I think, putting in
+our budget a permanent extension in the context of a fiscal
+policy that pays for it, is very important.
+ I think it is also important to remember that there is a
+role for government-funded programs and tax support in R&D.
+Basic research in this country has really been very much
+enhanced by what we do at the National Institutes of Health,
+what we do in the National Science Foundation, what we do in
+the Department of Energy, and what has made us the leaders in
+innovation is that the technology that is discovered in places
+where, frankly, the risk should be shared by all of us, it is
+then handed off to a private sector that has the capacity to
+implement it more effectively than any other in the world. And
+we have tried to balance that.
+ Chairman Ryan. I hate to cut you off, but I just want to
+make sure that every member gets a chance, and it is way over
+the five minute limit.
+ Ms. Schwartz. I appreciate your comments; we will keep
+working together on that. Thank you.
+ Chairman Ryan. Mr. Campbell.
+ Mr. Campbell. Thank you, Mr. Chairman, and welcome,
+Director Lew.
+ Mr. Lew. Thank you.
+ Mr. Campbell. In your budget, you propose to increase
+federal civilian employment outside of the Department of
+Defense by 22,400 people in the coming fiscal year, 2012.
+Seriously, you want to increase the number of federal employees
+now?
+ Mr. Lew. Well, we have an awful lot of agencies that are
+going down. The increases are very much concentrated in areas
+where there are new missions, and they are missions that, I
+think, are shared concerns. If we put in place new screening
+procedures at our airports, and we put in the machinery so that
+we can make sure that no one gets on an airplane with an
+explosive. We also need to have the inspectors there, who run
+the machines, who know what is in them. I think if you go
+through the increases, they are very heavily in areas where
+there are new missions that we are undertaking, and I am happy
+to get back to you after and go through some of them.
+ Mr. Campbell. Okay, so you do propose to increase by
+22,000?
+ Mr. Lew. No, in general, if you look through the budget,
+there are a lot of agencies that go down, so we don't have a
+general approach.
+ Mr. Campbell. Twenty-two thousand, four-hundred is the net
+increase outside of defense. Another question, Your
+predecessor, Dr. Orszag, before this committee on several
+occasions, said that the current fiscal trajectory of the
+country was unsustainable. Do you share that view?
+ Mr. Lew. I think this budget stands for the principle that
+we have to get our fiscal house in order, and that we have to
+take seriously stopping the practice of treating deficits like
+they don't matter. And we have put a plan forward that would
+get us to primary balance by the middle of the decade. That was
+the challenge that he was describing ahead of us at the time.
+ Mr. Campbell. Absent this budget, you agree that the
+current trajectory is unsustainable?
+ Mr. Lew. If you look at what is driving the deficit down,
+part of it is getting the economy moving again.
+ Mr. Campbell. Director Lew, I understand you are a lawyer,
+but is it unsustainable? That word is used by a lot of people.
+ Mr. Lew. I was going to answer your question; I just need
+to break it into the pieces in order to answer your question.
+We need to keep the economy growing in order to not have an
+unsustainable deficit, because the kind of financial crisis we
+are in, the recession, creates enormous problems in our fiscal
+policy. We have got policies in place to do that, but then we
+can't stay at deficits that are five percent of GDP, which is
+roughly where we would be if we didn't make policy. We need to
+make policy to bring it down so we can get to primary balance.
+We have done that, and I do think that that is what we have to
+do to have a sustainable fiscal policy.
+ Mr. Campbell. So is this budget sustainable? Does it solve
+the problem?
+ Mr. Lew. Those are two different issues. Sustainable is a
+step along the way; I think the problem is bigger than that. I
+think that, you know, I preferred sitting in this seat when I
+could project surpluses in healthy economic times. We are a
+long way from being able to do that on either side of the
+aisle. We are going to need to work together to get to the
+point where we stop adding to the problem, and then we are
+going to need to work together to solve the rest of it.
+ Mr. Campbell. Earlier I believe you did use the word
+sustainable with this budget. So do you believe that if we did
+this budget, it was enacted for the next 10 years exactly as it
+is on this paper, that we would move along fine, we don't have
+a debt problem, we don't have a problem?
+ Mr. Lew. No, I think this budget produces a deficit that is
+sustainable for a period of time so that we can then work
+together. It is a down payment, and then we need to work
+together.
+ Mr. Campbell. Afterwards the deficit goes up, after the 10
+years of this budget.
+ Mr. Lew. It starts to creep up, but as you get 20 years out
+it starts to be a problem again. There is more work ahead of
+us. I totally agree with the notion that we cannot just look at
+the next five or ten years, but I am saying we have to start by
+looking at the next five or 10 years.
+ Mr. Campbell. So we do have to deal with the entitlement
+programs?
+ Mr. Lew. The President said in the State of the Union, and
+in his budget, that we have to look to the short-term and the
+long-term. We need to work together on that.
+ Mr. Campbell. Why not propose something now?
+ Mr. Lew. Well, this budget proposes a great deal to get us
+to primary balance. It gets us to a place that is sustainable.
+And it extends the offer, as the President did in the State of
+the Union, to work together. We have tried to leave options on
+the table, we have tried to create an environment where we will
+be able to work on things that have historically been
+challenging, and I think we need to do both.
+ Chairman Ryan. Mr. Doggett.
+ Mr. Doggett. Thank you very much, Mr. Chairman, and thank
+you for your service. And I want to draw attention to the last
+time you came before this committee, because it was an unusual
+time in which you did not just talk about a balanced budget,
+but as you made reference in an earlier comment, you, working
+with President Clinton and this Congress, produced a balanced
+budget, something that no Republican President, before or
+after, has done in decades. And the unfortunate thing is,
+having produced that balanced budget, our Republican colleagues
+in the Bush-Cheney administration, when they took over, instead
+of building on that success, squandered on that success. They
+never met a tax break they didn't like, they believed in the
+alchemy that every expert who came here, Republican and
+Democrat alike, told them that those tax breaks wouldn't pay
+for themselves, they abandoned pay-as-you-go government, they,
+in addition to all the tax breaks that they advanced, they
+advanced one increase in spending after another, increasing
+government spending at an incredible rate, but not wanting to
+pay for it.
+ And so after eight years of running our debt up and our
+economy down, they are complaining today that you haven't
+solved all the problems that they created in eight years fast
+enough. And I think that is basically the circumstance in which
+we find ourselves. With reference specifically to this question
+you were just asked about the 22,000 increase in government
+employees, isn't a large part of that related to the honesty
+that this administration brings to federal employment, that you
+can contract out and create the appearance that you are
+reducing the size of the government, but many of these
+contracting out experiments of the last eight years just ended
+up costing tax payers more and producing less?
+ Mr. Lew. That is part of it. And the other kinds of
+examples that I have used explain the other part of it. We also
+have a very, very large work force, and this is a very small
+percentage of the total.
+ Mr. Doggett. And then I want to ask you about one type of
+entitlement spending that I am encouraged to see, and I want to
+explore with you a minute about it, that the administration
+again seems to be focusing on for the first time, something
+prior administrations have not done; and that is the whole area
+of tax expenditures, because they really do amount to
+entitlements since they are entirely out of the budget process.
+You have, for the first time since 1993, of any President,
+revised that section of your budget, and it would appear that
+tax expenditures, which now rival direct discretionary
+expenditures, will receive some type of thorough evaluation by
+the administration, and I just ask you first to comment
+generally about what you see going forward, and whether perhaps
+we will eventually have a tax expenditure budget to allow a
+more thorough comparison of the tax expenditures and the direct
+expenditures?
+ Mr. Lew. Congressman Doggett, the issue of tax expenditures
+is a very important one. If you look at the work the Fiscal
+Commission did, one of the places where I think they made a
+real contribution was in having a conversation about spending
+on both the revenue and direct spending side. If you look at
+the President's budget, the proposal that I described as the
+way we pay for the alternative minimum tax extension is a prime
+example of how we begin to get that spending on the tax side.
+It says that we have a host of provisions in the tax code that
+are of more value as you get into a higher and higher tax
+bracket, and that we should limit it so that someone who has a
+family at 250,000 and above gets the same value as people at
+250,000 and below. It doesn't take the deduction away, it
+starts to trim the value of it. We think that is a measured way
+to start getting at this issue of spending in the tax code. And
+we think it is something that ought to be the basis for being
+able to begin a serious conversation.
+ Mr. Doggett. Have you envisioned, during the coming year, a
+thorough and careful evaluation of these tax expenditures, and
+implementing what you say in your budget appendix?
+ Mr. Lew. The President has proposed in his State of the
+Union and the budget that we begin to work together on
+corporate tax reform and that we have a general bipartisan
+consensus.
+ Mr. Doggett. Just on that point specifically, I am very
+pleased that the President, in his State of the Union, and
+Secretary Geithner indicated that must be revenue neutral. I
+think it actually ought to be revenue increasing to help deal
+with this problem, but that is a non-negotiable position in the
+administration. We are not going to see us borrow from the
+Chinese in order to give tax cuts to corporations, are we?
+ Mr. Lew. So the principle the President set forth was that
+we should broaden the base, lower the rates, so we can be more
+competitive, and it is really, principally, a way to drive our
+international competitiveness. That is going to be challenging
+because once we have all agreed on that broad principle,
+broadening the base means that you take away special interest
+tax provisions.
+ Chairman Ryan. Thanks. Mr. Calvert.
+ Mr. Calvert. Thank you, Mr. Chairman. I just want make a
+point; my friends on the other side of the aisle took over the
+Congress in 2007, and that is when you see significant spending
+increases, and as I understand it, Congress does have something
+to do with spending around here. And that is certainly a big
+part of it. I want to thank our guest for coming out today, I
+understand the traffic was bad, I saw it out there, it was
+pretty difficult. A couple of things you pointed out to drive
+people to investment. I am a small businessman, was a small
+businessman; how do you drive people to investment if you have
+significant increases down the road in capital gains rate?
+ Mr. Lew. I think that the responsibility that we have,
+first and foremost, is to keep a healthy, growing economy where
+there is demand and there is business activity out there. So I
+think that, going to our big frame, the most important thing we
+can do to promote investment is to be responsible in the way we
+conduct our fiscal policy. Within that, we have made the kinds
+of choices that we think are where the government can really be
+helpful in terms of driving the economy of the future. When you
+talk to business leaders, in my job I fairly frequently talk to
+business leaders, I hear over and over again where they have
+problems right now is hiring people with the right skills,
+engineering skills, technical skills. By producing the
+workforce that our businesses need, we are helping to promote
+business in this country.
+ Mr. Calvert. Reclaiming my time, I find it difficult to
+believe that--the folks that I did business with--finding
+capital gains rates going up significantly is going to make it
+easier for them to do business. But I have another question I
+want to ask. My other job--I am on the Defense Appropriation
+Committee--and I wanted to understand this new account that you
+have to cover the diplomatic and development costs of the U.S.
+involvement in Iraq, and Afghanistan, and Pakistan. As you
+know, in past years that was handled in the regular base-
+budget. And I want to know what standards were used to
+determine what costs were appropriate for inclusion in this
+account, and can you send us a written guidance for the account
+for the record?
+ Mr. Lew. I am happy to get back for the record, but I can
+give you a brief answer if you would like. The funding for
+military operations overseas are funded through what are called
+overseas contingency operations funding. It has not
+historically been an issue for the civilian side, but with
+things like the withdrawal of troops in Iraq, and the build-up
+of a civilian mission that is quite labor-intensive, security-
+intensive, it creates the same challenges that the military
+does. The simple rule that was used in putting it together was,
+to the extent that we have activities that wouldn't carry on
+once we normalize our diplomatic footprint, those should be
+handled in the base. To the extent that we have activities that
+are more like the military surge, they should be in the
+overseas account.
+ Mr. Calvert. I would like to have that. Also, the budget
+request, $117 plus billion for Department of Defense's account
+for conduct of the war in Iraq and Afghanistan; and that is
+obviously dependent on U.S. troop level in Iraq and
+Afghanistan, and as you understand, under the SOFA agreement,
+the Status of Forces Agreement, we are reducing the force in
+Iraq at the end of this calendar year, and Afghanistan has
+announced policy to a troop withdrawal in July, 2011, though
+the size of that withdrawal is still yet to be determined. On
+your assumption, what troop level are you assuming for
+Afghanistan and Iraq in this funding request?
+ Mr. Lew. In Iraq we have a clearly stated policy to
+withdraw our troops on schedule, and the funding levels reflect
+that policy. In Afghanistan, our policy is that we will begin
+to withdraw troops. We have not used the budget as the place to
+project specific numbers. That will have to be worked through
+by the national security team.
+ Mr. Calvert. Okay, yet to be determined. Last question, you
+expect an additional war supplemental to be asked for here in
+the short term?
+ Mr. Lew. We have requested funds that we know to be needed
+for the coming fiscal year. We have not yet seen what the
+appropriations are for fiscal year 2011, and we obviously don't
+know what the appropriations will be for fiscal 2012, so I
+can't give you a guarantee, not knowing what will be
+appropriated, but I know we have estimated, to the best of our
+ability, what the costs will be.
+ Mr. Calvert. Thank you, Mr. Chairman.
+ Chairman Ryan. Ms. McCollum.
+ Ms. McCollum. Thank you, Mr. Chairman. Mr. Lew, thank you
+for being here today. Now, we have three challenges facing us
+and they need to be all addressed simultaneously. We need to
+reduce the deficit, at the same time we need to grow the
+economy, and create jobs that will keep America competitive.
+Now, as far as I am concerned, the best way to reduce the
+deficit is to get American back to work. But we have tough
+choices to make. The big difference between making sound
+investments and smart cuts, as President Obama has proposed, or
+the path that our Tea Party Republican colleagues are taking on
+the fiscal year 2011 budget with ideology, mean-spirited, or
+just plain dumb, cuts. Now, Mr. Lew, over the past years,
+Congress has provided tax breaks, tax cuts, tax loopholes, and
+special tax perks, estimated to reduce revenues by more than $1
+trillion. In December's legislation to extend the Bush tax
+cuts, some of the beneficiaries of these tax break earmarks
+were NASCAR racetrack owners, Caribbean rum manufacturers, at
+the cost of hundreds of millions of dollars in foregone
+revenues.
+ The last point I would like to make before I ask you three
+questions is: The discretionary defense spending over the next
+five years will approach $3 trillion, not including the cost of
+the wars in Iraq and Afghanistan. Yet this budget proposes only
+a $78 billion reduction in defense spending, which is nothing
+more than a rounding error. Now, I know Congress is part of the
+problem. Despite the Pentagon's objections, I am aware the
+Republicans have included an alternative engine for the F-35
+Joint Strike Fighter and the F-11 CR at the cost of $45
+million. Now, this is a total waste of taxpayer dollars, and an
+example of Congressional pork, and it should be eliminated.
+ So, Mr. Lew my questions are; the defense discretionary
+spending is dwarfing all other domestic investments, keeping
+our community safe, and strong, and prospering. Where can
+greater defense spending reductions take place over the next
+decade? Can you also elaborate on the administration's plan to
+close tax loopholes, and end special tax perks, and cut off the
+special interest tax giveaways that are adding hundreds of
+billions of dollars to the deficit. And then, if you have time,
+could you explain more on some of the President's ideas on how
+to grow this economy and create jobs?
+ Mr. Lew. Thank you, Congresswoman McCollum. Let me start on
+Department of Defense. We, I think, share on a bipartisan basis
+the belief that we have a core responsibility to provide for
+national defense. Over the last 10 years, the spending on
+defense has been considerably above inflation, and it wasn't
+subject to the same kind of rigor that other things were, and
+we were also going through extraordinary times.
+ This is not a judgment being made about the past, but as we
+look to the future, this budget says that we have to start
+pulling back, but not pulling back in a way that sacrifices our
+national security. The policy in this budget says that the
+Department of Defense will tamp down its increases so that it
+will have no real growth in the five-year window. That is $78
+billion of savings compared to their five year plan for the
+last year's budget. We think that is a very important step.
+ It is an important step which requires tough choices. It
+means you can't afford the second engine that you don't need
+for the Joint Strike Fighter, it means you can't afford the
+Marine Expeditionary Vehicle. There are tough decisions that
+have to be made, and I think we have a Secretary of Defense and
+a leadership in our military, that is prepared to make the
+tough choices, and we look forward to working with Congress.
+But they are hard--it means that there are things that are made
+now that won't be made in the future, and that is what it is
+going to take to start getting our defense budget under
+control.
+ On the question of closing loopholes, the President's
+budget includes a number of specific proposals, I mentioned the
+oil, gas, and coal provisions in my opening remarks, but we
+also have provisions that would take away the tax benefits that
+come to companies that export jobs, and we think that it is
+important to have policies in our tax code be designed to
+reflect what we need to do in our economy. So, in our economy,
+for the future, we need to develop the new renewable energy
+technology industry. That is going to create jobs in the
+future. I am kind of getting to your third question by
+answering the second within the five minutes. Ware going to
+build the new economy in renewables and in clean energy, and
+that is where we need to put our investment. So if you look at
+the withdrawal of a special provision for oil, gas, and coal,
+and the investment in new technologies, it kind of tells a
+story about how we think you invest in the future.
+ Chairman Ryan. Mr. Akin.
+ Mr. Akin. Thank you, Mr. Chairman. Just a couple of
+thoughts. Years ago, I was taught what was called the Harvard
+Case Study Approach to solving problems, and it was taught in
+business schools, and the idea was that you are given this
+complicated situation, and you could see all sorts of things
+that would be a good thing to do, and you got this-this-and-
+this, you have all these good ideas, but part of the discipline
+was, pick the number one thing. What is the very first and
+essential element that you have got to deal with? And that was
+frequently the situation then that would determine whether a
+company was going to succeed or fail.
+ As I take a look at many of the things we have discussed
+even here this morning, and that you are dealing with in the
+budget, we are dealing with, to some degree, some peripheral
+things, but it seems like there has been pretty good emphasis
+that the elephant in the room is the tremendous growth of
+entitlements. I just heard references to the fact that maybe
+the defense budget is really the bugaboo here.
+ But if you take a look at defense as a percent of GDP,
+going back to maybe 67 or so, you are looking at close to nine
+percent of GDP being spent on defense, it is now dropped to
+four-something. And one of the few people on this committee
+sitting on armed services; we talk about, Well, we are going to
+cut this Expeditionary Fighting Vehicle for the Marines. The
+only problem is, if you really believe in Marines, you have got
+to get them from the ocean to the shore. So, I am not so sure
+that you have already cut the percent of GDP for defense not
+quite in half, and in the meantime entitlements have gone from
+about 2.5 percent, if you go beyond Medicare, Medicaid, Social
+Security, to the other entitlements, you are well up at
+whatever it is, 12 percent. And you put entitlement and debt
+service together, and all of a sudden, voila, that is what our
+revenue is.
+ So it seems to me that the elephant in the room is the
+entitlements, and courageous leadership is going to acknowledge
+that fact and say, Okay, now let us have the conversation, and
+talk about what we are going to do with those. Because all of
+us know we are talking about some heavy cuts in discretionary,
+but that is just the tip of the iceberg. So I guess it is
+disappointing not to say, Hey, let us at least make this the
+main subject the main subject. The second thing that I don't
+quite understand is the idea that we are somehow going to shock
+the fragile recovery by cutting discretionary income. I guess
+that is assuming that that discretionary income, by spending
+all that money, it helps the economy. If you could enlighten me
+on that line of reasoning, because I don't understand that.
+ Mr. Lew. Thank you, Congressman. I have a soft-spot for
+those business school case studies; I paid my way through
+college by working on producing those case studies, so they
+have played an important part in my life. The first thing I
+would do, looking at a university class on how do you solve the
+problem, is say, Where do we need to be on the bottom line? And
+bottom line is we need to have a three percent of GDP deficit
+in order to say we are not adding to the debt. Then I would
+ask, What are you doing to get there? And we have put forward a
+plan that gets there. And then, I would say, you separate the
+question of what do you need to do for the long term. And that
+is exactly what we have done in this budget.
+ So, I think we are dealing with the short-term and the
+medium-term, we are saying in a very direct way that we need to
+work together on the long-term, and we are trying to leave as
+much open for discussion so there is an environment where we
+can actually reach agreement. The easiest thing to do is kind
+of polarize the environment. We are deliberately leaving room
+for that conversation.
+ Mr. Akin. Let me just jump in. In order to come up with the
+numbers that you have come up with, some of the assumptions
+strike me as being a little odd. For instance, some of my
+Democrat colleagues have talked about how, when President Bush
+took office, everything was rosy and perfect, but I recall
+there was quite a recession going in 2000, 2001. I do remember
+the numbers in May, 2003 we did three unpopular tax cuts,
+capital gains, dividends, and death tax. They weren't popular
+because we were tarred-and-feathered as sticking up for the
+rich guy. But the trouble was it was those rich guys that owned
+the businesses that hired people. And if you destroy the
+businesses by overtaxing the owners of small business, then you
+don't have any jobs.
+ So, I took a look at those numbers after capital gains,
+dividends, and death tax, and what we saw was that first of all
+the GDP jumped, and it had the kind of growth that you want to
+make the budget numbers work, but we did it by cutting those
+taxes on the small business and the investors. We also saw that
+the employment turned right around. We went from un-employing a
+lot of people to jobs being created. And last of all, according
+to just what Laffer predicted, the government revenues actually
+jumped up when we cut the taxes, because of the fact that the
+economy got back going. So I don't understand how you make it
+work with growth and still raising taxes.
+ Mr. Lew. I would love to respond but I suspect from the
+tapping I don't have time.
+ Chairman Ryan. Mr. Pascrell.
+ Mr. Pascrell. Thank you, Mr. Chairman. Thank you for your
+service.
+ Mr. Lew. Thank you, Congressman.
+ Mr. Pascrell. I find it remarkable, and I say this with
+fondness, Mr. Chairman, I am glad you smiled. I say this with
+fondness. You have become an existential party. You have
+amnesia about how the past and how we got to this place, and
+you don't want us to invest in the future. We are stuck with
+the here and now. I don't think we are stuck. I think this is a
+pretty credible blueprint. And it is not going to be like this
+when we finish, but it is a credible blueprint to begin with.
+There is a simple juxtaposition going on here. The President's
+budget, correct me if I am wrong Mr. Lew, the President's
+budget achieves substantial deficit reductions, and achieves a
+sustainable debt of three percent of the GDP by 2015. Is that
+correct, or incorrect?
+ Mr. Lew. I would only correct you that it is the deficit.
+ Mr. Pascrell. I am sorry. A sustainable deficit; that is
+what I meant to say. Second question is, isn't it true that in
+this President's budget, there is $5 billion in small business
+tax cuts for 2012, and if you add up the 10 years there is $116
+billion in real tax cuts for small businesses. Is that correct?
+ Mr. Lew. There are substantial incentives for small
+business. They do add up to a number like that. I don't have
+the exact number in front of me. I assume you have the correct
+number.
+ Mr. Pascrell. Okay. Here is my second question then, some
+of my colleagues, who I admire, and respect, and that is
+nothing to smile about, I mean it. I don't have to agree with
+them, right? Some of my colleagues criticized the President's
+budget that it does not cut entitlement programs like Medicare.
+In fact, Mr. Chairman and I went outside for water, and the
+President was providing us with his address at 11 a.m. about
+the budget, and that was his first question. Why didn't you
+show leadership,--I think those were your words yesterday--Why
+didn't you show leadership in going after Medicare and Social
+Security?
+ We know Social Security has very little to do with the
+deficit. We would agree with that, correct? I personally
+believe we can balance the deficit without cutting Medicare for
+seniors. That is my own personal belief. You could do other
+things. However, is it not true, Mr. Lew, that federal health
+care reform adopted many recommendations from Congress own
+independent advisory commission, the Medicare Payment Advisory
+Commission, we established that, did we not?
+ Mr. Lew. Correct.
+ Mr. Pascrell. And that by having a Medicare Center for
+Innovation, Medicare now can test and use new payment models.
+We fought to have that in there for a very specific reason, to
+not only improve patient care, but lower our national spending
+on health care. Would you just respond to that, please?
+ Mr. Lew. Congressman, I think there are many, many things
+that we have done in the last couple years that are very
+important in health care. We have real savings in the 10 years,
+bigger savings beyond that, and we have put in place mechanisms
+like the ones you have described, which give us the ability to
+get the best practices, which are the way we are going to
+reduce spending overall going forward. A lot of those things
+don't score easily, because there is a question about when they
+will have results. We believe that they will have results, and
+we have to stay on the course of implementing it that we make
+sure we get the benefit.
+ Mr. Pascrell. And many of those were not even scored.
+ Mr. Lew. Correct. That doesn't mean they are not real. It
+just means you first have to demonstrate it.
+ Mr. Pascrell. Why should we be paying for police to patrol
+the streets of Kabul and Baghdad? Why is that exempt when we
+say defense appropriations? Why is that exempt, but not cops on
+the beat in Patterson, New Jersey, or Camden, New Jersey, or
+anywhere? Why?
+ Mr. Lew. I want to start by saying that we provide funding
+to make sure we can keep cops on the street in Camden, New
+Jersey, as well. So we don't believe that the choice is you
+either do one or the other. One of the things we have tried to
+do is preserve funding for the cops program. I think he short
+answer to the question of why we should be supporting the
+training of the police in Afghanistan, is that in order for us
+to get to the point where we can withdraw American troops,
+Afghanistan is going to need to have the ability to protect
+itself so that we are not put at risk, and that is part of our
+plan.
+ Mr. Pascrell. I was talking about the security in our own
+country. Thank you, Mr. Chairman.
+ Chairman Ryan. A lot of our problem here is we have
+witnesses in high demand. I want to make sure every member gets
+his chance, so I ask unanimous consent that we reduce our four
+minutes each, so that we can make sure that we can accommodate
+everybody and still allow Mr. Lew his chance to go over to the
+Senate to testify. Without objection. Mr. Cole.
+ Mr. Cole. Well, I was going to object, because it was my
+time. My friend Mr. Price and I think we either need to get
+taller or you guys in the front row need to get a lot shorter,
+it is very hard to see you there.
+ Mr. Lew. This has actually changed since the last time I
+was here. I find myself leaning forward a lot more.
+ Mr. Cole. But since my time is short, I have got three
+areas I would like to ask you about. The first is, just looking
+at your budget; you basically keep 80 percent of the Bush tax
+cuts for about 95 percent of the people that received them.
+Does that suggest, one, that you don't think those went to the
+rich particularly, and two, that you see them as having been,
+and continuing to be, beneficial to the economy?
+ Mr. Lew. You know, we believe that the tax cuts for the
+middle class are a good thing, and there was too high a tax
+rate burden, and we should continue to do what we can to
+minimize the tax burden on the middle class. One thing I would
+just point out is that we don't take the benefits of those tax
+breaks away from anyone; even if they are above 250,000, we
+just say there shouldn't be additional tax breaks.
+ Mr. Cole. No, I understand that, and again, I applaud the
+President for embracing, literally 80 percent of the Bush tax
+cuts, something that seems to be forgotten around here
+sometimes. We can disagree about 20 percent, but 80 percent we
+actually do agree on. Second question, and this gets maybe to
+your philosophy, the administration's philosophy, in your
+deficit reduction plan over several years, you have some tax
+increases, you have some spending restraints. Roughly, what is
+the balance that you strike between tax increases and spending
+cuts or restraints?
+ Mr. Lew. Well, I apologize that it is a little bit of a
+complicated answer, just because baselines make how you measure
+complicated, and I want to be clear. We start with a baseline
+that assumes that the tax rate in the top bracket stays where
+it will be when the provisions enacted last December expire.
+From that baseline, we have net $360 billion of additional
+revenue. But I say net because we have $392 billion of tax
+cuts, so after you pay for the tax cuts, net $360 billion of
+new revenues.
+ Mr. Cole. And how much in spending restraint?
+ Mr. Lew. We have $751 billion in mandatory and non-security
+discretionary savings, and we do count debt service as spending
+because we have to pay for debt service.
+ Mr. Cole. Obviously we would probably disagree over whether
+letting those tax cuts run out amounts to a tax increase or
+not, but let me put that aside. Let me get to the last point I
+wanted to ask you about and this really does get down to,
+actually, some questions my friend Mr. Akin raised. Look, we
+all know entitlement spending is going to be a major focus.
+ As an appropriator I will be thrilled the day we finally
+move to tax expenditures and entitlement expenditures, because
+that is where the problem is. But since you have expressed a
+lot of the President wants to do this, doesn't want to take
+options off the table. I am like everybody else, I am really
+disappointed we haven't seen more, at this point, but can you
+tell me when that discussion would begin, is the President
+going to propose a format in which it would take place, does he
+think he should lead with a proposal of his own, or wait for
+Congress to put one on? I am sort of mystified about how we get
+to the elephant in the room that Mr. Akin was talking about.
+ Mr. Lew. The President has put quite a lot on the table in
+the budget that we presented yesterday, and it is the first
+step in the process. We have a lot of work to do together, both
+in terms of finishing the work on 2011, getting to work on
+2012. I have to tell you from my own personal experience,
+having watched and been part of the deficit reduction efforts
+in the late 70s, 80s, 90s, when we have had real success in a
+bipartisan basis, it is come from people working together
+behind the scenes and in an environment where there could be
+the kinds of open conversations where there is trust. And I
+think if we concentrate on developing that kind of a
+conversation, we will again produce the best results for the
+American people.
+ Mr. Cole. Thank you gentlemen. Thank you, Mr. Chairman.
+ Chairman Ryan. Ms. Castor.
+ Ms. Castor. Thank you, Mr. Chairman. Welcome. I would like
+to show you a chart, here.
+
+
+ I understand you were the head of Office of Management and
+Budget in the last few years of the Clinton administration,
+where there were burgeoning debts and growing deficits, but at
+the end of the Clinton administration, is it true that you left
+when we had a projected 10 year surplus of $5.6 trillion?
+ Mr. Lew. I would just correct that I was director of Office
+of Management and Budget three years in a row when we had
+surpluses. We didn't have deficits, we had surpluses. We were
+paying down the debt, so that is what that chart says.
+ Ms. Castor. I stand corrected. And then when President
+Obama took office, we were facing an $8 trillion, 10-year
+deficit. It must be entirely frustrating to you, it must have
+been frustrating, during that eight year period, to watch what
+happened to the surpluses left at the end of the Clinton
+administration.
+ Mr. Lew. I don't exaggerate when I say it breaks my heart.
+I think that you look at what drove the deficit up, some of it
+was beyond our control, in terms of the economy. When there is
+a recession, there is a loss of revenue and there is certain
+spending that you have. Some of it was because of wars, which
+you don't necessarily choose, but if you go to war, that is an
+extraordinary circumstance. Some of it was because we just
+suspended the basic common sense of paying for what we did. And
+we had tax cuts and spending increases that weren't paid for,
+and that is what has created the long-term problem we are
+dealing with now. These other things correct themselves; the
+economy is recovering, and we are going to see revenues and
+spending get back to their more normal levels. The wars will
+come to an end; we are pulling our troops home from Iraq. The
+other creates a problem that we have to deal with.
+ Ms. Castor. And that is why I am grateful that you have
+taken on this new challenge. We all agree, the government has
+got to live within its means. But we must remain mindful that
+we are coming out of the most severe recession in our
+lifetimes, and we have got to build on the economic foundation
+for the future, and that is why I am particularly focused on
+job creation, and jobs, and our workforce. My district is home
+to one of the largest universities in the country, and a lot of
+community colleges, and private universities, and I am 100
+percent behind you on what this budget does to maintain the
+maximum Pell grant for students. It remains at $5,550 for
+students. You all know that the Pell Grant helps over nine
+million students across America afford college.
+ Now, over the last couple of days there is been a lot of
+confusion in the press, however, over what is happening with
+the Pell grant. It appears President Obama maintains the
+maximum Pell grant, at $5,550 for 2012, for students, and you
+pay for it by cutting the relatively new year-round Pell grant
+that allowed some students to qualify for two Pell grants. I
+wasn't aware that they could do that.
+ Are you also aware that in contrast to what the President's
+budget is trying to do, right now on the floor of the House,
+the Republican continuing resolution has proposed cuts in the
+Pell grant by $845 per student for 2011? I think that is moving
+in the wrong direction when we want to ensure that we have the
+most competitive workforce across the globe. So could you
+explain your budget and why you viewed this as a priority, and
+your view of the Republican efforts to diminish support for
+students, and how it will hurt our national goal of supporting
+an educated workforce that can out-compete others?
+ Chairman Ryan. And I ask you to explain that in six
+seconds, otherwise give the rest in writing, please.
+ Mr. Lew. We think Pell grants are an enormously important
+program. We have taken the tough steps in this budget to pay
+for it, and when you look at where some of the increases in
+spending since 2008 and now are, Pell grants is one of the
+biggest, and we think it is one of the best investments we can
+make in our future.
+ Chairman Ryan. All members, if you ask your question at the
+end of your time allotted, you are taking away from our fellow
+colleague. So that is why I am being judicious with the gavel,
+here, so everybody gets a chance. Mr. Price.
+ Mr. Price. Thank you, Mr. Chairman. Director Lew, thanks so
+much for joining us. Some of our friends on the other side of
+the aisle, one of them said on our side there is an amnesia
+about the past. So I want to visit a little bit of the amnesia
+that goes around to the other side. You said that the last time
+you were before this committee it was a good time because you
+had produced a balanced budget. What party was in control of
+the House of Representatives at that time?
+ Mr. Lew. I am proud to say we worked on a bipartisan,
+balanced budget agreement.
+ Mr. Price. But the answer to that would be Democrat or
+Republican?
+ Mr. Lew. We worked with Republican leadership.
+ Mr. Price. Republican leaders. Thank you very much.
+ Mr. Lew. The Republicans and Democrats in Congress.
+ Mr. Price. Can you tell me, Director Lew, what the debt was
+in this country at the end of 2006?
+ Mr. Lew. I would have to look that number up. I have a lot
+of numbers in my head, I don't have that number in my head.
+ Mr. Price. If I told you that the debt at the end of 2006
+when the Republicans ended their control of Congress--the House
+of Representatives--was $8.4 trillion. Would you say that was
+about right?
+ Mr. Lew. When we took office it was approaching $10
+trillion.
+ Mr. Price. When Speaker Pelosi began her reign would be
+about right in 2007, correct? And the debt right now, Director
+Lew?
+ Mr. Lew. The debt right now, I can look that up.
+ Mr. Price. About $14 trillion?
+ Mr. Lew. $14 trillion.
+ Mr. Price. Somewhere in that range. So about $6 trillion in
+the last four years under Democrat leadership in the House, is
+that correct?
+ Mr. Lew. You know, I think that one can go through these
+numbers, and we can look it up in the book, and we can
+establish what the numbers are. I think one has to understand
+what was going on in these periods.
+ Mr. Price. Absolutely.
+ Mr. Lew. We were going through the worst economic
+conditions since the Great Depression.
+ Mr. Price. I will reclaim my time Director, I am sorry. I
+only get four minutes. And as the elephant in the room has been
+discussed, it is a remarkable, remarkable display that we
+believe has come out of the administration. When I was a kid we
+used to play kickball in the street or in the backyard, and
+when we turned around and headed to our house, we knew that the
+house was going to be there. The house is burning down, Mr.
+Director.
+ And the fact of the matter is that the administration is
+playing kickball and not attending to the work that needs to be
+done. To put a budget before the American people that doesn't
+address the entitlement issues is reckless and irresponsible.
+And you talk about, To get to balance, a set of decisions needs
+to be discussed, that no one is discussing right now. But I
+will tell you who is discussing them, Mr. Director, and that is
+our constituents. They are scared to death. And they don't see
+any leadership coming out of this administration as it relates
+to the entitlements. When does that discussion begin?
+ Mr. Lew. You know, Congressman, if you look at what was
+going on during the period.
+ Mr. Price. When, Mr. Director, when does that discussion
+begin?
+ Mr. Lew. I am happy to answer that discussion if you give
+me a moment.
+ Mr. Price. I have got four minutes and the fact of the
+matter is that you are not answering the question, and you
+haven't answered the question.
+ Mr. Lew. The President has put down a budget that we think
+takes the first, and very important, step of showing how we get
+to a sustainable deficit by the middle of the decade. That is
+an important step. And the President has also said that we need
+to work together on a bipartisan basis to do what we need to do
+in the long term, and I think we can't confuse the two issues.
+ Mr. Price. Does this budget deal with the entitlements that
+[inaudible].
+ Mr. Lew. This budget begins to, but those entitlement
+issues did not cause the increases that you have just
+described. The worst economic recession since the Great
+Depression drove those numbers. We need to get the economy
+moving, and we need to take the steps that we have put forward
+in this budget and then more, on a bipartisan basis, working
+together.
+ Mr. Price. We look forward to that. As you well know, and
+as you have stated here, this budget does not deal with the
+entitlement issues. I want to turn my attention very quickly to
+the tax issues. The assumptions under this budget assume that
+the tax increases will occur for those making more than
+$250,000 in two years; is that correct?
+ Mr. Lew. It assumes that the tax rates that are in current
+law will remain in effect.
+ Mr. Price. So that a tax increase for small businesses
+occurs within this budget window, is that correct?
+ Mr. Lew. It means that individuals, families that earn over
+$250,000 a year will pay the same taxes that they did during
+the end of the 1990s when the economy was growing at the
+fastest rate.
+ Mr. Price. And the amount of tax increase in this budget is
+about $1.6 trillion, is that correct?
+ Mr. Lew. Again, it gets to this question of measurement. I
+have tried to be very clear that there is a portion that we are
+not taking credit for because it is in the baseline, and I am
+happy to work through those numbers.
+ Chairman Ryan. Thank you, we already established the 1.6
+number. Mr. Tonko.
+ Mr. Tonko. Thank you, Mr. Chair. Director Lew, thank you
+for joining today.
+ Ms. Moore. Mr. Chair, excuse me. What happened to me? I
+just want to know.
+ Chairman Ryan. Ms. Moore, as you know, the rule is in the
+order in which you show up, so we have Tonko, Bass, Moore,
+Wasserman Schultz, Ryan, and Blumenauer on your side of the
+aisle.
+ Ms. Moore. Okay, I just wanted to make sure I hadn't
+disappeared.
+ Chairman Ryan. No, you are still there, Gwen.
+ Ms. Moore. Okay, got you.
+ Mr. Tonko. Thank you for providing insight on the
+President's proposed budget. Also, I am aware that you are a
+fellow New Yorker. Last month, members of the New York
+delegation in the House, myself included, wrote to you about
+extending the Federal-State Health Reform Partnership. As you
+know, this innovative partnership between New York and the
+federal government has led to significant modernizations and
+improvements for several hospitals and health systems.
+Established by former Governor Pataki and Secretary Leavitt to
+improve New York's outdated health care system, the funds have
+been allocated already, but not all the projects that have been
+authorized by the agreement have been finished. The New York
+delegation also wrote to urge you and Secretary Sebelius to
+extend the waiver for three years, and my concern is that be
+agreed to here. It is a common-sense thing to do, and do you
+know if the Office of Management and Budget extends the waiver
+before it expires late this year?
+ Mr. Lew. Congressman, I know it is under review. There are
+actually two waivers that are under review. I have been at the
+Office of Management and Budget for eight weeks, it is one of
+the things that I have actually looked at; it hasn't come to me
+for a decision yet, we will continue to work with the state as
+we review it.
+ Mr. Tonko. Great. We look forward to working with you on
+that. And also, the President's budget, I am very concerned
+about the investment in R&D and basic research, and happy to
+note that the President's budget proposes to invest some $148
+billion in R&D, in energy efficiency, and key basic research,
+contrasted with the Republican spending plan that would slash
+R&D. The President's budget also proposes robust investments in
+the National Institutes of Health, where doctors and scientists
+work to cure cancer, heart disease, and diabetes. Alzheimer's
+and other diseases that together claim the lives of millions of
+Americans every year are also impacted by that budgeting. The
+GOP spending plan on the floor today cuts the National
+Institutes of Health budget by about a billion, and medical
+research has proven to extend life expectancy, for instance,
+from 50 years in 1911 to nearly 80 years now in 2011. Can you
+explain the approach taken with R&D and research, basic
+research in the President's plan? Some call it spending, others
+reference it as investing.
+ Mr. Lew. I am happy to. We have taken a very close look at
+the R&D budget and we have looked kind of beyond some of the
+traditional boundaries. There has been a broad consensus that
+biomedical research is important. We agree with that. We have
+an increase in biomedical research. But we have looked at areas
+like energy research, and we have put significant resources
+into developing the technologies that will make us the most
+competitive country with the technologies of the future. We
+have put money into basic research. I think that we have to
+have a comprehensive research agenda in order for us to be in a
+place where, as the President says, we can out-innovate other
+countries.
+ It has been an area, historically, of enormous strength in
+the United States. Even today, we spend more as a country,
+public and private combined, on research than any other country
+in the world. There are certain aspects of it which don't
+happen in the private sector alone, because there is too much
+risk, too many experiments and things that aren't going to
+become commercially viable, but you need to go through that
+process in order to get the material, the knowledge, out there.
+And I think we have had a history of very effective partnership
+in this country of transferring research from government-funded
+research to private-sector development, and we have tried to
+put together a budget that will continue what we think is the
+best of the American tradition.
+ Chairman Ryan. Thank you. Mr. McClintock.
+ Mr. McClintock. Mr. Lew, welcome. I want to join Ms. Castor
+and others for complimenting you on the job you did under the
+Clinton administration. You guys did an absolutely magnificent
+job managing the nation's fiscal affairs. You cut spending by a
+miraculous 4 percent of GDP during your years; historic reform
+of entitlements ending welfare as we know it; what amounted to
+the biggest capital-gains tax cut in American history; four
+years of budget surpluses. It is true it was a Republican
+Congress, but give credit where credit is due. You guys did a
+great job. But I look at this budget, and it seems to be
+exactly the opposite.
+ Mr. Lew. I wanted to just say thank you.
+ Mr. McClintock. No, with all sincerity, thank you. It was a
+great job. But I look at this budget and it is exactly the
+opposite: record increases in spending, biggest peacetime
+deficit in American history, no effort to address entitlements,
+which have grown significantly more challenging over the last
+several years. Wouldn't you call this the anti-Clinton budget?
+ Mr. Lew. No, Congressman. I am very proud of the work I did
+in the Clinton administration and I would point out that one of
+the reasons that spending was falling as a percentage of GDP is
+the economy was growing so fast because we had a good fiscal
+policy that promoted confidence and economic growth. I think if
+you look at the projections today, spending now and in the
+future, we are projecting the retirement of the baby boom. We
+are seeing more people become 65 and claiming their benefits.
+ Mr. McClintock. Actually, that is my very next question. I
+want to get to your long-range projection.
+ Mr. Lew. And I think that it is part of the reality of
+projections that even if we cut spending in the policies that
+we are making, as we pay the benefits that people are due,
+there will be areas of the budget where spending goes up. I
+don't think any of us would want to be saying that people
+shouldn't be able to collect their Social Security benefits
+when they are 65, but that and Medicare for people retiring is
+really driving those aggregate spending levels. On the
+discretionary side, we are cutting spending.
+ Mr. McClintock. Exactly right, which is why we are all
+baffled that you haven't tackled entitlements that are driving
+our long-range projections right off a cliff. But speaking of
+those long-range projections, I look at the claims that you are
+reducing the deficit in the long-term. You know, we have enough
+trouble projecting 10 quarters into the future without
+projecting 10 years, but I look at what you are doing here and
+you take the current year's war-funding level of $165 billion
+this year, pay for operations in Iraq and Afghanistan,
+including the surge, you then take this level and project it
+out for 10 years and this represents your current policy
+baseline. You then assume a policy or placeholder $50 billion
+for the war from 2013 to 2021, and then you count the lower
+funding in your budget relative to this current policy baseline
+as a $1.1 trillion spending cut over 10 years. You take the
+related debt service, that is another $1.3 trillion. Are you
+guys really planning to stay in Iraq at current levels and to
+continue the surge for the next 10 years? It has either a yes
+or no question. Yes or no?
+ Mr. Lew. No, the budget reflects our withdrawal from Iraq.
+ Mr. McClintock. And you are claiming that as savings. You
+take a baseline assuming of $165 billion a year, including the
+surge, and then you count everything below that as savings.
+Well we are planning to do that anyway.
+ Mr. Lew. I am happy to respond. We are almost out of time.
+The overseas contingency operation account is something that
+really solved a problem that the Obama administration
+inherited, which was there was no orderly way to fund war
+operations, and supplemental appropriations were very much in
+disrepute as being a way of not having honest budgeting.
+ Mr. McClintock. In the five seconds I have got left, that
+is an intellectually dishonest way of presenting the budget,
+particularly when the other part is $819 billion of tax
+increases.
+ Mr. Lew. That is an important issue, and I would love to be
+able to respond in more detail on it.
+ Chairman Ryan. How about in writing, because I would love
+to hear the answer to that one too. Ms. Bass.
+ Ms. Bass. Thank you. Director Lew, thank you for your
+testimony.
+ Mr. Lew. Thank you.
+ Ms. Bass. You and the President should be commended for
+crafting a $1.1 trillion deficit-cutting budget that strikes
+the right balance, frankly, between spending reductions and
+targeted investments in infrastructure, innovation, and
+education. Prior to Congress, I served in the California
+Legislature where we had to make tough choices, such as
+eliminating Pell Grants for summer school to sustain the
+maximum award for all eligible students.
+ Having said that, I do want to take a moment to draw
+attention to the choices made in the continuing resolution that
+will be debated this week. Not only does the spending plan make
+devastating cuts to critical programs that families depend on
+to get back on their feet, but the continuing resolution would
+result in lost jobs of 1,300 police officers, 2,400
+firefighters, and 16,000 private-sector construction jobs from
+cutting $1.7 billion from the federal building fund.
+ The most promising new source of economic growth and job
+creation is in our public infrastructure system, from roads and
+bridges to broadband and air-traffic control systems to a new
+energy grid. I am pleased to see that the budget invests in
+these key areas that will spur job creation, and based on this,
+what do you believe are the potential numbers of jobs that
+would be created by what you and the President are proposing?
+ Mr. Lew. Congressman, I thank you. I can't give you a
+specific job forecast. I think we have all learned that there
+is uncertainty in the projections when you get to a pinpoint
+number. I think what we know is that when you build roads, when
+you build ports, when you build the infrastructure we need to
+be competitive in the future, it puts men and women to work on
+those projects in real time. And in our Surface Transportation
+Reauthorization Proposal, we do propose that $50 billion be
+done at the beginning to get a head start and to get people to
+work. I would be happy to get back to you with some notions of
+what that means in terms of specific jobs, but it is clearly a
+lot of jobs.
+ Ms. Bass. I would appreciate that, even if you could give
+us a range. If you could get back to me, I would appreciate
+that. Second question, with the cuts that are taken in the
+defense part of the budget, I do believe that we can find
+additional savings. I wanted to ask you, for example, as I
+understand it, there is nearly 270 bases in Germany, 65 years
+after World War II ended. And I wanted to know if the
+administration has conducted a savings estimate on closing
+these bases that probably no longer serve a strategic value,
+and if some of them do, I would question whether over 200 do.
+ Mr. Lew. You know, I think that these are the kinds of
+questions the Department of Defense needs to ask, not just
+about Europe but about its operations everywhere. What do we
+need for our current and future defense, what could we live
+without? I don't want to prejudge the answers to any of those
+questions, but I think that by putting in this budget the first
+step to bringing the Department of Defense back into the normal
+budget tradeoffs, where we are saying no real growth. That is a
+cut, in terms of what you can buy; it means you have to start
+doing less things. That is a step in the direction of asking a
+lot of very hard questions.
+ Ms. Bass. Thank you, and then just finally I wanted to
+thank you for your comments earlier, especially about the R&D
+credit. Being in California and the Silicon Valley, we hear
+that all the time from the tech community, the need for that to
+be long-term so that they can do the planning. So thank you
+very much for your time.
+ Mr. Lew. Thank you.
+ Chairman Ryan. Mr. Chaffetz.
+ Mr. Chaffetz. Thank you, Mr. Chairman. Director, thank you
+for being here and your good work. I do appreciate it, the work
+you have done in the past. But what I have a problem with is
+this budget. It was suggested earlier that budgets reflect the
+priorities and values of those that present them, and I think
+in this case it is true. I think it is very true, that this is
+a case that is being made by the administration. They want big
+government, more government, the bottom line is this doubles
+the debt in 10 years, and that it is fiscally irresponsible.
+You know, the decisions we make in Congress are all about what
+kind of money we are going to pull out of people's pockets and
+give to somebody else. I find it reprehensible that we continue
+to talk about investments and other things when we are pulling
+money from people's pockets to try to give it to somebody else.
+The most important thing we can do is allow money to stay in
+their own pockets. It is the American people's money, it is not
+Congress money, it is not the White House's money.
+ I want to get very specific at some of the things you said.
+This budget is a down payment was one of the things I heard, a
+quote from you, I believe, yesterday. This is a down payment on
+mortgaging our future, and it exacerbates the problem. It
+doesn't actually solve it.
+ I want to talk about part of your testimony on page six. It
+says, quote, To stay on a path towards sustainable deficits.
+Sustainable deficits seems like an oxymoron to me. We are on a
+trajectory where we can't afford anything. We are paying $600
+million a day just in interest. I would appreciate, at a future
+date, to please try to define for us sustainable deficits,
+because I think to the average American, to me, it does not
+make sense. We have no sustainable deficits.
+ To further go on with that quote, you say, On the order of
+three percent of GDP, we make tough choices across all areas of
+the budget to identify more than $1 trillion in savings, two-
+thirds from spending reductions. Where does that other third
+come from? As I understand it, it is from tax increases, is it
+not?
+ Mr. Lew. I am happy to answer all the questions you just
+asked.
+ Mr. Chaffetz. Just this last one, please. I know our time
+is short.
+ Mr. Lew. The net savings come from a number of provisions,
+but a lot of it comes from the provision that would pay for the
+alternative-minimum tax, which would reduce the value of tax
+deductions for families with $250,000 and above.
+ Mr. Chaffetz. And a significant portion does come from tax
+increases, correct?
+ Mr. Lew. Well, one-third.
+ Mr. Chaffetz. A third is coming from tax increases. You
+have a statement in here about federal civilian employee pay
+freeze. I find this to be terribly disingenuous. The reality
+is, when Barack Obama took office to now, we have 145,000
+additional federal workers. To suggest that pay is being frozen
+is not an accurate statement. Through step increases, through
+bonuses, through others, we have dramatically increased the
+federal payroll. The budget that is being proposed, when you
+say pay freeze, does that mean that expenditures on payroll
+will go up or stay the same?
+ Mr. Lew. It means that people are not going to get a cost-
+of-living adjustment, a raise from the pay that they get right
+now.
+ Mr. Chaffetz. So the total, the line-item going forward,
+will our total expenditure from the U.S. Government, will that
+go up or will that be the same?
+ Mr. Lew. Well if we have more people, we will obviously
+have to pay the people who we are hiring, but for an individual
+federal worker they are going to see their pay frozen.
+ Mr. Chaffetz. I guess what I am worried about for the
+American taxpayer is their expense for federal employees is
+going to go up, correct?
+ Mr. Lew. Well I think if we want people to work at the
+airports and check to see that bombs aren't getting on planes,
+we have to pay them.
+ Mr. Chaffetz. We already have 65,000 TSA agents.
+ Mr. Lew. But we have new technology, and the new technology
+requires people to use it.
+ Mr. Chaffetz. How many is enough? How many more TSA agents
+do you need? You have 65,000 TSA agents.
+ Mr. Lew. Congressman, I am happy to go into detailed
+answers.
+ Mr. Chaffetz. How many more TSA agents do you need?
+ Mr. Lew. I think as we put new technology at the airports,
+we needed to hire people to work that equipment. I can get you
+an exact number.
+ Mr. Chaffetz. We have 65,000. I need to know how many more
+people is it going to take?
+ Mr. Lew. I know that it is not worth buying equipment that
+we don't have people to operate.
+ Mr. Chaffetz. I appreciate it. Thanks, Mr. Chairman.
+ Mr. Lew. And I would like to answer your other questions if
+I have time. I don't know if I have time.
+ Chairman Ryan. If you could get to the gentleman in
+writing, only because we want to watch your time and the rest
+of the members time.
+ Mr. Lew. Sure, okay.
+ Chairman Ryan. It has now my pleasure to yield time to Ms.
+Moore.
+ Ms. Moore. Thank you so much, Mr. Chairman, and thank you
+Mr. Lew for appearing. Now as you can tell, members on both
+sides of the aisle are very frustrated, because this is a very
+difficult budget. And coming from a cold place like Wisconsin,
+it is just chilling to see things cut like the low-income
+housing energy assistance program, for example. But I do
+appreciate the fact that the administration has attempted to
+have somewhat of a balance in terms of revenue and spending
+cuts and defense cuts, and entitlement cuts. I just want to ask
+you a very simple question: If we cut every dime of
+discretionary non-defense spending, would that put us on a
+course toward ending our deficits? Every single dime.
+ Mr. Lew. It has not a big enough part of the budget for us
+to solve the problem.
+ Ms. Moore. Thank you. That is what I want to know, because
+there is an attempt to really describe the solution as simply
+just cutting everything, not just low-income heating assistance
+but everything.
+ Entitlements, my questions are generated from just
+listening here today. I get a little bit nervous when my
+colleagues talk about the White House not having dealt with
+entitlements. Did you say earlier in your testimony that you
+had found, what was it, $65 billion.
+ Mr. Lew. $62 billion.
+ Ms. Moore. In savings from Medicare?
+ Mr. Lew. It is Medicare, Medicaid, federal employees health
+benefit programs; it is dozens of different provisions.
+ Ms. Moore. So thank you. So you did, in fact, deal with
+entitlements. The reason I get nervous is entitlements is a
+really big category. The Medicare prescription drug program,
+can you remind me of how much that cost and was not paid for?
+ Mr. Lew. Well I can tell you none of it was paid for. The
+exact estimate at the time was on the order of $500 billion.
+ Ms. Moore. $500 billion?
+ Mr. Lew. I wasn't working on this at the time, I might have
+the number wrong.
+ Ms. Moore. And I wasn't here, and Democrats weren't in
+control of Congress. That is an entitlement that needs
+reforming.
+ Social Security, I get very nervous. Can you just clarify
+for me who pays for Social Security? It comes out of our
+paychecks and employers paychecks, and you said earlier it was
+not driving the deficit. Why do they keep lumping Social
+Security into this deficit situation that we are in, and saying
+that it needs to be dealt with?
+ Mr. Lew. Well, Social Security is financed by payroll tax,
+half by the employer, half by the employee. And if you look at
+the Social Security trust fund, it is projected to remain in a
+position to pay benefits until 2037, so we don't have any
+immediate crisis in Social Security funding. I think that it is
+also the case that we are spending more year to year on Social
+Security because people are retiring. If you turn 65, you get
+benefits.
+ Ms. Moore. Okay, so thank you. I hate to cut you off but I
+keep hearing an awful lot about how the White House is harming
+small businesses, the business creators. I am just wondering,
+what are they talking about? If I have a hedge fund operating
+from my living room with a computer, I am a small business and
+I make, you know, several million dollars, am I considered a
+small business? A job creator? Like you said, law firms. Who
+are these small businesses that we are harming with the tax?
+ Mr. Lew. I think if you look at the budget proposals we
+have, we have targeted assistance for small businesses that
+meet the kind of definition that I think most of us would, in a
+common-sense way, think of a small business. A small factory, a
+small shop, and it wouldn't apply to services like law and
+finance. So we have incentives that we propose that would make
+the tax code more attractive.
+ Ms. Moore. You have differentiated here so that we are just
+not the mom-pop shop.
+ Mr. Lew. We don't need to have the overall tax rate on the
+wealthiest Americans go back down to the [inaudible] level.
+ Ms. Moore. Okay, let me ask one final question in my last
+five seconds, or just to make a statement maybe. The Bush era
+tax cuts, which I think we ought to have gotten rid of, period;
+those earning over $250,000 a year still benefit six times as
+much as everybody else.
+ Chairman Ryan. Thank you, Ms. Moore. Ms. Black.
+ Mrs. Black. Thank you, and thank you Mr. Lew. I want to go
+back and continue in the vein of the question related to a
+sustainable deficit. You started out by saying that this budget
+is just a starting point. I am a little disappointed in that
+because my understanding is that as the role of the President,
+he is to set forth a plan, not a skeleton. I am disappointed
+that there wasn't more of a plan here along the areas of the
+entitlement programs, but that is really not the direction I
+want to go. The direction that I want to go in is talking about
+sustainable deficits.
+ Now, as has already been said here, we admire the work that
+you did during the Clinton administration, and particularly
+having a budget surplus, and that it broke your heart that we
+are not in that situation. However, it seems as I read your
+testimony and what I hear today, that the goal here was to have
+a sustainable deficit. And I think our goal should be to be out
+of debt, and that we shouldn't have a sustainable deficit but
+we should have a balanced budget. Do you agree that we should
+be in a situation where our goal should not be a sustainable
+deficit, but should be that we would have a surplus and not
+spend more money than what we bring in?
+ Mr. Lew. The reason we call this a down payment is because
+we do agree that we need to get beyond stopping the building up
+of the debt, and we then need to work on surplus so that we can
+pay it down. The problem is you don't get there quickly. You
+have to stop putting more onto the bill before you can pay it
+down. It is going to take hard work to do that. The three
+percent of GDP gets us only to the point where we are paying
+our current bills with revenue, and we still have the deficit,
+the long-term debt, out there. And then we are going to need to
+work together on dealing with that.
+ Mrs. Black. And I want to go to that too, because if our
+goal over the next 10 years is to just have sustainable
+deficit, we will never pay down the debt. And frankly, one of
+the reasons why I ran is because I look at my six
+grandchildren, and I am really sad to think that my goal over
+the next 10 years, or my goal of serving for however long I
+serve, is just to sustain the deficit and not go toward the
+debt. And I think that it is short-sighted for us to think
+along those lines. I want to see a plan that gets rid of the
+deficit and begins to start to pay on the debt.
+ Mr. Lew. I think that having presented budgets that had
+surpluses and now working on a budget that is a tough budget,
+that stops building the debt, I agree that we need to look
+beyond getting to the point where we are not adding to the
+debt, and we need to look to the point where during good
+economic times, we are paying down the debt. It is not a simple
+process. We are not going to get there quickly. It took a long
+time to dig this hole; it took a lot of decisions to get us
+where we are. It is going to take a lot of hard work to get
+out. And I think that the notion that this is a starting point,
+I don't mean to say it is not a serious starting point. It is a
+comprehensive, responsible budget. The President doesn't get
+the final word; he gets the first word. He has put his plan
+forward.
+ Mrs. Black. But I want to go back, again, to words that you
+used on one of the other comments that you made, and you talked
+about all of the things that got us to where we are. But you
+said the number-one thing was, we suspended common-sense
+spending where we are spending more than what we bring in. And
+this budget that we have gotten does the same thing, and I
+don't think it gets us to where our goal really should be, and
+that is to stop deficit spending and start paying down our
+debt.
+ Mr. Lew. Well this budget actually adheres to the principle
+that we need to pay for what we do, and with all respect I
+would note that changing the rules of the House so that tax
+cuts don't require offsets is not something that is going to
+help get to the goal that you are looking for. We need to have
+a clearheaded understanding that whether it is a tax cut or
+spending increase, if we don't pay for it, it increases the
+deficit.
+ Mrs. Black. Well the more that we take from the people that
+are out there creating the jobs, the less jobs we will have,
+the less taxes we will collect. Thank you.
+ Chairman Ryan. Ms. Wasserman Schultz.
+ Ms. Wasserman Schultz. Thank you Mr. Chairman. Welcome, it
+is good to see you.
+ Mr. Lew. It has good to be here.
+ Ms. Wasserman Schultz. I think it is interesting that the
+gentle lady from Tennessee laments the lack of a plan. Here it
+is. This looks like a plan to me.
+ Mr. Lew. Felt like a plan putting it together.
+ Ms. Wasserman Schultz. I bet it did. This from the party
+that still after six weeks in the 112th Congress, still has no
+jobs agenda, still has not put forward a plan to create jobs,
+not a single piece of legislation, nothing that has as many
+pages as this, 207 pages like this plan does. I think that when
+casting aspersions about the lack of a plan, they should look
+inward first. But your testimony referred to $62 billion in
+savings from increasing efficiency and accountability of health
+spending. Now we really focused on cracking down on waste,
+fraud, and abuse, and that was a huge priority in the 111th
+Congress for Democrats, particularly when we passed the
+Affordable Care Act. What are some of the significant policies
+in the budget that will contribute to that kind of savings?
+ Mr. Lew. Congresswoman, there is kind of three baskets of
+savings. There is one set, which is about 16 provisions, which
+we would call program integrity. It is to make sure that if a
+provider has been paid erroneously, we recoup payment. If a
+provider submits bills for things that shouldn't be paid or
+duplicate bills, we have a process to make sure we pay once and
+we pay properly. That saves a little over $30 billion.
+ We then have a number of provisions that would give
+Medicare and Medicaid the ability to take advantage of generic
+drugs, particularly generic biologics. That saves a little over
+$10 billion. Then we have a couple of changes in the Medicaid
+program, one of which would make sure that when we have
+expanded coverage and less uncompensated care, we calibrate
+correctly the disproportionate share payments that are supposed
+to pay providers who are providing uncompensated care. And then
+there is another that just lines up the state payment rates so
+that there is accuracy in what they are being matched for.
+ Ms. Wasserman Schultz. The $62 billion in savings to which
+I just referred: Is that separate and distinct from the $125
+billion in savings included in the budget related to program
+integrity?
+ Mr. Lew. It is only counted in the budget once, and it is
+in the mandatory section, the $62 billion. We may have a
+display that shows it somewhere else, but it is only in the
+numbers once.
+ Ms. Wasserman Schultz. Thank you. I want to focus on the
+cuts in Community Development Block Grants. In recent years,
+Congress has typically provided more than the President
+requests for Community Development Block Grants. And that is
+obviously a program that helps local governments fund housing,
+and sewers, and streets, and economic development, particularly
+in low and moderate income neighborhoods. Let me just give you
+a couple of examples of it for folks that really don't know
+Congressional speak. You know, Community Development Block
+Grants funds things like three grants in 2010 to the cities of
+Janesville, Kenosha, and Racine, Wisconsin, totaling nearly $4
+million, and $2.4 million in two grants to Lima and Mansfield,
+Ohio. So my question is, the President's 2012 budget cuts
+Community Development Block Grants by about $646 million, and
+that is compared to the CR, where the Republican cuts it $3.1
+billion, below, from the CR, $2.4 billion below the President.
+Can you classify the distinction between the President's
+approach to Community Development Block Grants cuts and the
+cuts in the CR, from the Republicans?
+ Mr. Lew. The President's budget is a comprehensive budget
+where we have made tough tradeoffs. Reducing community-
+development block grants by 7.5 percent is a tough decision. We
+have got a lot of cities and towns that do good work with this
+money. But we didn't think it was necessary to make a deeper
+cut than that to hit the target of the $400 billion savings.
+ Chairman Ryan. Thank you, Mr. Chairman.
+ Ms. Wasserman Schultz. Thank you.
+ Chairman Ryan. The gentleman from Appleton, Wisconsin, Mr.
+Ribble.
+ Mr. Ribble. Thank you, Mr. Chairman. Thank you, Director
+Lew, for being here today. Just reading out of your testimony
+on page five, you say, Now that the country is back from the
+brink of potential economic collapse,--I would dare say that
+there is about 10 million Americans who wouldn't agree with
+that because they don't have a job today--Our goal is to win
+the future. But we cannot do so if we are saddled with
+increasingly growing deficits. Do you believe that statement,
+or was it just put in there as hyperbole?
+ Mr. Lew. No, I believe it. I think that we were in a state
+of free-fall in the economy. We are not content with
+unemployment where it is now, or growth where it is now, but we
+have gone from negative growth and losing jobs to positive
+growth and creating jobs. And I believe that if we don't deal
+with the deficit, it is going to become a real threat to our
+economy.
+ Mr. Ribble. So we cannot win the future if we are saddled
+with increasingly growing deficits. That is a statement that
+you agree?
+ Mr. Lew. Yeah, no, I definitely agree with that. I wrote
+it, and I agree with it. That's a good thing.
+ Mr. Ribble. Why would the President project a budget that,
+for the last five years, whose deficits are $890 billion, $891
+billion, $960 billion, $1.05 trillion, and $1.16 trillion? All
+growing deficits.
+ Mr. Lew. I think if you look at these last few years, there
+have been extraordinary things going on because of the
+recession. We have had a collapse in terms of revenues because
+of lower economic activity, we have had increased expenditures,
+some of them automatic stabilizers, some of them actions
+Congress and we took together to get the economy moving again.
+We have said that we are now at a pivot point. We cannot accept
+that as business as usual. It was necessary during the
+recession. We had to get out of this recession; if we were
+seeing negative growth right now and rising unemployment, that
+would be a terrible thing. So we are very proud of the work we
+did. We inherited an economy that was not in good shape, and we
+have gotten it on the path towards being in much better shape.
+The job is not done. And we are now looking to the future, and
+that is why we are putting together a budget that we think
+invests in the future.
+ Mr. Ribble. Yeah, but the first five years, you project
+decreasing deficits and the last five years, you project
+increasing deficits, which will prevent us from winning the
+future.
+ Mr. Lew. I think the deficit, as a percentage of the
+economy, stays in that 3 percent range in the entire period of
+this budget, and that is what we need to do to be able to pay
+our bills and not to put our current expenses on the credit
+card. We are going to have to do a lot more to pay down the
+debt. We are, and we are not pretending that we can do that all
+at once. We need to do that together, but we have got to get
+started.
+ Mr. Ribble. On page seven, you use, It would be
+shortsighted to cut spending across the board and short-change
+critical areas for growth and competitiveness, such as
+education, innovation, and infrastructure, or carelessly slash
+programs that protect the most vulnerable. It is a little
+incendiary to think that those are the only two choices, but
+maybe it wasn't written with that intent. I will tell you what
+I believe is careless; when all the adults in this room leave,
+cameras are gone and the television announcers go home, I
+believe there is going to be a five-year-old sitting here with
+the bill. I think that is careless. Thank you sir.
+ Chairman Ryan. Thank you. Mr. Ryan.
+ Mr. Ryan of Ohio. Thank you, Chairman Ryan, thank you, Mr.
+Lew. I think this is the best budget you could put together
+given the circumstances, and I think it is important for us to
+remember that it was the President and this administration that
+said we need to have a Debt Commission, that made that happen
+while a lot of Republicans on the other side were doing the
+Potomac two-step, backpedalling away from it. And I think we
+need to go back and read those press clippings. You were here
+in 1993. Would you say that 1993 budget, when we had great
+economic growth during the 90s, 20 plus million new jobs being
+created, was it the 93 budget that really got the economy back
+on track?
+ Mr. Lew. Congressman, I would say that what really made a
+difference was that from 1990, under President Bush, to 1993
+under President Clinton, to 1997, when there was a bipartisan
+budget agreement, we showed continued emphasis on reducing the
+deficit, and paying for what we were doing, and getting our
+economic house in order. 1990 and 1997 were bipartisan; 1993
+was not. I hope that we are now going back into a period where
+we can work together, because I actually believe that people
+draw a false distinction between, Is the economy causing us to
+get out of the deficit or is it our policies? They are
+connected. When we pursue policies that promote confidence in
+the future, it is good for the economy. When the economy grows,
+it is good for the deficit; a virtuous cycle.
+ Mr. Ryan of Ohio. I think it is important that we realize
+that mature decisions were made in 1990; mature decisions were
+made in 1993. In 1993, there wasn't one Republican that voted
+for that budget. Vice President Gore had to break the tie in
+1993, and then when we got into the 90s, we had some money to
+invest in children's healthcare and R&D, and set the stage for
+T-Com revolution and the Internet revolution and everything
+else.
+ Two quick questions. One is, is a concern of yours, we have
+got $100 billion in cuts that our friends in the House want to
+make immediately in the next few months. We have got about $140
+to $150 billion in cuts being made by states across the
+country, $2 billion is going to be pulled out from the federal
+employees. Are you concerned that in the short-term, that we
+are pulling too much money out of the economy and it is going
+to hurt the growth that we have had and the success that you
+have had over the last year or two?
+ Mr. Lew. We have put together a budget that tries to step
+on the brakes at the right time, and to not jump too fast into
+fiscal consolidation. I think we are going to have to look and
+see how the debate develops here in Congress. I think there is
+a concern in the states, as they are facing their fiscal
+challenges. We were careful in this budget that overall, the
+impact on the states, we don't think will create more of a
+problem there, though there are some things we reduce, there
+are other things we increase.
+ Mr. Ryan of Ohio. I am concerned. You guys have the veto
+pen, and I just want to encourage you to not be afraid to take
+a stand, because we have come a long way in the last two years
+and we need the President to continue to lead us out of this.
+We are doing the right things now, I disagree with what my
+friends on the other side are saying. That leads me to my next
+and final question, and you have got 35 seconds to try to sum
+it up. How do these investments that you are making, R&D,
+education, high-speed rail, infrastructure, how do these
+investments compare as a percent of the GDP to what China is
+doing, what Germany is doing, what some of these other
+countries are pumping money into; how do our investments
+compare to these other countries, as we try to be competitive
+and compete?
+ Mr. Lew. Well overall, the United States as a private-
+public combined, spends more money on research and development
+than the next four largest countries put together, so we are
+the leaders in R&D. I think in these areas, we frankly have not
+kept up with some of our competitors. The infrastructure
+investment needs to keep up in order to be able to ship goods
+and buy and sell goods.
+ Chairman Ryan. Thank you. Mr. Flores.
+ Mr. Flores. Thank you Mr. Chairman, and thank you Director
+Lew for joining us today. I want to continue the conversation
+that Mr. Price started about amnesia regarding the past. Do you
+recall what the unemployment rate was in December, 2006? It was
+about 4.4 percent. The unemployment rate in December, 2010 was
+in the mid-nines. I would submit that what you claim that you
+inherited was due to a legislative process that occurred during
+that four-year period, and that wasn't controlled on this side
+of the aisle.
+ I am new to this job, I have been in it about six weeks.
+Before I did this, I was a CPA and a CFO and a CEO for a number
+of successful companies, and so I know what it is like to sign
+the front side out of a paycheck, to make the decision to
+commit to hire an employer, to make an investment. This so-
+called plan doesn't put me in a position, if I were in that
+chair today, to do that.
+ The other thing is that I know a little bit about
+businesses and budgeting, and I have learned some new
+terminology. Sustainable deficits is a new term, and then
+primary balance, that is another interesting term. When
+Chairman Bernanke was here last week, he said that the federal
+deficit over the long term should not exceed the interest cost
+that we pay on our debt. We have come up with this definition
+of primary balance, that it is okay to run a deficit of 3
+percent of GDP. How many businesses and families do you know of
+that can operate in primary balance and for how long?
+ Mr. Lew. We haven't set the goal of stopping at primary
+balance. We have said you have to get to primary balance in
+order to get beyond that, and I think it is an important
+difference.
+ Mr. Flores. This doesn't get better than primary balance.
+ Mr. Lew. You are not going to get to balance if you don't
+pass through primary balance.
+ Mr. Flores. Let me submit to you that most families and
+most businesses that I know of cannot operate in primary
+balance. I commend you for having balanced budgets during the
+Clinton administration. That is what I call primary balance, is
+where you have zero deficit or a surplus.
+ Mr. Lew. If I could just respond on the first point. You
+know, I think most families have had some experience with
+building up balances on their credit card that they really were
+facing really hard decisions.
+ Mr. Flores. They don't do it over 10 years. They don't do
+it over 40.
+ Mr. Lew. They start by cutting up the card, not putting
+more on it, and that is what primary balance is.
+ Mr. Flores. And they start by cutting their net deficit to
+zero, and this plan doesn't do that. My questions are this, you
+have got average spending during, what was it? Let me rephrase
+that.
+ Mr. Lew. I am going to have to bring historical statistics
+with me the next time I testify.
+ Mr. Flores. I can answer it for you, but do you recall what
+spending was as a percent of GDP during the Clinton
+administration?
+ Mr. Lew. It was around 20 percent.
+ Mr. Flores. Correct. And what is the average spending as a
+percent of GDP under this plan?
+ Mr. Lew. I think that when you look at spending as a
+percentage of GDP over time, it does grow as the population
+grows, because people become eligible for Social Security and
+Medicare. So when one talks about those numbers, you have to
+look at what is behind them.
+ Mr. Flores. It is almost 23 percent, and if we really
+wanted to develop a plan to have sustainable deficits of zero
+or a primary balance of zero, we should have spending down
+around the same level as taxes and that is around 18.3 percent
+of GDP over the long-term.
+ Mr. Lew. You don't get the balance if your revenue and your
+spending don't cross. The question is, at what level they cross
+providing what we need for the country.
+ Mr. Flores. I understand. I yield back.
+ Chairman Ryan. Ms. Kaptur.
+ Ms. Kaptur. Thank you, Mr. Chairman. Welcome, Mr. Lew. Each
+member of Congress arrives here from different life
+experiences, and one truth in our family is going back nearly a
+century, that when Republicans occupied the White House in
+Congress, members of our family were thrown out of work. And
+when Democrats regained those offices, our family members
+started going back to work. It is one of the reasons I am a
+Democrat. I know until all Americans who want to work are able
+to become productive again, we won't be able to balance our
+budget nor reduce the deficit. No American I know wants to
+borrow more money from China or any other foreign country to
+keep this economy afloat. The administration budget, in my
+opinion, makes a responsible start and takes the deficit
+seriously, and so do I. In fact, I have served in this Congress
+long enough to have been a part of the solution during the
+1990s that some of my Republican colleagues have referenced, to
+balance the budget and grow jobs in this economy. Mr. Lew, you
+were a part of that, I think the President has the right man in
+your position.
+ Also this man, Mr. Panetta, who now has the CIA. We sat in
+this room, I was a member of the Budget Committee back then. I
+know what we did for America, and when we did it, Alan
+Greenspan said he didn't think it was a good idea to balance
+the budget. That is the most unbelievable statement I ever
+heard in my life. Congress did it by making tough choices, by
+cutting waste and also curbing special interests. I support the
+administration's proposals to get rid of those oil subsidies.
+Let them compete in the global economy. In the tough times we
+are facing today due to the Wall Street abuses that caused the
+recession we are in, the problem with the Republican budget is,
+it hurts job creation and it goes after the people who can
+least afford to hold their lives together in this economy.
+ In fact, their budget cuts off almost four million student
+loans, it takes away five million meals to the homebound
+elderly, it lays off meat and poultry inspectors, and it cuts
+40,000 jobs in preschools and Head Start. I don't think that is
+a very good set of proposals, so my questions, really Mr. Lew,
+to you deal with jobs, which is where we should be focused in
+two areas; one transportation, and the other one energy. For
+where I come from, which is not a government platform like
+capital cities like the one we are sitting in right now, and it
+is not a trading virtual platform like New York or Chicago or
+San Francisco, these places that deal in virtual stuff, we are
+the real economy in northern Ohio, and for us transportation
+and energy are destiny.
+ So let me ask you, the administration has put some focus in
+its budget, despite tough times, on investing in
+infrastructure, and also in new forms of energy. That is music
+to our ears in our part of the country. We have to compete in
+an unsubsidized, free-enterprise economy in northern Ohio.
+Could you please tell us a little bit about the investments
+that the administration is going to be making in transportation
+and in renewable energy, and how this will contribute to job
+creation, which we all desperately want?
+ Mr. Lew. Thank you, Ms. Kaptur. I am going to try in 50
+seconds to do justice to our program, but we have an approach
+that is designed to make sure that we build the infrastructure
+so that we can have goods come and go between American markets
+and shipped internationally from our seaports and our airports.
+We have taken a broad view of surface transportation, because
+it also means having the kind of modern communications
+technology so that northern Ohio becomes part of the virtual
+economy because there is no part of the country that is left
+behind. That is what it is going to take to win the future. In
+R&D, in energy, you know we look at the new technologies in
+renewable energy and where other countries are frankly putting
+their money down, saying That is the future. If we don't do the
+same, we are going to find ourselves left behind. America has
+never been left behind before, and we shouldn't start now.
+ Ms. Kaptur. I wish you could say more. Thank you very much,
+Mr. Chairman. Thank you, Mr. Lew.
+ Mr. Lew. Thank you.
+ Chairman Ryan. Mr. Mulvaney.
+ Mr. Mulvaney. Thank you, Mr. Chairman. Mr. Lew, I am also
+one of the folks who is new around here, but I am familiar with
+budgets, I have written them, I have read them, and I can
+assure you, sir, that if you let me play around with the
+assumptions, I can make you a budget that looks as good or as
+bad as I want it to. I am looking at your assumptions regarding
+the revenues in the future, and you have assumed, essentially,
+that revenues have become about 19 percent of GDP in the next
+couple of years and then steadily increase over the course of
+your budget, peaking out above 20 percent. These are the
+historical numbers going back to the 1960s, and I suggest to
+you sir, or I would ask you, are you making an assumption that
+we have only seen once or twice in the last 40 years?
+ Mr. Lew. You know, the revenue projections are based on a
+combination of current law and specific proposals, and it is
+driven by what is happening in the economy overall.
+ Mr. Mulvaney. But the truth of the matter is that you are
+assuming numbers that, you are assuming the numbers will be
+average. Nineteen percent, 19 percent, 20 percent, and we have
+only seen that sporadically once, maybe twice, in the last 40
+years. You take a look at the GDP, another one of your
+assumptions, Mr. Ryan mentioned it earlier, the Washington Post
+beat you up on it today; you are assuming rates of growth in
+the economy that dramatically exceed even what the
+Congressional Budget Office is assuming. Against that backdrop,
+you are also assuming interest rates dramatically lower than
+the Congressional Budget Office. I would suggest to you, sir,
+that to assume growth rates that are higher but interest rates
+that are lower is internally inconsistent, and I draw your
+attention to the fact that you have assumed an interest rate on
+the 10-year Treasury note of this year of 3 percent. Do you
+know what the 10-year traded at last week?
+ Mr. Lew. I did not check the [inaudible] rates last week.
+ Mr. Mulvaney. Three point six five. And your assumption is
+that it will be 3 percent this year. The Congressional Budget
+Office, by the way, says it will be 3.4; they are already too
+low. The Congressional Budget Office also testified that for
+every percentage point that they assume the interest rate is
+too low, it is $1.3 trillion of additional debt over the course
+of the 10 years. You have assumed revenues that are way higher
+than average, GDP that is higher than anybody else thinks, and
+interest rates that are dramatically lower than anybody else
+thinks. And I put it to you, sir, that that is the reason that
+this is not a credible document.
+ And I go back and I look at the past couple of budgets that
+the President has offered. Two years ago, he told us the
+deficit this year would be $900 billion in his budget. Last
+year, he told us the deficit this year would be $1.3 trillion.
+Yesterday, he told us it was $1.6. Two years ago, he projected
+that the budget deficit next year would be $557. Last year, he
+told us that number was going to be $829. Now he is telling us
+the number is going to be $1.1. I can't believe the numbers. I
+can't do it. And until we can get numbers that we can agree on
+are at least in the middle of the assumptions, it is going to
+be very difficult for us to focus on policy.
+ Is it a question? No, sir, it is not. Am I beating up on
+you? Perhaps unfairly so. But the point is this; we should be
+here talking about policy. We should be here talking about what
+the President wants to do to fix the country, and what we want
+to do to fix the country. I happen to be one of those
+Republicans who does not believe the President doesn't want the
+country to succeed. I believe that he does, but we have to have
+a discussion about policy, and when you give us numbers that
+are simply not credible, it really prevents us from doing that.
+I expect better.
+ Mr. Lew. Can I respond at least quickly?
+ Mr. Mulvaney. Very briefly. I expect better out of you, and
+I have already spoken to the Chairman, I expect better from us.
+When you see our budget, you are not going to see unreasonable
+assumptions. But yes, sir, you may.
+ Mr. Lew. The economic assumptions in this budget reflect
+what is the middle in terms of where the Federal Reserve Board
+looks at what the likely patterns of recovery are. So, there
+are mainstream assumptions.
+ Mr. Mulvaney. Well then you need to walk to the
+Congressional Budget Office and tell them that their numbers
+are whacked out.
+ Mr. Lew. And there is a conceptual difference between the
+Congressional Budget Office numbers, where they believe the
+economy never gets back to the level of strength that it had
+before the recession. That hasn't been the experience of past
+recessions, even financially-led recessions. It is taken
+longer, but we have gotten back. So there may be year-to-year
+disagreements, but we think we have very credible economic
+assumptions, and I am happy when we have more time, to go
+through them in some detail. Thank you.
+ Mr. Mulvaney. Thank you.
+ Chairman Ryan. Thank you Mr. Huelskamp. Mr. Huelskamp, will
+you just yield for 10 seconds?
+ Mr. Huelskamp. Yes, sir.
+ Chairman Ryan. Here is what we think is wrong. You are
+assuming 3.9 percent growth in the first five years, 3.2
+percent over 10 years. That is above trend, and only with those
+rosy assumptions can you ever get close to the primary balance
+you are claiming. That is why when we see blue chip
+Congressional Budget Office far below where you are, it sort of
+strains the credibility of these claims. That is the point we
+are trying to make.
+ Mr. Lew. Mr. Chairman, I would just say that in the short
+term, we actually are slightly less optimistic. In the long
+term, we are slightly more optimistic, because of the
+difference in approach I just described.
+ Chairman Ryan. And medium-term, where you hit your
+objectives more often.
+ Mr. Lew. The idea behind the economic projections is, will
+we or won't we track the recovery patterns from past
+financially-led recessions? We believe we will. That is what
+the projection is. So it is to that trend.
+ Chairman Ryan. Mr. Huelskamp.
+ Mr. Huelskamp. Thank you Mr. Chairman. Mr. Director, I
+appreciate you being here, and back in February 23, 2009, the
+Congressional Budget Office at that time outlines a $1.186
+trillion deficit. The very next day, the President made his
+promise to pledge to cut the deficit in half by the end of my
+first term in office. In your comments, and the President's
+yesterday, he made a claim that he was going to meet that
+pledge, at least projected. But the numbers show one-half of
+the Congressional Budget Office figures are a $593 billion
+deficit. What do you predict?
+ Mr. Lew. If you look at it as a percentage of GDP, we cut
+it in half by the end of the first term.
+ Mr. Huelskamp. That was not the statement of the President.
+That is what bothers me, how the President can stand up, and
+you can stand here in this document, and claim that you are
+cutting the deficit in half, when you did not.
+ Mr. Lew. We are cutting it in half as a percentage of GDP.
+ Mr. Huelskamp. That was not the claim the President made.
+Would you agree with me?
+ Mr. Lew. I know what we have done in this budget. I know
+what we have said in this budget. We have cut the deficit in
+half as a percentage of GDP.
+ Mr. Huelskamp. I appreciate that. Again, I will just note,
+that is not what the President said, and that is not accurate
+of what is in your budget, and that is some of my difficulty.
+Where I come from, if you are wrong, you are wrong, but to
+stand up and again make that claim, I was very disappointed in
+that particular claim. But I am also particularly disappointed,
+Mr. Director, in another statement in your document where you
+state, quote, We are going to stay on a path towards
+sustainable deficits. How long are deficits sustainable?
+ Mr. Lew. We need to get to the place where we stop adding
+to the national debt. This is a down payment. We need to work
+together to go farther than that. But you have got to walk
+before you run. You have got to get rid of the deficit before
+you cut the debt.
+ Mr. Huelskamp. I understand, but this budget never does
+that, does it?
+ Mr. Lew. It gets us on a path where we will able to do it,
+yes.
+ Mr. Huelskamp. The path is unsustainable. Your path in this
+budget is unsustainable. The deficit is not sustainable.
+ Mr. Lew. I look forward to seeing the plan.
+ Mr. Huelskamp. We are not talking about a proposed plan,
+Mr. Lew. That is why I am dissatisfied. The language that is
+coming out of this administration is telling the American
+people that we can borrow for 10 years or longer, and are going
+to call it sustainable. We are going to say 3 percent borrowing
+is sustainable. It is not sustainable. There is no way we can
+sustain the track that is being presented here, and that is
+disappointing, because I know the American people. I know
+people that work every day and try to balance their budgets and
+they understand that sometimes you go under water awhile. But
+to sit here today, and have the President claim, somehow, it
+will be all okay, even if we are going to have a $768 billion
+deficit in two years and we are going to sustain that forever,
+and that is why I am very disappointed that the President
+didn't stand. I am very disappointed in that. That is what I
+wanted to convey. Because the President has the opportunity to
+stand up and provide proposals to save and strengthen Medicare.
+And you have said here that those are not contained in here.
+ But I just want to note, to the American people, the folks
+that are listening here, and in the media, this is not
+sustainable. You can call it whatever you want. Sustainable
+deficits do not work. Primary balance is a figment of our
+imagination. Only in Washington could you run a deficit and
+claim it is balance, and somehow use the word balance. Mr. Lew,
+you couldn't do that anywhere else. They would laugh you out of
+the room. And I come at the state level. I served in the state
+legislature. We had a requirement; balance. It wasn't a primary
+balance. We couldn't run a deficit. This country is on a course
+for un-sustainability and I would expect the President to stand
+forward and say I am not going to keep my word, but to stand up
+and tell the American people, I kept my pledge. He did not.
+ Mr. Lew. I disagree with you Congressman.
+ Mr. Huelskamp. He is $193 billion off of his promise. That
+is a false claim and I am very disappointed in that. I yield
+back the balance of my time, Mr. Chairman.
+ Chairman Ryan. Do you want to take a second?
+ Mr. Lew. No, I would be delighted to, Mr. Chairman.
+ Chairman Ryan. You know it is coming out of your time.
+ Mr. Lew. I understand. I have missed lunch a lot of days. I
+think that if we want to use the kinds of common-sense language
+that people understand, we should just do that. We should say,
+Can you bring down the debt before you eliminate the deficit?
+No. You can't start paying down the debt until you stop adding
+to it. That is all we mean by primary balance. We are not
+talking about it being okay. We are just saying that you can't
+honestly tell people that we can pay down the debt, while you
+are still adding to it.
+ Chairman Ryan. Mr. Young.
+ Mr. Young. Mr. Director thanks so much for being here
+today. I know it has been a long morning and early afternoon
+for you. My focus here in Congress is on sustainability, but it
+is on sustainable job creation. And in the testimony we
+received from Bernanke the other day, he indicated that the one
+thing that really is missing from our policymakers in
+Washington, the Executive Branch and Congress alike, is that
+coherent plan, as he phrased it, and as Moody's recently
+phrased it when they downgraded Japan's debt. A coherent plan
+to deal with our entitlement programs. That is pointedly absent
+from this budget, this roadmap, if you will. I think that is a
+dereliction of duty on the part of the President.
+ Now you have indicated in today's Wall Street Journal, if
+they quoted you correctly, that such proposals to deal with
+these matters are better left in closed-door settings. Fair
+enough. Perhaps that is the political judgment you make. I
+actually think we owe it to the American people to own up to
+them and to treat them like adults. That is what I intend to
+do. What is our pathway into this meeting? How are we going to
+begin this conversation? Will a letter be forthcoming? What
+will the date of that meeting be? Please enlighten us.
+ Mr. Lew. Congressman, I don't believe that is exactly what
+I said, but what I do believe and what I have said is, we have
+put down a plan, which is the President's plan for how we are
+going to get to the point where we stop adding to the debt. We
+have also said that we need to have an environment where we can
+work together on these long-term issues and have conversations
+about things that it is frankly hard to have conversations
+about. History shows that it is much harder to create an
+environment where we can have trust and conversations to work
+on a bipartisan basis, than just to take polarizing positions.
+We have tried to strike a balance, putting a responsible plan
+out there and creating an environment for that conversation. We
+just took the first step yesterday. Congress is going to come
+forward. You will write your budget and we will engage. It is a
+long process. This is the first step.
+ Mr. Young. What is the next step?
+ Mr. Lew. Congress will write a budget. We look forward to
+seeing what you do and your budget, and how you reach primary
+surplus, how you reach deficit reduction, if you bring down the
+debt. We really do think that you will have ideas that we want
+to take advantage of and we look forward to working together.
+ Mr. Young. In this remaining minute and a half, let us
+narrow down exactly what concerns the President has. People on
+this panel here, at least on this side of the aisle, invite and
+encourage the dialogue with the White House on this. Is it
+people in his own party that are a barrier, and what might I do
+as a freshman member of Congress to create the political space
+where the President can step up and take a leadership role in
+these matters?
+ Mr. Lew. I have worked on bipartisan negotiations from both
+sides of the street, I was in the Speaker's office when the,
+with a Democratic speaker when there was a Republican
+President, and with a Democratic President and Republican
+speaker. I can tell you the hardest part of the process is
+developing the trust, where you can talk about the things that
+you have to do. I think the attempts to characterize this
+budget in the way that we have done it today are things that I
+hope people take another look at, because this is a serious
+proposal. I know you don't agree with it. I know there are
+things that will be in your budget that we don't agree with. We
+have to come from those positions, to find the middle where we
+can agree. That is how you reach bipartisan agreement.
+ Mr. Young. Well I would encourage the President, I know he
+is watching C-SPAN today, to move forward aggressively on this
+matter. We are running out of time. We don't know what the
+optimal debt to GDP ratio is, as Bernanke and others have
+testified, and I think we need to very quickly embrace this
+issue and solve it, as opposed to dancing around it and doing
+the Potomac two-step.
+ Mr. Lew. We look forward to working together. We share the
+same long-term goal. We may have different ideas about how to
+get there and that is what we need to work through together.
+ Chairman Ryan. Mr. Rokita.
+ Mr. Rokita. Thank you, Mr. Chairman. Thank you, Mr. Lew.
+Representative Young, Representative Stutzman, and I come from
+a state that has a balanced budget. In fact we have a triple-A
+bond rating, haven't raised taxes, and our secretary of state
+for the last eight years has been running the office on a 1987
+budget, unadjusted for inflation, and by and large, no one
+seems to have missed a beat, no one is complaining about lack
+of services or anything else. Can you imagine if we could have
+Washington work on 1987 dollars? Hold on, don't answer that.
+ Mr. Lew. I think there would be a lot of people who asked
+where their Social Security check was.
+ Mr. Rokita. No, I don't think so. I don't think so. But we
+have to get to that, because you are right. You have
+acknowledged here a couple times that we have this pig in the
+python, the baby boomers you described, getting older and need
+their check, and that is, I think, the frustration here, is
+yeah, we all see that. But where is the leadership? You
+mentioned a few times that you are a lawyer, I am one too, I
+feel your pain.
+ Mr. Lew. I haven't practiced in a long time.
+ Mr. Rokita. But, classic basic skills of negotiation
+dictate that, when you are kicking off a process, which you
+just did yesterday, leadership dictates even, that you kicked
+off up here. And it seems that you are right here, and saying,
+Okay, you guys fill in the blanks.
+ Mr. Lew. No, I don't agree with that. I think we kicked off
+the process with a comprehensive plan that put an awful lot on
+the table, that is, we think, the best way to deal with the
+immediate challenges in front of us. And if that is not
+something that you agree with, we look forward to seeing your
+plan, and then we will work together to find where we can
+resolve it. So I don't agree with the characterization. I do
+agree that, as the President said, when he said this is a down-
+payment, there will be issues that we have to deal with beyond
+this, and those are totally consistent.
+ Mr. Rokita. Okay, so in that regard, let me ask you some
+specific things. There has been a bipartisan agreement. Steny
+Hoyer, if I am quoting him correctly, said, Democrats agree
+that spending cuts are necessary to tackle our deep budget
+deficit. So we have got bipartisan agreement that we have got
+to start cutting spending. Given the reality that spending cuts
+are coming, has Office of Management and Budget approved any
+agency's spending in excess of fiscal year 2010 levels?
+ Mr. Lew. We are currently operating under a Continuing
+Resolution. Under the Continuing Resolution, we neither can
+begin or terminate activities. So we have been operating under
+the terms of something that provides for funding, in most
+cases, at fiscal year 2010 levels. It is an imperfect way to
+run the government, we should have full-year spending bills,
+and there undoubtedly will be complications as we move through
+the year, adjusting these numbers as we go along.
+ Mr. Rokita. Have you advised agencies to prepare to start
+lowering their budgets?
+ Mr. Lew. Well, we advised agencies that they should follow
+the law. The law is that under continuing resolution, you do
+not initiate or terminate programs.
+ Mr. Rokita. Well, for the future, are you starting to get
+these agencies acclimated to a culture of spending cuts?
+ Mr. Lew. I think the budget exercise we went through to
+produce this budget was a transition for many agencies, where
+things that were sacred cows that only grew, were frozen or
+reduced. There are tough decisions in this budget, really tough
+decisions, and I think there isn't an agency of government that
+hasn't made those trade-offs.
+ Mr. Rokita. You acknowledged that there is a net excess of
+22,000 federal employees under your plan.
+ Mr. Lew. I am acknowledging that there is an increase,
+which is a very small percentage of the federal workforce, to
+address new activities in this period.
+ Mr. Rokita. In Indiana, 22,000 is a lot of people.
+ Mr. Lew. It is a lot of people, but it is a big country,
+too, so when you put a few people at airports all over the
+country, it starts to add up.
+ Mr. Rokita. Oh, don't start the airport business.
+ Mr. Lew. I could give other examples if I had more time.
+ Mr. Rokita. One more thing on Social Security. You
+mentioned that Social Security wasn't much of an issue, I am
+paraphrasing, obviously, but I want you to tell me whether or
+not the trust fund has any money in it or not.
+ Mr. Lew. Trust fund has been running a surplus since 1983.
+ Mr. Rokita. That is been taken.
+ Mr. Lew. And it has bonds in it.
+ Mr. Rokita. Thank you.
+ Chairman Ryan. Mr. Stutzman.
+ Mr. Stutzman. Thank you, Mr. Chairman. Thank you, Mr. Lew,
+for your time today. Does the administration have any concern
+about the national debt?
+ Mr. Lew. Yes.
+ Mr. Stutzman. I mean, am I right in reading that, on page
+202, that our debt is going to go from $13.5 trillion to $26.3
+trillion over the next 10 years?
+ Mr. Lew. Yeah, I think that we are very concerned about
+controlling the deficit so we stop building the national debt.
+We then have to start bringing down the debt so that the
+interest payments can also be reduced.
+ Mr. Stutzman. There is no plan, or no idea, in here, that
+even starts the curve back to some sort of solvency with
+national debt. I mean, to me, as we waited for the President's
+budget, I really felt that, you know, the President was going
+to come back and he was going to, in this town as a freshman, I
+am finding it is very political, I see great divides between
+the party, and I thought maybe the President's going to try and
+one-up the Republican party, and do something that, you know,
+maybe we are going to try to jump out in front and do.
+ And it totally surprised me to see this type of a budget.
+As a small business owner back in Indiana, to project deficit
+spending, project doubling the debt; when are we going to start
+to see some sort of action to show otherwise?
+ Mr. Lew. First, I mean, you are looking at, there are
+different measures of the debt. The debt held by the public is
+the part of the debt that has the impact on credit markets. And
+I would just note there are different ways of looking at it, it
+gets to a much lower number in 2021.
+ Mr. Stutzman. Where does it start to do, to go back down?
+Am I looking at the wrong line?
+ Mr. Lew. No, I mean, until we start paying down the debt,
+the interest payments on the debt will still be increasing that
+number. I don't disagree that we need to ultimately turn the
+corner and start paying down the debt. I just am arguing, and I
+think it is common sense, that until we stop adding to the debt
+through our spending policies, to pay down the old debt is
+impossible. So we have got to do this in two steps. This down
+payment has that first step, which is the critical and
+necessary first step.
+ Mr. Stutzman. As I am going back through, there are a
+couple of departments that get minimal increases. But it
+appears the largest increase is to the Department of the
+Treasury, specifically the IRS. Can you comment why?
+ Mr. Lew. Well, there are several reasons. First of all, we
+are implementing financial regulatory reform, which is an
+important area. We certainly don't want to be exposed to the
+future risks of bail-out that we have seen in recent years.
+ Secondly, we have enforcement initiatives where, I think we
+all agree, that if two people live next door and they are in
+the same income tax status, they have the same income, they
+should pay the same taxes. It shouldn't be that if you cheat
+you pay a lower tax rate. And there are enforcement efforts in
+there.
+ Mr. Stutzman. So how many of the 22,000 new federal
+employees are anticipated to be hired by the IRS?
+ Mr. Lew. I would have to go back and check the specific
+numbers.
+ Mr. Stutzman. I have got a couple of miscellaneous
+questions. How many federal employees do we currently have?
+ Mr. Lew. I could give you an exact number, I am happy to
+get back to you.
+ Mr. Stutzman. Okay, and then real quick, I think I heard
+you say earlier, that employers' number one concern is that
+they need an educated workforce, is that right?
+ Mr. Lew. I said, when I meet with CEOs, one of the big
+concerns that I hear them express is that they are having
+trouble hiring people with the skills they need in science,
+engineering, and math.
+ Mr. Stutzman. Okay, all right. Thank you, Mr. Chairman, I
+will yield back.
+ Chairman Ryan. Okay. Mr. Lankford.
+ Mr. Lankford. Thank you. You got to do this whole exercise
+last year, and go through all the dance and all the hearings
+and everything else, and then the budget was actually not
+passed.
+ Mr. Lew. I have only been here eight weeks on the job.
+ Mr. Lankford. Congress just passed on it, and so getting a
+chance to do this again, and that we can hopefully get a chance
+to pick up and pass a budget this time, and get us through all
+that. I am hearing a perpetual sense that the certain
+apocalypse is coming if Republicans actually try to balance the
+budget and move us from, out of just deficit spending, to
+actually cutting down the debt. But I can tell you, I see the
+other side of this, to say $26 trillion is a more frightening
+thing to me that balancing the budget is a frightening thing to
+me on that.
+ Let me just set a quick stage for you, just the emotions of
+that, because you are walking to this, early on at this point,
+returning back, as I am walking into it. Here is the sense that
+I walk into it with. When I came on January 5, this year's
+budget deficit was projected to be $1.4 trillion. By the State
+of the Union, it was $1.5 trillion. As of yesterday, it is
+$1.65 trillion. Now, what I am hearing is this sense of
+consternation that we are talking about cutting $100 billion
+out of this year's budget when actually our deficit has
+increased $250 billion, just in the six weeks that we have been
+in this session, at this point.
+ So there is a real sense among a lot of people that I have
+talked with, to say we cannot just slow down the amount of debt
+that we are adding each year. We have actually got to get back
+to balance. And I know you are walking a fine line, and I know
+you are fulfilling the President's mandate to say let us slow
+down the curve somewhat on it. But you go out 10 years, and
+there is no debt reduction. I know you said a bunch of times,
+we have got to get back to this primary balance. But it seems
+as if the next President and the next Congress is left with the
+hard decisions, and this is just some simple decisions that get
+into it.
+ Mr. Lew. In fairness, President Obama took office and
+inherited a situation that was out of control, and we are
+getting it under control and we are doing it as we emerge from
+the recession.
+ Mr. Lankford. What I am hearing are terms like sustainable
+deficits, that doesn't seem to be working towards getting it
+under control. That seems to be working towards getting it to
+some manageable balance that we only add a trillion or so a
+year to our debt, and we are not really getting out of this.
+ The other side that really concerns me is this whole sense
+of trying to split up the way that we are handling energy, that
+there is a preferred energy and there is a non-preferred
+energy. And we are going to try to sink a lot of money into
+R&D, into new technologies and energy, while punishing people
+that are in traditional. There has been a lot of conversation
+about jobs and about small businesses. And my question, in
+multi-fold in this; my concerns on it, number one is, is an
+independent producer of traditional energy sources who has
+three to five employees a small business?
+ Mr. Lew. If that was the entirety of the business, I
+believe it would be a small business.
+ Mr. Lankford. For a lot of independent producers around the
+country, they have three to five employees. And there is this
+sense of, we are going to go hammer on the big oil companies,
+when the majority of our energy companies aren't the big giant
+companies. They are small independent producers that are
+scattered all over the country. There are hundreds and
+thousands of them, scattered all over, that are about to get
+hammered, that are living in fear that the administration is
+going to come hammer them to come do another type of energy,
+very similar to what President Carter did when he said we are
+going to have 20 percent of our electricity produced by solar
+power by the year 2000. Yet here we are, in 2011, it is not
+even one percent.
+ Mr. Lew. We are seeing that other countries are investing
+in the technology now, and the technology has advanced, and we
+are entering a different period of time.
+ Let me just respond to one point that you made.
+ Mr. Lankford. Let me just finish, I have no issue with all
+forms of energy. I have an issue with going and punishing one
+group that is actually fueling our vehicles and powering our
+cars and getting our homes ready, so we can go try to do
+something else that may work ten years from now. It feels like
+the sustainable debt, you are saying, We will try to manage
+this and hopefully that will work out at some point. That is
+what I feel like we are doing to energy by trying to punish the
+energy companies.
+ Mr. Lew. I know we are almost out of time, but I just want
+to go back to one point you were making earlier, when you
+described the increase in the projected deficits. I just want
+to point out that in December, I know you weren't here in
+December. In December, my first couple of weeks in this new
+position, we had an important bipartisan agreement to do
+something that I think most of us agree on, which is taxes
+shouldn't have gone up January 1 of this year. We needed to
+have economic activity, it was the wrong time to let a tax
+increase take place. We also needed to do some things because
+we were still in a recession. That is driving up the numbers,
+but we knew when we passed it at the time, that it would have
+that short-term impact.
+ Chairman Ryan. Thank you. Mr. Guinta.
+ Mr. Guinta. Thank you, Mr. Chairman. Thank you, Mr. Lew,
+for being here. I have a couple of quick questions, and I will
+try to not take up the full four minutes. First of all, I
+understand earlier this morning we agreed on the $1.6 trillion
+deficit number for fiscal year 2012, as proposed. Correct?
+ Mr. Lew. I am not sure I understand what you are referring
+to.
+ Mr. Guinta. Did you agree that this budget proposal has a
+$1.6 trillion deficit?
+ Mr. Lew. Our budget states in its four corners, what the
+deficit is each year.
+ Mr. Guinta. 2012, it is $1.6 trillion, correct?
+ Mr. Lew. In 2012, it is 1.1.
+ Mr. Guinta. One point one trillion, okay. You had said that
+we want to cut the deficit in half, as it relates to GDP. You
+had also made statements about the deficit as a percentage of
+GDP. You also said that we need to be talking more clearly to
+the country about the challenges we have. I don't disagree with
+that. My point would be, I don't think the country appreciates
+the verbiage that we use. Municipalities, states, and homes do
+not budget the way the federal government budgets. I agree with
+you, and I think most people here agree, that we do have to
+reform and reduce spending. We do have to get on a path to have
+a greater fiscal soundness moving forward.
+ I don't see that path in this budget. You have conveyed
+that this is a first step. You have also made the statement
+that we need to put the, step on the brakes at the right time.
+I believe that the country believes that this is the right
+time. Our time is now, in order to change course, change
+direction. And I am certainly willing to work with you, and
+anybody, who recognizes that point. I don't see it in the
+budget, and maybe I am missing it, but I will continue to look
+through.
+ A couple of things that I would consider. First of all, I
+would like to know, how many programs for this budget did the
+administration audit?
+ Mr. Lew. How many did we audit, we reviewed every program
+in the Federal Government. We have terminations, reductions,
+and savings in over 200.
+ Mr. Guinta. In this budget proposal? Okay, do you know how
+much money that saves?
+ Mr. Lew. $33 billion, those 200 plus terminations,
+reductions, and savings, save over $33 billion in 2012.
+ Mr. Guinta. And where did you end up spending that savings
+in this proposal?
+ Mr. Lew. We are living within the freeze. We are paying for
+the extension of the Medicare Doc Fix, we are doing, there is a
+whole host of things. In just a few seconds, it would be hard
+to give you the complete, comprehensive answer.
+ Mr. Guinta. Is there a proposal for a reduction in force of
+federal employees?
+ Mr. Lew. There is not a general policy. I believe there are
+some agencies that may well have some reductions enforced. It
+is not that it was a government-wide policy.
+ Mr. Guinta. But you could instruct the departments to
+reduce their size and scope?
+ Mr. Lew. Right, we have a pay-freeze, which is a reduction
+in compensation for federal workers. And we have budgets that
+are very constrained, which mean that they are going to take on
+new missions without new people. And I think these are very
+tight budgets for federal agencies.
+ Mr. Guinta. Okay. And the final point I would like to make
+is, in New Hampshire, my home state, 94 percent of our
+employers are small business owners. I note on the Office of
+Management and Budget Website that you project over 10 years,
+500,000 new jobs will be created in New Hampshire. Our total
+population is about 1.3 million. I fail to see how we are going
+to create 500,000 new jobs in my state, particularly when we
+have got the marginal rate lapsing at 45 percent with the
+number of small business owners we have.
+ Mr. Lew. I am not familiar with the specific projection you
+are referring to. I am happy to take a look at it and get back
+to you.
+ Mr. Guinta. Okay. Thank you very much.
+ Chairman Ryan. That is it?
+ Mr. Lew. Thank you very much.
+ Chairman Ryan. I hope you get some time to eat lunch before
+your next hearing. Thank you for coming by. We obviously have a
+chasm that separates our opinions on these issues. I look
+forward to further meetings with you in the future, this
+hearing is adjourned.
+ Mr. Lew. Thank you, Mr. Chairman.
+ [Questions submitted for the record and their responses
+follow:]
+
+ Questions Submitted for the Record and Their Responses
+
+Chairman Ryan:
+ Director Lew, in Table S-7, there is an adjustment to the BEA
+baseline of $118 billion over ten years ($12 billion per year) to
+``reflect the incremental cost of funding the existing Pell maximum
+grant award.''
+ Could you provide a more detailed justification for this adjustment
+and tell us if it is mandatory or discretionary funding?
+
+ A: The adjustment to the BEA baseline reflects the special
+scorekeeping rule for Pell Grants that CBO, OMB, and the Congressional
+budget committees have used since 2006. The scoring rule charges the
+appropriations committees for the full cost of funding the Pell maximum
+award for all eligible students, regardless of the amount of budget
+authority specified in the appropriations bill. The proposed outyear
+adjustment to the BEA baseline reflects the full cost of funding the
+current discretionary maximum award level--$4,860--for the projected
+number of students who would qualify in each fiscal year of the ten-
+year budget window. Finally, the adjustment is discretionary and does
+not suggest mandatory funding for the entire Pell Grant program.
+Chairman Ryan:
+ Your predecessor's June 8, 2010 budget preparation guidance to
+agencies ``requested that each non-security agency submit a budget
+request five percent below the discretionary total provided for that
+agency for FY 2012 in the FY 2011 Budget.'' Despite this guidance, many
+agencies including Commerce, Education, Energy, HUD, Interior,
+Treasury, EPA, GSA, NASA, NSF, SBA, and SSA saw increases over the
+projected 2012 level or decreases smaller than 5%.
+ Why did the administration not reduce spending that the agencies
+themselves decided were low priority?
+ Please provide for the record a list of the programs identified by
+the agencies pursuant to this guidance.
+
+ A: The agency submissions to OMB are part of the deliberative
+process which informed the development of the 2012 Budget. Like in past
+years, OMB provided guidance to agencies on their 2012 Budget request,
+including the top-line funding level for each agency. This past year,
+we also asked agencies to identify lower priority programs that are
+less critical in advancing their missions.
+ The materials agencies submitted were critical to developing our FY
+2012 Budget request, and directly informed decisions to terminate or
+reduce funding for many low priority programs. Overall, the budget
+proposed 200 terminations and reductions that save $30 billion in 2012.
+In other cases, the Budget proposes to consolidate funding for low
+priority programs and use the funding more effectively, or reform
+programs so they can better accomplish their mission.
+ All of this contributed to the President's proposal to freeze non-
+security discretionary spending for five years.
+Chairman Ryan:
+ Please provide the Committee with a list of proposed terminations
+and major reductions in the President's budget for FY 2002-FY 2010 and
+the ultimate funding level provided by Congress for these programs.
+
+ A: Attached is the list of discretionary programs that were
+proposed in the President's Budget for termination or reduction from
+2006 to 2010, compared with the funding levels enacted by the Congress.
+The 2006 Budget was the first year that the President's Budget included
+a supporting document detailing proposed terminations and reductions.
+From 2006 to 2009, the supporting document was titled ``Major Savings
+and Reforms.'' Since 2010, the supporting document was titled
+``Terminations, Reductions, and Savings.''
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+Congressman Yarmuth:
+ Director Lew, for the past two years I have opposed the
+Administration's proposal to repeal the Last In, First Out (LIFO)
+accounting method for tax purposes. American companies have been
+operating under the assumption that LIFO is a perfectly sound
+accounting method since 1939, when Congress enacted tax code section
+472, which expressly makes LIFO an acceptable method of tax accounting.
+Repealing LIFO would have a devastating impact on a number of companies
+in my district, particularly Brown-Forman, a wine and spirits company
+that is one of the largest producers of Kentucky bourbon. Brown-Forman,
+which employs about 1,300 people in Louisville, estimates repealing
+LIFO would raise its taxes by hundreds of millions of dollars. The
+company, and the spirits industry at-large, has long used LIFO as its
+standard accounting method, which is, in part, attributable to the fact
+that it produces whiskey, a product which necessitates aging over long
+periods and which federal law specifically requires to be aged.
+ There is one aspect of the President's proposal that has me
+particularly concerned for American companies, and that is the fact
+that the proposal would not only repeal the LIFO method going forward;
+it would also ``recapture the LIFO reserve'' of every LIFO taxpayer.
+This proposal would retroactively repeal deductions that were clearly
+authorized by the U.S. tax code and that in many cases were taken by
+the taxpayer as far back as several decades ago. This would be the
+equivalent of repealing the mortgage interest deduction and forcing
+homeowners to repay all of the deductions they took. This, like the
+current LIFO proposal, would be exceedingly unfair, as are most
+retroactive tax changes. I, therefore, urge you to reconsider your
+proposal--and respond to these concerns.
+
+ A: The repeal of the LIFO (last in, first out) method of accounting
+will eliminate a tax deferral opportunity available to taxpayers that
+hold inventories, the cost of which increase over time. This tax
+benefit does not accrue to taxpayers who use the FIFO (first in, first
+out) method of accounting. In addition, LIFO repeal would simplify the
+tax code by removing a complex and burdensome accounting method that
+has been the source of controversy between taxpayers and the Internal
+Revenue Service. International Financial Reporting Standards do not
+permit the use of the LIFO method, and repealing LIFO would remove this
+possible impediment to the implementation of these standards in the
+United States.
+ Taxpayers that currently use the LIFO method would be required to
+write up their beginning LIFO inventory to its FIFO value starting in
+2013. Allowing LIFO taxpayers to exclude the amount of the inventory
+write up from gross income would represent a substantial windfall for
+those taxpayers relative to others who have been using FIFO for years
+and potentially paying more tax as a result. Furthermore, the
+Administration's proposal mitigates the burden of the retroactive
+effect by allowing the one-time increase in gross income to be taxed
+over 10 years, rather than all at once; in short, the Administration's
+proposal provides appropriate transition relief.
+
+ [Whereupon, at 12:55 p.m., the committee adjourned subject
+to the call of the Chair]
+
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+