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+ - TREASURY DEPARTMENT FISCAL YEAR 2010 BUDGET
+
+[House Hearing, 111 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+ TREASURY DEPARTMENT FISCAL YEAR 2010 BUDGET
+
+=======================================================================
+
+ HEARING
+
+ before the
+
+ COMMITTEE ON THE BUDGET
+ HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED ELEVENTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ HEARING HELD IN WASHINGTON, DC, MARCH 5, 2009
+
+ __________
+
+ Serial No. 111-5
+
+ __________
+
+ 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
+47-730 WASHINGTON : 2009
+-----------------------------------------------------------------------
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
+Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
+
+ COMMITTEE ON THE BUDGET
+
+ JOHN M. SPRATT, Jr., South Carolina, Chairman
+ALLYSON Y. SCHWARTZ, Pennsylvania PAUL RYAN, Wisconsin,
+MARCY KAPTUR, Ohio Ranking Minority Member
+XAVIER BECERRA, California JEB HENSARLING, Texas
+LLOYD DOGGETT, Texas SCOTT GARRETT, New Jersey
+EARL BLUMENAUER, Oregon MARIO DIAZ-BALART, Florida
+MARION BERRY, Arkansas MICHAEL K. SIMPSON, Idaho
+ALLEN BOYD, Florida PATRICK T. McHENRY, North Carolina
+JAMES P. McGOVERN, Massachusetts CONNIE MACK, Florida
+NIKI TSONGAS, Massachusetts JOHN CAMPBELL, California
+BOB ETHERIDGE, North Carolina JIM JORDAN, Ohio
+BETTY McCOLLUM, Minnesota CYNTHIA M. LUMMIS, Wyoming
+CHARLIE MELANCON, Louisiana STEVE AUSTRIA, Ohio
+JOHN A. YARMUTH, Kentucky ROBERT B. ADERHOLT, Alabama
+ROBERT E. ANDREWS, New Jersey DEVIN NUNES, California
+ROSA L. DeLAURO, Connecticut, GREGG HARPER, Mississippi
+CHET EDWARDS, Texas [Vacant]
+ROBERT C. ``BOBBY'' SCOTT, Virginia
+JAMES R. LANGEVIN, Rhode Island
+RICK LARSEN, Washington
+TIMOTHY H. BISHOP, New York
+GWEN MOORE, Wisconsin
+GERALD E. CONNOLLY, Virginia
+KURT SCHRADER, Oregon
+
+ Professional Staff
+
+ Thomas S. Kahn, Staff Director and Chief Counsel
+ Austin Smythe, Minority Staff Director
+
+
+ C O N T E N T S
+
+ Page
+Hearing held in Washington, DC, March 5, 2009.................... 1
+
+Statement of:
+ Hon. John M. Spratt, Jr., Chairman, House Committee on the
+ Budget..................................................... 1
+ Hon. Paul Ryan, ranking minority member, House Committee on
+ the Budget................................................. 2
+ Hon. Gerald E. Connolly, a Representative in Congress from
+ the State of Virginia:
+ Prepared statement of.................................... 4
+ Questions for the record................................. 49
+ Hon. Timothy F. Geithner, Secretary, U.S. Department of the
+ Treasury................................................... 5
+ Prepared statement of.................................... 8
+ Responses to questions for the record from:
+ Mr. Aderholt......................................... 46
+ Mr. Blumenauer....................................... 47
+ Mr. Connolly......................................... 49
+ Mr. Langevin......................................... 50
+
+
+ TREASURY DEPARTMENT
+ FISCAL YEAR 2010 BUDGET
+
+ ----------
+
+
+ THURSDAY, MARCH 5, 2009
+
+ House of Representatives,
+ Committee on the Budget,
+ Washington, DC.
+ The committee met, pursuant to call, at 10:08 a.m. in room
+210, Cannon House Office Building, Hon. John Spratt [chairman
+of the committee] presiding.
+ Present: Representatives Spratt, Schwartz, Kaptur, Becerra,
+Doggett, Berry, McGovern, Tsongas, Etheridge, McCollum,
+Yarmuth, Andrews, Edwards, Scott, Langevin, Larsen, Bishop,
+Schrader, Ryan, Hensarling, Diaz-Balart, Campbell, Jordan,
+Lummis, Austria, Nunes, and Harper.
+ Chairman Spratt. We call the committee hearing to order. We
+convene the committee today to discuss the President's budget
+for 2010 and the Treasury's prominent role in that budget. For
+that purpose, we are pleased to have the Secretary of Treasury,
+Mr. Tim Geithner. Given the number of places you have to be
+these days, it is a miracle you could attend us, but this is an
+important part of the process and we very much appreciate your
+being here today to testify.
+ As we all know, President Obama inherited an economy in
+crisis and a budget deficit, so deep in deficit that spending
+from the prior administration overtakes revenues by $1.3
+trillion during this fiscal year alone. The President has
+recognized that we have not one but two--really, several
+deficits. The first is an economy clicking on four of six
+cylinders, running at 6.8 percent below potential. And to put
+that economy back on its feet and to realize some of that
+potential, the President has signed into law a recovery package
+that will increase consumer demand, which is desperately short,
+and create 3 million new jobs by reinvesting in fiscal and
+human infrastructure.
+ It is almost impossible to balance the budget when the
+economy is buckling like in the recession we are now
+experiencing. It is even more difficult to do that when we have
+to make--what we do to make the economy better oftentimes makes
+the deficit worse, at least in the short run.
+ But here is the stark reality we are confronted with. The
+deficit that President Bush left behind was 9 percent of GDP,
+the highest since World War II. And here is President Obama's
+bold response. Over the next 4 years, he proposes a budget that
+will pare the deficit down from 12.3 percent of GDP to 3
+percent of GDP, an ambitious goal but a worthy goal and
+certainly a track we hope to adopt.
+ The President's budget cuts the deficit by more than two-
+thirds in 4 years, $533 billion 4 years from now in 2013. But
+it is not so consumed with or committed to deficit reduction
+that it overrides other compelling needs. It takes on topics,
+in fact, that other budgets have ducked, topics that others
+have thought too hot to handle: climate change, health care for
+all Americans, and particularly the 46 million who don't enjoy
+insurance. It slows down the increase in defense spending; it
+revises the alternative minimum tax, puts it in the code; and
+it seeks to lay the groundwork for bending the curve and making
+health care more affordable for all Americans.
+ Now, there are going to be critics who single out instances
+where additional revenue is raised as in allowing certain
+concessions for upper-bracket taxpayers to expire. But look
+carefully, and look again, and you will see that the bigger
+picture will show that this budget leaves in place the middle
+income tax cuts that were adopted in 2001 and 2003, the 10
+percent bracket, the child tax credit and the marital penalty
+relief measures. It indexes the AMT to keep it from burdening
+middle-income taxpayers; it extends the State tax at the 2009
+levels; and it helps working families by renewing Make Work
+Pay.
+ Most importantly, the President's budget extends $2.2
+trillion of tax cuts over 10 years to 95 percent of workers
+relative to current law; $2.2 trillion in net tax cuts. This is
+a pro-growth budget.
+ The committee is eager to hear the Treasury's plan to
+address the crisis in the housing market, which is a source of
+the recession we are now experiencing. Sinking home values and
+homeowners who find themselves under water in mortgages are at
+the heart of this crisis that we are undergoing.
+ The President's budget is a huge undertaking, but what he
+has sent us is just the beginning. But it is a bold beginning
+for the 2010 budget. We will want to add and see more detail
+before we can write a resolution, so this is not by any means
+the end of the process. But it is the beginning; it is a bold
+beginning. And we appreciate your coming here, Mr. Secretary,
+to testify on behalf of it and to answer questions.
+ It is my understanding that you need to leave in order to
+get to the Health Care Summit, so you will need to leave here
+at 12:30.
+ Let me then turn to Mr. Ryan for his opening statement. We
+will make a few housekeeping details and then we will get right
+underway with your testimony. Mr. Ryan.
+ Mr. Ryan. Thank you, Chairman. Welcome again, Secretary.
+You have been a busy man. It is nice to see you over here on
+the Budget Committee from the other day's Ways and Means
+appearance.
+ First I want to start by acknowledging the very serious
+challenge you face. Solving our banking crisis and stabilizing
+our financial markets is absolutely critical to our economy and
+our job growth, and we want you to achieve success in doing
+that. There is no perfect solution to this very grave problem
+we face. But while I have concerns about how the past and the
+current administration has handled the TARP, the best thing we
+can do for our economy is get the credit markets flowing again.
+And I genuinely appreciate your hard work and efforts on that
+front.
+ That said, you won't be surprised to hear that I have
+profound disagreements with the President's budget. It is a
+historic expansion of the tax, borrow, and spend philosophy
+which concentrates resources and power in Washington and
+smothers the freedom and resources of the very entrepreneurs
+and small businesses that are needed to turn this economy
+around.
+ Of particular relevance to you and of this hearing are the
+tax and debt increases called for in this budget. Let us begin
+with taxes. The budget proposes $1.4 trillion in net tax
+increases; in other words, a tax increase that totals roughly
+10 percent of the entire economy today. Now, what would be bad
+enough in itself would be just the raising of taxes, but there
+is no economist on the planet, whether a Keynesian supply-
+sider, or somewhere in between, who would suggest proposing tax
+increases in the midst of one of the most painful recessions in
+the generation.
+ Now, your colleague, Budget Director Peter Orszag, says
+reassuringly that these tax hikes won't start until 2011 when
+the economic recovery ought to be underway. We hope it is. But
+businesses are forward-looking and they make investment and
+hiring decisions today based on expectations of future after-
+tax returns. And nothing affects a business' bottom-line more
+than taxes. If you are running a business right now, why would
+you start expanding or hiring the kinds of activities this
+economy desperately needs, with a threat of a huge tax increase
+in just a year and a half down the road.
+ Now, let us take a look at some of these specific tax
+increases. You raise tax on what the President calls, quote,
+``the wealthiest of Americans,'' but many of these, quote,
+``wealthy'' people are small business owners, the people who
+create nearly 80 percent of the jobs in this country.
+ Then there is the carbon cap and tax proposal, which will
+effectively impose an additional tax burden on more than $800
+billion--and that is a low-ball estimate--on everyone who uses
+gasoline, natural gas, home heating oil or electricity. I think
+we can argue that covers most Americans, not just wealthy
+people.
+ You penalize people for buying houses, making charitable
+contributions and building up savings to leave to their
+families. You would also tax U.S.-based international
+companies, making it harder for them to compete with their
+foreign counterparts, directly contrary to what we should be
+trying to accomplish at this time.
+ And then there are also the deficits and the debt that are
+resulting from this budget. The 2009 budget deficit swells to
+$1.8 trillion, more than triple the previous record. Obviously
+you inherited some of this, but you are raising it by another
+$540 billion, which is higher--the increase is higher than any
+budget deficit we have ever had. The budget would also double
+the national debt in the next 8 years. In addition to all these
+things is the budget's staggering failure to actually control
+spending. It even adds more than a trillion dollars to
+entitlement spending, worsening the most severe fiscal problems
+we have.
+ As I said earlier, this is a challenging time and no
+economic or fiscal plan is ever going to be perfect. But the
+President's budget tries to spend, tax, and borrow our way into
+prosperity. It is an economic recipe that simply just doesn't
+work. Nevertheless, I do want to work with you to stabilize
+financial markets. We want to work with you to get our economy
+back on track in the short term and to address the challenges
+to our longer-term economic growth, and that is the looming
+entitlement crisis.
+ With that, Chairman, I yield time and I look forward to
+your testimony.
+ Chairman Spratt. Thank you, Mr. Ryan.
+ I would ask unanimous consent at this point that all
+members be allowed to submit an opening statement for the
+record. It will be entered at this point in the proceeding.
+ [The statement of Mr. Connolly follows:]
+
+ Prepared Statement of Hon. Gerald E. Connolly, a Representative in
+ Congress From the State of Virginia
+
+ Mr. Chairman, I would like to thank you for holding this hearing
+and asking Secretary Geithner to appear before the House Budget
+Committee to testify with respect to the Fiscal Year 2010 budget. This
+Administration has my support in its efforts to clean up the
+unbelievable economic and fiscal mess left by the previous
+administration and I believe the President has taken a number of
+positive steps to that end. As we look to address the unprecedented
+fiscal crisis that we have inherited, I welcome the newfound concern
+from my colleagues across the aisle about the massive budget deficits.
+It was a concern that was heard from the other side of the aisle in the
+previous eight years, despite the fact that it left our nation with the
+largest budget deficit in history.
+ I was pleased to support the American Recovery and Reinvestment Act
+and I will support the Helping Families Save Their Homes Act, in
+concert with the Administration's efforts to restore stability to our
+ailing economy. I welcome the bold vision and approach of the President
+and his team, not only to stop the economic hemorrhaging and build
+stability, but also to tackle our long term challenges such as health
+care, energy policy, education, the environment and entitlement reform.
+ I continue to support the Administration's agenda and I look
+forward to continue helping our nation move forward. Having said that,
+I do have some concerns that I would like address.
+ The public must see the concrete benefit of TARP--the Troubled
+Asset Relief Program--and our enormous investment in the financial
+industry. So far they haven't. We cannot repeat the mistakes of the
+previous administration, where the first installment of a financial
+services stability recovery package went to large institutions to right
+their balance sheets, while little of it went to homeowners in distress
+or small businesses seeking credit assistance to make purchases and
+meet payrolls. We need a plan to reassure the financial markets of our
+commitment to restoring stability and we must assure the public that
+this aid will get to them as well.
+ We must also focus on the health of one of the largest drivers for
+employment and economic expansion, the municipal bond market. As a
+former local government official, I know full well the benefits that
+local governments offer to the economy when they construct needed
+capital improvements. From police stations to bus stops, from schools
+to parkways, local governments put people to work building and
+maintaining the critical infrastructure that we rely on daily. They
+accomplish this feat through the issuance of municipal bonds.
+ As the credit crisis expanded, local governments found the capital
+markets dried up, and were unable to move forward with the necessary
+investment in our nation's infrastructure. This matter was compounded
+by the collapse of the private insurance industry which made it
+impossible for municipalities to improve the grade of their bonds on
+the market. I hope that the current administration will make helping
+local governments access credit a priority.
+ I represent a district that is estimated to have one of the largest
+concentrations of federal employees of any district in the nation. The
+issue of pay parity between civilian federal employees and the military
+is an important one for my constituents. It comes up every year and I
+had hoped that President Obama's budget would take a different approach
+on the matter than past budgets, but it hasn't. Understanding that
+President Obama has only been in office six weeks, it is my hope that
+he will, upon further review, come to understand the importance of pay
+parity. Let me assure you it is a central concern for the tens of
+thousands of federal workers in my district and in many other districts
+in the Washington metropolitan areas and across the nation. It is my
+intent to address this disparity in the budget resolution this year.
+ I was encouraged to see the Administration has included a permanent
+fix for the Alternative Minimum Tax, which this Congress addressed
+temporarily for only one year in the American Recovery and Reinvestment
+Act. The AMT was never designed to affect millions of middle income
+families and this fix will provide those working families the long-term
+guarantee to plan their future finances without threat of onerous tax
+increases.
+ Finally, while we understand the importance of reexamining the tax
+cuts of the previous administration, which helped create the red ink we
+are all concerned about, I hope to have an opportunity to discuss the
+income thresholds and flexibility with respect to tax relief in the
+upcoming budget process.
+ I look forward to Secretary Geithner's testimony and working with
+him as we fashion a budget in the months ahead.
+
+ Mr. Secretary, as I have said before, your testimony will
+be made part of the record in its typewritten form. You may
+proceed as you wish in summarizing it, but you are the only
+witness today, so take your time. There are many questions to
+be asked and answered and we look forward to your testimony.
+Thank you again and the floor is yours.
+
+ STATEMENT OF HON. TIMOTHY GEITHNER, SECRETARY,
+ U.S. DEPARTMENT OF THE TREASURY
+
+ Secretary Geithner. Thank you, Chairman Spratt. Thank you,
+Ranking Member Ryan. And thanks to all of you for giving me the
+chance to appear before you today.
+ I want to outline the broad strategy presented in the
+President's budget, what it means for our economic future and
+the choices we are presenting for the Congress and the American
+people. As you both said, we start with a deepening recession,
+an intensifying housing crisis, a financial system still under
+stress. Since the recession began, 3.6 million Americans have
+lost their jobs. Millions more have lost and are at risk of
+losing their homes and are struggling to obtain loans for
+homes, for cars, to finance their kids' education. Many
+businesses across the country are finding it harder to obtain
+credit. This crisis and the policies that preceded it have
+helped cause a dramatic deterioration in our fiscal position.
+ We start this Congress and this administration with a $1.3
+trillion deficit, the largest as a share of our economy the
+Nation has faced since the Second World War. And the increases
+that you see immediately are increases necessary to solve the
+crisis we start with. As a Nation today, we face extraordinary
+challenges and these challenges require extraordinary actions.
+ Now, in passing the Economic Recovery and Reinvestment Act,
+the administration and the Congress have put in place a very
+powerful mix of programs to get Americans back to work and to
+help stimulate private investment. The combined effect of these
+investments and tax measures--and we are moving very, very
+quickly to put them in place--will be to save or create between
+3 or 4 million jobs and to increase real GDP by 3.2 percentage
+points by the end of 2010 above the level it would have
+achieved in the absence of these measures.
+ Now, alongside the Recovery Act, the administration is
+moving quickly to repair our financial system so that it can
+provide the credit necessary for businesses across the country
+to expand and for families to finance what they need to
+finance. The deepening recession is putting greater pressure on
+banks, and in response many banks are pulling back on credit.
+Right now, critical parts of our financial system are damaged
+and are working against recovery, and this is a dangerous
+dynamic. And to arrest it, to break it, we need to make sure
+that our banks have the resources necessary to provide credit,
+and we need to act to get the credit markets flowing again
+directly.
+ Finally, the President has launched a very broad plan to
+help address the housing crisis. This plan will help homeowners
+meet their mortgage obligations, enable them to refinance and
+take advantage of low-interest rates. Yesterday we took the
+very important step by releasing details of our loan
+modification plan and Treasury guidelines for servers. These
+guidelines will enable struggling borrowers to make lower
+payments, starting right away. And if you look at the impact of
+this program already on mortgage rates, those have come down
+significantly, even just over the last couple of weeks, not
+just over the last several months.
+ Now, these actions in all three areas--recovery, to get
+credit flowing again, and in the housing area--are absolutely
+necessary to lay the foundation for recovery. But the
+President's budget builds on this foundation to set us up on a
+path to long-term growth.
+ Now, the first step in addressing our Nation's fiscal
+problems is to be honest and candid about them. This budget
+breaks from the past by transparently presenting the stark
+fiscal challenges facing the American people. We include the
+cost of fixing the AMT each year. We include reimbursements to
+Medicare physicians. We include the likely cost of future
+foreign wars and natural disasters. And in an abundance of
+caution, we include the potential need for additional financial
+resources to get credit flowing again.
+ We offer a 10-year rather than a 5-year budget
+presentation. This budget also proposes a series of ambitious,
+innovative policies to help address the most critical
+challenges facing our economy in health care, in energy and in
+education. And the President does this within a framework that
+gets us on a path to fiscal responsibility, to fiscal
+sustainability.
+ As all of you know, the soaring cost of health care is
+crippling families, businesses, and our long-term budget
+prospects. There is no path to addressing our long-term
+entitlement challenges that does not start with and go through
+major health care reform. Our budget begins this process by
+reducing costs and inefficiencies, by increasing quality of
+care and preventative care, and by moving towards affordable
+coverage for all.
+ To cite just one example, the Hospital Quality Improvement
+Program proposes to pay for performance and to reimburse
+hospitals for the quality of the services they provide rather
+than just the quantity of the services they provide. Health-
+care reform is a moral imperative, it is an economic
+imperative, and it is a fiscal imperative for our country.
+ Now, our budget also puts forth a significant commitment to
+reduce our dependence on foreign oil and carbon-intensive
+energy sources. This dependence threatens our economy, our
+environment and our national security interests. Investments in
+energy efficiency and renewable energy will help create new
+American jobs in industries and lead the path to a new, greener
+economy.
+ And if we are truly committed to making our Nation both
+more prosperous and more just, we must recognize that it defies
+both our basic values as a country and our common sense to deny
+any child in America access to the quality education they need
+to compete in this global economy. Our budget calls for
+substantially more resources for early childhood education, new
+incentives to improve teacher performance and a significant
+increase in the Pell grant, together with President Obama's
+American opportunity tax credit, which provides up to $10,000
+of tax relief for a single student going to 4 years of college.
+ Now, on the tax side, this budget rewards work, encourages
+growth, investment, and savings. Important provisions include
+making permanent the make-work-pay tax credit, which makes the
+tax credit available to 95 percent of working Americans; the
+expansion of the earned income tax credit; a zero capital gains
+provision for small businesses; and a permanent extension of
+the R&E tax credit.
+ This budget also proposes to make substantial progress in
+reducing the tax gap by tackling tax shelters and other efforts
+that allow people to abuse our tax laws. And over the next
+several months, the President will propose a series of
+legislative and enforcement measures to reduce tax avoidance.
+ I want to emphasize that we propose no new revenue
+increases in our budget, none, until we are safely into
+recovery in 2011. And at that point, with the consensus that
+private forecasters project significantly positive growth rates
+for the overall economy, the budget restores tax rates to the
+pre-2001 levels for families making more than a quarter of a
+million dollars.
+ Now, I just want to pause here for one second. Those
+proposed changes in tax rates would apply to only 2 to 3
+percent of small business owners across the country. Only 2 to
+3 percent; 95 percent of small business owners of the country
+have incomes below that threshold of $250,000. Now, even with
+these critical long-term investments, the President keeps
+overall nondefense discretionary spending well below its long-
+term averages as a share of GDP. And overall outlays as a share
+of GDP, once you account for the interest costs associated with
+our inherited deficits and once you account for the effects of
+the aging baby boom and rising health-care costs and
+entitlements, overall outlays as a share of GDP return to
+historical norms.
+ Now, the President and I share a commitment to working with
+this committee to put our Nation back on a path of fiscal
+sustainability again, once recovery has been firmly
+established. The budget does this by making the tough choices
+to cut the deficit in half, to bring it down over 5 years to 3
+percent of GDP, so that our overall debt is no longer growing
+as a share of the economy. If we do not do this, then we face
+the risk that government borrowing will crowd out private
+borrowing, raising interest rates and threatening growth.
+ Now, when I last served in the Treasury Department in the
+1990s, fiscal responsibility helped create a virtuous circle of
+greater confidence, strong private investment, strong
+productivity growth, higher overall income more broadly shared
+across the American economy. Addressing these problems that
+confront the Nation will not be easy, but we are a strong and
+resilient country. We have overcome challenges like this in the
+past. And if we accept this responsibility we share with the
+American people, we will meet those challenges effectively and
+successfully as a country.
+ Thank you. I would be happy to take your questions.
+ Chairman Spratt. Thank you very much, Mr. Secretary.
+ [The statement of Timothy Geithner follows:]
+
+ Prepared Statement of Hon. Timothy F. Geithner, Secretary,
+ U.S. Department of the Treasury
+
+ Chairman Spratt, Ranking Member Ryan, and members of the Committee,
+thank you for providing me the opportunity to appear before you today
+to discuss the President's Budget at this moment of economic crisis,
+but also of real possibility, for the United States.
+ What I propose to do in the remarks that follow is to:
+ Describe the economic and financial challenges that
+greeted us upon our arrival in office, and discuss how we are
+addressing them;
+ Lay out the intermediate and long-term threats to our
+fiscal condition, and explain how the President's Fiscal Year 2010
+Budget will return the nation to a sustainable fiscal position; and
+ Explain how this Budget puts the nation on a path towards
+energy independence, better educational outcomes, and a reform of
+health care that both lowers costs and expands access.
+
+ CURRENT ECONOMIC AND FINANCIAL CHALLENGES
+
+ The economy suffers from a severe lack of aggregate demand, both
+from families and businesses--a problem that is driven by a slumping
+job market, where 3.6 million jobs have been lost in just over a year--
+the largest number as a fraction of total employment in more than a
+quarter century and the largest number in absolute terms in over a half
+century. This problem is made worse by a contraction of demand from
+many of our key trading partners.
+ Businesses, facing or projecting fewer customers for their goods
+and services, are laying off workers or cutting back on their hours or
+wages, causing families to further reduce their demand and businesses
+to respond with more layoffs and cutbacks.
+ This dynamic is made worse by a financial system that is unable to
+provide the credit necessary for recovery. You can see this across
+America as families find it difficult to get the financing they need to
+buy new houses and cars while businesses have trouble lining up the
+credit necessary to meet payroll.
+ The contraction in credit is causing more job losses and further
+declines in business activity, which, in turn, is adding more pressure
+on the financial system.
+ Both our economic and financial problems are being compounded by
+problems in our housing market, where a record 2.5 million families
+faced foreclosure last year, undercutting overall home prices,
+shrinking Americans' real estate wealth by $2.8 trillion from its peak,
+causing further reductions in demand, more layoffs and a greater credit
+squeeze that threatens another round of foreclosures.
+ You can see the scale of the damage in last Friday's announcement
+that the Gross Domestic Product, the broadest measure of the nation's
+output of goods and services, dropped at a 6.2% annual rate during the
+final quarter of last year. That was its worst performance in more than
+a quarter century, and the third worst in more than a half century.
+ In addition to a deepening recession and financial troubles, the
+Obama Administration inherited the worst fiscal situation in modern
+American history, with a federal budget deficit of $1.3 trillion, equal
+to nearly 10% of GDP--the largest that the nation has faced since World
+War II--not counting the economic recovery or other legislation
+undertaken by the Obama Administration.
+ And we begin our time in office after a long period in which our
+government was unwilling to make the long-term investments required to
+meet critical challenges in health care, energy and education.
+ This is the reality that we face today. These are the challenges
+that shape both the American economy and the Administration's strategy.
+I want to outline for you today the President's program for addressing
+these challenges.
+ Let me start with our immediate response to the acute problems
+confronting the country.
+ a comprehensive economic recovery and financial stability plan
+
+Economic Recovery Plan
+ Immediately upon taking office, the President and the
+Administration worked with Congress to enact the American Recovery and
+Reinvestment Act, a package of targeted investments and tax cuts
+designed to get Americans back to work and get the economy growing
+again.
+ Every agency of government is moving quickly to implement the
+recovery plan in order to reignite economic growth. In the last week
+alone, we introduced three of the plan's major tax provisions--the
+Making Work Pay tax credits of $400 a year for individuals and $800 for
+working families; a first-time homebuyer credit that could get up to
+$8,000 into the pockets of those buying homes before December 1, 2009;
+and a subsidy to ensure that unemployed Americans and their families
+can keep their health insurance.
+ We estimate that the plan will save or create at least 3.5 million
+jobs over the next two years, and will boost GDP--over where it would
+have been had we not acted--by almost 1% this year and more than 3.2%
+next year.
+
+Financial Stability Plan
+ But reviving economic activity is not enough because without a
+regular flow of credit to families and businesses, recovery will be
+impeded. Therefore, we have taken another critically important step.
+ We have introduced a Financial Stability Plan to get our financial
+system operating so that it promotes recovery rather than prevents it,
+by supplying the necessary credit for Americans to once again buy
+homes, purchase cars, go to college and turn good ideas into
+flourishing firms.
+ The stability plan will ensure that banks have the capital cushions
+they need to keep lending under currently troubled economic conditions
+and, as a precaution, under even worse conditions as well. It will help
+thaw our important, but now largely frozen, non-bank financial markets
+so they can go back to generating the credit that families and
+businesses must have. And it provides a method for the government to
+join with private investors to begin buying the mortgage-backed
+securities at the center of so many of the financial system's problems,
+but whose resumed trading is so important to the stability of the
+system.
+
+ HOMEOWNER AFFORDABILITY AND STABILITY PLAN
+
+ Just as economic recovery requires financial stability, stabilizing
+our financial system requires us to improve conditions in our housing
+market.
+ The Administration's affordability plan will help all Americans buy
+and refinance their houses by encouraging low mortgage interest rates.
+In addition, it will offer to help 4 to 5 million homeowners to
+refinance. And it will help another 3 to 4 million homeowners who are
+at risk of foreclosure through no fault of their own to convert their
+unaffordable mortgages into affordable ones.
+ These three plans form our immediate and integrated response to the
+nation's economic and financial challenges. All three are carefully
+linked to our 2010 Budget.
+ The Budget: A Plan for Fiscal Sustainability and Investments for
+Shared Prosperity
+ The President's Budget carries forward and expands upon our
+immediate response to the acute problems confronting America.
+ It also marries these efforts to an honest plan for how to proceed
+after recovery has taken hold and the financial system has stabilized.
+It lays out how to achieve long-term deficit reduction by reversing the
+short-term increases that are now necessary to achieve recovery and
+stability--increases that will have to be substantially reduced in
+order to get the nation back into fiscal shape. And it provides a
+blueprint for the investments in health care, education and energy that
+are so critical to our long-term future.
+
+ BUDGET HONESTY
+
+ The President's Budget begins by offering an honest assessment of
+the dimensions of the problems facing the country in the intermediate
+and long-term.
+ The President's Budget ends the practice of only recognizing the
+costs for overseas contingency operations--such as the wars in Iraq and
+Afghanistan--for as little as one year at a time and instead
+acknowledges that there is multi-year cost that must be reflected in
+the Budget. Although the budget includes estimated costs of these
+operations in the out-years to be fiscally conservative, these
+estimates do not reflect any specific policy decisions. Several
+strategy reviews are underway that will inform out-year costs, and it
+would be premature at this time to prejudge those reviews.
+ It takes into account the possibility of a natural disaster such as
+Hurricane Katrina, instead of assuming that the country will be free of
+such disasters and the costs of helping Americans put their lives and
+communities back together.
+ It ends the practice of assuming an increase in revenues from the
+Alternative Minimum Tax (AMT). The AMT has been ``patched'' year after
+year, but for the first time our Budget reflects the cost of doing so.
+ It acknowledges that, as expensive as it already has been, our
+effort to stabilize the financial system might cost more. It
+establishes a placeholder to help ensure we can cover any additional
+financial stability costs.
+ I should note here that the existence of the $250 billion
+placeholder for financial stability in the President's Budget does not
+represent a specific request. Rather, as events warrant, the President
+will work with Congress to determine the appropriate size and shape of
+such efforts, and as more information becomes available the
+Administration will estimate potential cost.
+ Finally, the President's Budget gives a fuller view of the
+government's finances by looking out ten years, rather than the five
+years which has been the practice with budgets in recent years.
+
+ REDUCING THE DEFICIT TO RETURN TO FISCAL SUSTAINABILITY
+
+ We have set an ambitious, but economically crucial goal for
+bringing our deficits down dramatically once the recovery is firmly
+established and financial stability has returned.
+ We project that the deficit for the current fiscal year, including
+the recovery and stability plans, will be $1.75 trillion, or 12.3% of
+GDP. Of that, $1.3 trillion, or 9.2% of GDP, was already in place when
+we assumed office.
+ The President is determined to cut this $1.3 trillion deficit by at
+least half in four years. The budget would bring the deficit down to
+$533 billion by fiscal year 2013. More importantly, it would reduce the
+deficit to about 3% of GDP.
+ By bringing the deficit down to the range of 3% of GDP, we can keep
+our national debt--the aggregate total of our past deficits--from
+growing faster than the economy itself and keep the size of our debt
+relative to the economy from rising towards the end of our ten year
+budget window.
+ Failure to reduce deficits to this level would result in higher
+interest rates as government borrowing crowds out private investment,
+leading to slower growth and lower living standards for Americans.
+
+ KEY REVENUE PROVISIONS IN THE PRESIDENT'S BUDGET
+
+ Our revenue provisions are designed to encourage growth and
+recovery, improve the fairness of the tax code and support the
+President's critical priorities in a fiscally responsible manner.
+ Our recovery plan reduces the overall tax burden on the American
+economy to help get the economy back on track.
+ The President's Budget takes up where the recovery plan leaves off,
+cutting taxes for 95% of working Americans by making permanent the
+Making Work Pay tax credit of up to $400 for individuals and $800 for
+families. The Budget provides additional tax relief by expanding the
+earned income tax credit for lower-income families and extending the
+American Opportunity Tax Credit that provides up to $2,500 toward
+higher education. All of these are in the recovery plan that Congress
+enacted last month, but only in temporary form. The Budget also expands
+the Saver's Credit as part of the President's commitment to help
+Americans rebuild their savings.
+ The President's Budget includes tax provisions to help small
+businesses. It recognizes that many small businesses are operated as
+sole proprietorships or through partnerships and other flow-through
+entities, and leaves the individual income tax rates at which these
+small businesses are taxed unchanged in 2009 and 2010. By extending the
+current rate structure for families earning less than $250,000 after
+2010, it ensures that 97% of small businesses will receive additional
+tax relief at that time or see their rates remain unchanged.
+ Moreover, the President's Budget will provide small business owners
+with a new zero capital gains rate on new investments in their
+businesses, which should help them plan for expansion and succession.
+ In addition, the budget will help provide more incentives for
+innovation and increase stability in the tax code by making the
+Research and Experimentation tax credit permanent.
+ By 2011, when the economy is projected to have recovered, it will
+be important for the nation to put in place policies that restore
+fiscal responsibility. For this reason, our Budget includes revenue
+changes that become effective at that time. Those making less than
+$250,000 will not see taxes increase. The marginal rates for the top 2%
+of income earners will return to where they were during the powerful
+economic expansion of the 1990s.
+ The Budget also seeks to restore fairness to the tax code. For
+example, the Budget proposes to tax the compensation paid to hedge fund
+managers, private equity partners and others in the same way that we
+tax the wages paid to ordinary American workers. By closing this
+``carried interest'' provision, the tax code will provide equal tax
+treatment for wages regardless of whether an individual works as a
+teacher or a hedge fund manager.
+ The Budget addresses the serious issue of the ``tax gap,'' the
+difference between what taxpayers legally owe and the amount that they
+pay. Building on the recently enacted proposals to increase information
+reporting, the Budget includes a new proposal to require additional
+information reporting for rental property expense payments. We will
+make additional information reporting proposals when the full Budget is
+released.
+ The Budget also seeks to close the ``tax gap'' by tackling tax
+shelters and other efforts to abuse our tax laws, including
+international tax evasion efforts.
+ The Budget addresses the use of offshore structures and accounts by
+U.S. corporations and individuals to avoid and evade U.S. taxes. Over
+the next several months, the President will propose a series of
+legislative and enforcement measures to reduce such U.S. tax evasion
+and avoidance.
+ Some proposals will focus on the rules in our tax code that put
+those who invest and create jobs in the United States at a
+disadvantage. We will propose rules to both reform U.S. corporations'
+ability to defer foreign earnings and deter high income individuals and
+corporations from using tax havens to avoid taxation.
+ path to prosperity: investments in health care, education and energy
+ The President's Budget will put the nation back on a sustainable
+fiscal path that is so important for long-term growth. But the Budget
+is about much more than deficit reduction. In it, the President
+reverses our government's long neglect of critical investments in
+health care, education and energy in order to improve the economy's
+performance and lift the standard of living of this generation of
+Americans and of future generations.
+Investing in Health Care
+ Without a plan to reform and bring down costs throughout our entire
+health care system, budget deficits will start climbing again as the
+costs of Medicare and Medicaid increase with rising overall health
+system costs. And we will not have taken a single step toward the time
+when every American--no matter their income--receives the quality,
+affordable health care they deserve.
+ In recent years, most proposals for how the government should cope
+with its rising health care costs have centered on trying to hold the
+growth of Medicare and Medicaid costs below that of the overall system.
+But there is wide agreement among experts that this is not a long-term
+solution for containing health care spending.
+ Any effort to slow the growth of Medicare's and Medicaid's costs
+requires slowing down the costs of the overall system and that, in
+turn, is helped by substantially expanding access to care. To do
+otherwise would result in economically distorting cost shifts, where
+those who are covered end up paying higher prices to pick up the
+medical tabs of those who are not.
+ That's why this President is committed to achieving a goal that has
+eluded presidents since Franklin Delano Roosevelt, which is to reform
+America's health care system to make it less costly, more comprehensive
+and fairer.
+ We already have made a down-payment on this effort by including
+over $20 billion for health information technology, comparative
+effectiveness and prevention in our recovery plan and by extending and
+expanding the Children's Health Insurance Program for eleven million
+children.
+ The President's Budget will greatly advance that effort by setting
+aside a reserve fund of more than $630 billion over ten years to help
+finance reforms. The fund will be financed on a roughly 50:50 basis
+from new revenues from those Americans who can best afford this
+sacrifice and health system savings associated with, among other
+things, reducing drug prices by speeding access to affordable generics.
+Investing in Education
+ Without the President's new investments, we risk leaving a
+generation of workers unequipped to compete in the 21st century's
+global economy. In order to ensure that our workers are prepared to
+compete and that the economy can continue to grow, we must increase the
+number of Americans who have the opportunity and ability to earn a
+college degree.
+ This is particularly important because of the projected slowdown in
+the growth of our labor force over the coming decades. And it is
+particularly important for those in our society--such as those from
+minority and lower-income families--who have traditionally had lower
+rates of college success.
+ In this light, the higher education provisions in the President's
+economic recovery plan are essential to our long-term economic strategy
+because during periods of economic stress, the students who are most
+likely to drop out or never attend college are those for whom cost is
+the biggest barrier.
+ The President's Budget includes substantial strides towards
+ensuring that a college education is affordable for all Americans. The
+American Opportunity Tax Credit will provide up to $2,500 a year of tax
+relief for a student going to college. The combination of the partially
+refundable nature of the credit and a sizeable increase in the maximum
+Pell Grant to $5500 a year embodies the President's commitment to
+ensuring young people at all income levels can obtain a college degree.
+ At the same time, the President's Budget ensures that more young
+adults will be ready for college by starting them on the right track in
+early childhood.
+ The President's commitment to quality early childhood education
+reflects the belief of experts ranging from child psychologists to the
+Minneapolis Federal Reserve and Nobel Prize-winning economist James
+Heckman that these programs are among the highest-paying investments
+not only for children, but for the economy as a whole. That is why the
+President's Budget includes measures to help states improve their early
+education programs, along with funding to expand Head Start and double
+the number of children in Early Head Start.
+Investing in Reducing America's Dependence on Foreign Oil
+ Without the President's new investments, the nation will remain
+dependent on uncertain supplies of foreign oil and carbon-intensive
+energy--a dependence that threatens our economy, our environment and
+our national security.
+ The President's energy investments reflect our efforts to use
+broad-based market incentives to move us as efficiently and as quickly
+as possible towards a clean energy economy, while also providing relief
+to those who may bear a temporary increase in expenses during that
+transition.
+ The recovery plan includes $65 billion in investments in clean
+energy technologies for programs like creating a smart electricity
+grid, improving energy efficiency, and investing in green jobs. As the
+President has made clear, we will work with Congress to develop an
+economy-wide emissions reduction program to bring emissions down
+approximately 14% from 2005 levels by 2020 and approximately 83% from
+2005 levels by 2050. This program should include a 100% auction of
+emissions allowances--ensuring that the biggest polluters don't profit
+on the basis of past pollution--and should use a cap-and-trade system
+that has worked effectively in the past as a mechanism to combat acid
+rain.
+ The funds raised through this auction could be used to invest an
+additional $15 billion a year in clean energy technologies. It would
+also go towards covering the cost of making the Making Work Pay tax
+credit permanent, providing 95% of American families with tax relief.
+If there are any additional revenues, those could go back to the
+American people, with a focus on compensating vulnerable communities,
+businesses and families.
+ The government will set the example by, among other things,
+retrofitting its buildings in order to improve their overall efficiency
+and save taxpayers billions of dollars.
+ In all of the President's Budget proposals, as in our recovery,
+stability and affordability plans, we will make good on the imperatives
+set by the President to operate in the bright light of day so that
+taxpayers can know how their money is being spent and can hold us
+accountable.
+ The problems that confront this nation are daunting. But we are a
+strong and resourceful country. Faced with great challenges in the
+past, we have shown the will to overcome adversity and carve a path
+back to prosperity. We will do so again.
+ A budget is about more than columns of numbers and trend lines
+across a page. This Budget embodies our values, our aspirations, and
+our will to overcome the current crisis and usher in a new prosperity.
+ I look forward to working closely with you in this great endeavor.
+
+ Chairman Spratt. Mr. Secretary, your testimony includes
+reference to a $250 billion place holder, yet it cannot provide
+us with any detail because that is still being defined. Could
+you give us some idea of the magnitude, the gross size of this
+fund, these additional funds that will be required; because
+what is reflected here, as I understand it, is just that
+portion that impacts the budget and has an impact on the
+deficit.
+ And secondly, could you tell us what categories, what
+generally speaking--what does this go to? Does it go to fund
+consumer credit? Does it go to build capital resources of the
+Nation's banks? Broadly speaking, where will they be used?
+ Secretary Geithner. Thank you, Mr. Chairman. A very
+important issue. As you and the Ranking Member said, getting
+credit flowing again is absolutely critical to recovery. The
+impact of the recovery reinvestment program, even as powerful
+as that is, will be undermined if we don't get the banking
+system and the economy as a whole providing the credit that
+businesses need to expand. So the business that would otherwise
+benefit substantially from the provisions in the recovery act,
+will be less able to take advantage of it if they can't borrow.
+So this basic imperative, getting credit flowing again, is a
+critical priority for us.
+ Now, in the budget, the President put in a reserve fund in
+an abundance of caution against the possible contingency that
+we may need additional resources. It is not a request for
+resources at this time. And when we get to the point, if we get
+to the point where we believe additional resources are
+essential to achieve this objective, then we will come to the
+Congress and to this committee with a specific proposal and lay
+out there exactly where those resources will go.
+ Congress has already authorized substantial resources for
+this purpose, and we are moving very quickly to make those
+resources available in areas which we think will have the most
+effect on the economy as a whole.
+ Now, if you look at what we have done so far and laid out--
+and as I said in my opening statement, we need to make sure
+there is capital available to strengthen banks. We need to
+provide very substantial direct funding to help get credit
+markets working again. These are the markets that are critical
+for small business, lending for consumer credit, for auto
+finance, a range of other different markets. And as you have
+seen, we have committed to use a significant number of
+resources to help finance the housing plan that is going to
+benefit millions of Americans and have them take advantage of
+opportunities regarding refinance and to lower their mortgage
+payments.
+ Those three areas--capital resources for banks where they
+need it, direct support for credit markets, and target
+initiatives in housing and other areas--will be necessary going
+forward, and those are the three critical pieces of the broad
+financial plan we laid out. But as I said, this is a reserve
+fund in the budget, very much in the spirit of how we account
+for foreign wars and natural disasters. It is not a request at
+this time or an estimate of what we think we ultimately need.
+ Chairman Spratt. Let me show you some charts with respect
+to your budget and see if they comport with your numbers. First
+of all, a very simple back-of-the-envelope chart dealing with
+tax cuts and tax increases and the net tax that would be
+imposed by the budget you are recommending. The first shows
+revenue changes in President Obama's budget and indicates that
+by extending the 2001 and 2003 tax cuts for those under
+$250,000, that amounts to a net tax cut of $2 trillion. Is that
+consistent with your understanding?
+ Secretary Geithner. Looking at these provisions now--and
+you are right--they do highlight the fact that we are extending
+tax cuts that affect 95 percent of Americans. We are proposing
+to make permanent the Make Work Pay tax credit, which reduces
+taxes for 95 percent of the working families. And we have a
+variety of other provisions in the bill that go directly
+towards reducing the tax burden on small businesses. And again,
+I think this is a very strong budget for small businesses. And
+if you look at the combined impact of these changes, with the
+investments we are making in reducing health-care costs and
+education, this is a very good budget for the long-term growth
+prospects of the American economy.
+ Chairman Spratt. There are some revenue increases. Cap and
+trade would be one. The number we have here is simply one we
+have taken from the administration's request. It could be any
+range of numbers, an infinite variety of ways to do cap and
+trade or carbon taxes. That would be a revenue increase. There
+are some loophole closures and there are some other provisions,
+such as the limitation on itemized deductions for people making
+more than a certain income level. Those would be tax increases.
+But according to our back-of-the-envelope arithmetic, the total
+tax cuts, the net tax cuts after you have backed out the tax
+increases, are $2.2 trillion.
+ Secretary Geithner. Mr. Chairman, I just want to emphasize
+that the estimate for resources raised from cap and trade is an
+estimate. And as the President said in the budget, we are going
+to use those resources to finance making the Make Work Pay tax
+credit permanent, providing additional resources to help
+facilitate this transition to more efficient, more green energy
+technologies. And if we raise additional resources, we will
+target those to people who might face increased energy costs
+associated with this plan.
+ Now, what you refer to as loophole closures, international
+reforms, these include measures to reduce tax avoidance,
+address the tax gap. They have broad bipartisan support as a
+basic imperative. It is very important that we do that.
+ Now, the last thing on your list, which is the proposed
+limit on deductibility, I just want to say a few things about
+this. Those proposals would affect only 1.2 percent of
+taxpayers who itemize; 1.2 percent. All they do is restore
+deductibility to the level that prevailed at the end of the
+Reagan administration; 28 percent is still double what the
+typical American enjoys in terms of that tax benefit. We think
+this is fair and reasonable and it is consistent with this
+imperative we all share, to present the American people a path
+to bring our deficits down to a sustainable level.
+ Chairman Spratt. The bottom line is, once again, a net tax
+cut of $2.2 trillion. That comports with your numbers and your
+understanding of the budget?
+ Secretary Geithner. Mr. Chairman, absolutely. What we are
+laying out is something that we think is going to be good for
+growth, good for business, good for the long-term growth
+potential of the American economy.
+ Chairman Spratt. Let us look at another chart, the chart
+dealing with other cuts that are made in the budget, random
+savings that are proposed in order to generate revenues to pay
+for some of the initiatives. Jose, flip back to that one. That
+will be fine. Jose, the previous one. There we go. Leave it
+there.
+ Program Integrity Savings. That is our one-liner for
+seeking to recover fraud, waste and abuse and other compliance
+measures. At the Treasury, do you have responsibility for the
+oversight of this effort?
+ Secretary Geithner. Mr. Chairman, I believe I share that
+responsibility with a number of my colleagues in the Cabinet
+and, of course, with OMB. But I am glad you highlighted this
+because as you can see, we are trying to be as careful as we
+can to bring efficiency improvements and improvements in
+program design. So we are using the resources that the American
+people give us much, much more efficiently. This is just one
+example of concrete measures that we are committing to in the
+budget that achieve that.
+ Chairman Spratt. Let us take tax compliance. The Internal
+Revenue Service is under your jurisdiction. Does this assume
+some additional funding for auditors, and for more audits, and
+for more compliance measures so that taxes that are owed but
+not paid can be recovered?
+ Secretary Geithner. It does, Mr. Chairman. In the budget we
+are proposing--and I hope there is broad support for this--a
+carefully designed increase in enforcement resources for the
+IRS, which is a necessary part of trying to close the tax gap
+and trying to get ourselves to a more fair position where
+people who owe taxes are paying their taxes, so that the
+overall burden of people who have been paying their taxes is
+reduced.
+ Chairman Spratt. And does the Treasury have an estimate of
+what it will cost at the front end for more audits and more
+auditors and more compliance measures in order to reap this
+$16.6 billion?
+ Secretary Geithner. We do. In the budget that is working
+its way through the Congress now, we have a specific proposal
+for a significant increase, but I think a responsible increase
+in enforcement resources. And I would be happy to provide the
+detailed numbers to that committee. But they are modest
+relative to these proposed savings.
+ Chairman Spratt. If you would provide that for the record,
+we would appreciate it.
+ Now, in the interest of time and allowing every member to
+ask questions, we will move on to further questions. Thank you
+very, very much again for your testimony. Mr. Ryan.
+ Mr. Ryan. Jose, could you bring up the first chart? This
+one right here.
+ Secretary Geithner. I will have to bring some charts next
+time, Mr. Chairman.
+ Mr. Ryan. We have battling charts around here. But I am
+going to use the Chairman's chart, if it gets up on the screen.
+ Chairman Spratt. You may want to get yours out. It sounds
+like he is loaded for bear here.
+ Secretary Geithner. I am looking forward to it, Mr.
+Chairman. I am really looking forward to it.
+ Mr. Ryan. Just to try to shed some light on this
+statistical distortion that is occurring here. When we say you
+are raising taxes by $1.4 trillion, that is not our
+interpretation of your budget; that is your interpretation of
+your budget.
+ Secretary Geithner. On that thing----
+ Mr. Ryan. Just let me--please. Negative $3.5 trillion. If
+you take a look at those things, what it is basically saying
+here, there is--I will put those aside. What it is basically
+saying here is that by not raising taxes, we are cutting taxes.
+No, you are just not raising taxes on the AMT and these other
+things. So to suggest failure to increase taxes is the same as
+a tax cut, it is just intellectually dishonest; and therefore,
+you can't claim these things are net tax cuts. They are net tax
+increases.
+ But let me move on because I want to give these members a
+chance. We sit here writing budgets and trying to pass budgets.
+And I just want to try and impress upon you the enormity of the
+task before you, under any situation, any administration. And
+this budget, I think, you are going to have challenges and I
+just think you ought to sort of know that. When we do the vote
+counts around here, we had a budget last year on the floor,
+which was to the right of this budget and that is the
+Congressional Progressive Caucus budget that came to the floor
+last year, I think by Congresswomen Lee and Waters. And this
+budget is so far to the left of the Congressional Progressive
+Caucus budget, that this plan on an apples-to-apples basis,
+spends $2.8 trillion more than the Progressive Caucus budget.
+It results in deficits that are $14.7 trillion higher than the
+Congressional Progressive Caucus budget, and I won't even give
+you the debt numbers on how much more debt this applies to our
+children and grandchildren than the Congressional Progressive
+Caucus budget. But if you look at the votes, the Congressional
+Progressive Caucus budget failed by 98 to 322; 131 Democrats
+voted against that budget, 15 of which are right here on this
+Budget Committee, the Democrats.
+ So you just need to understand the enormity of the task to
+bring this massive borrow and spend and tax budget to Congress.
+I think you are doing something that I want to compliment you
+on, which is the stress-testing of banks which I think
+everybody believes is the right thing to do. And under your
+stress test, I think you are doing the right thing by having
+these different baselines that you are applying to banks. You
+have your alternative scenario and your average baseline
+scenario. The average baseline scenario used for your stress
+test that Treasury is imposing on banks is roughly the same as
+the Blue Chip's consensus forecast. But the forecast
+underpinning your budget is much, much higher than this average
+baseline budget.
+ And so basically I want to ask you this: Under your average
+baseline, this budget would have deficits that are $758 billion
+higher. That is, using OMB's rule of thumb. Under your adverse
+scenario baseline, this budget would have a deficit cumulative
+that is $1.2 trillion higher. And I understand that you and
+former Secretary Treasury Summers want to get our deficit down
+to at least 3 percent of GDP, because you obviously believe for
+the credit markets that is a healthy thing to do. But under
+either of the stress test baselines that you impose yourselves,
+this doesn't do that. This budget deficit, if you apply your
+baselines, not OMB's baseline, you don't even get close to 4
+percent of GDP for the next 10 years. So my question is:
+Shouldn't we apply the stress test to the Federal budget that
+you are applying to the banks?
+ Secretary Geithner. Congressman, thank you for raising
+this. And let me just respond quickly on these things and then
+I want to come back to some of the things you said at the
+beginning in your opening statement. This capital assessment,
+health assessment stress-test thing is designed by your
+Nation's--our Nation's financial authorities. And what they did
+is, they took a consensus of private forecasters for a baseline
+scenario and then they looked at what is a more extreme
+scenario, a scenario with a much lower probability, but again
+in an abundance of caution to look at that. What they did is as
+you might expect. What they did is to make sure it is done
+independently. They took a private forecast for that.
+ Now, the President's budget and the forecast that is in the
+President's budget is within the estimate CBO presented taking
+into account the Recovery Act. It is within the estimates of a
+broad consensus of private forecasters. Our judgment is it is a
+realistic forecast and it shows, like all private forecasters
+show, the economy coming back to positive growth in the second
+half of this year and, in 2010, showing more significance to
+sustain a recovery. It is a realistic forecast and it meets our
+basic test for bringing more integrity and accountability to
+the budget framework.
+ Now, you said several things that I need to respond to in
+this context. Just go back to the starting point in the deficit
+and the debt trajectory. We start today before anything
+happened with the $1.3 trillion deficit. The additional
+increment to the deficit that has to happen in 2009-2010 is
+what is necessary to solve this crisis. A big chunk of that is
+the Recovery and Reinvestment Act. There is an additional
+increment to that. It is the cost of fixing parts of our
+financial system that, again, we started with, that need some
+repair. That is what we start with.
+ So the deficit increase you have seen in the near term is
+the consequence of not just the inherited burden of the
+recession, but what it is going to take to fix this crisis.
+Now, we share together this very important imperative of
+showing the American people that we are going to have the will
+and ability to bring those deficits down over time. I know you
+believe deeply in that imperative. But we are going to disagree
+on some important things, which is really how to do that.
+ Now, what the President proposes is to return tax rates
+that apply to a very small percentage of Americans and a very
+small percentage of small business owners to the levels that
+prevailed in 2001. That is what the President's budget
+proposes. For the vast majority of Americans and businesses,
+taxes will not go up, and they will go down if we make Make
+Work Pay permanent.
+ Now, you may disagree about whether that is the right way
+to bring these deficits down, but I know you agree that we have
+to bring those down deficits to get the recovery back on track.
+Because if we don't do that, the Americans today, looking at
+the future, will be more concerned about the future and
+recovery will be interrupted today.
+ Now, a very important point about our disagreements on
+this. The proposed changes on the tax front which apply, again,
+to only 2 to 3 percent of small business owners and to a very
+small percentage of the highest income Americans, are levels
+that prevailed back in 2001.
+ Now, just to come back to the decade of the 1990s, when
+those rates applied, we had during that period a sustained
+period of very high rates of growth and private investment,
+very high rates of productivity growth, very broad-based income
+gains across the country. There is no plausible way you can
+look back at that period where those tax rates prevailed and
+say that the economy at that point was not performing
+exceptionally well, not just relative to the past American
+performance, but that of other major economies.
+ Mr. Ryan. Can I get you there? A number of things. And this
+is a great dialogue. I really appreciate this. First off, in
+2001, we were heading into recession. We cut tax rates and
+growth occurred and actually revenues increased. But I am glad
+you mentioned the CBO, because the CBO baseline says that if we
+didn't pass this budget, the deficit would get cut by three-
+fourths over the next 4 years. You are actually slowing down--
+--
+ Secretary Geithner. You know as well as I do--but what the
+CBO baseline assumes is AMT is not extended, all the tax cuts
+expire fully----
+ Mr. Ryan. No, no, no. You have to use the alternative
+baseline that goes down.
+ Secretary Geithner. No. Again, in the forecast, their post-
+stimulus forecast has a range of outcomes, and our forecast was
+in those outcomes. So this is a more candid, more honest, more
+transparent picture of our fiscal future than you have seen in
+years and years and years.
+ Mr. Ryan. Look, I don't want----
+ Secretary Geithner. It is more realistic.
+ Mr. Ryan. Obviously we don't agree with that. But let me
+just say this. Using that Blue Chip consensus forecast that you
+are using for your own stuff, the deficit is $758 billion
+higher. It never gets to 3 percent of GDP. It is always 4.5 or
+higher or something like that. So the concern we have is if
+these great scenarios that you are projecting in the economy
+don't occur--and, boy, we sure hope they do--if they don't
+occur, then our deficit is going to get out of control.
+ But here is the concern we have, just so you understand it.
+Saying to investors, to small businesses, boy, if you are going
+to hunker down and try to invest and bring new people back on
+the payroll, we are going to get you with higher taxes in a
+year-and-a-half time. Let me say it this way. Increasing taxes
+on the assets that make up our pension funds, our 401(k)s, our
+college savings plans, by a minimum of 33 percent, how is that
+going to help recover the wealth that has been lost? I mean, I
+have talked to so many 60- and 70-year-olds who are so worried
+about their retirement because their portfolios are down by 48
+percent and we are going to say in a year-and-a-half time we
+are going to increase taxes on these assets that make up this
+portfolio by at least a third? I mean, this is not good
+economics.
+ And so our concern is that your rosy scenarios don't
+materialize, the private sector consensus forecast does, and
+the deficit is completely out of control. And in this budget,
+by the time that this budget is done, both Medicare and Social
+Security go on a path of permanent insolvency. So we just don't
+think we are being fiscally conservative.
+ Secretary Geithner. Let us go through these provisions. The
+most important thing for us to do together is to get recovery
+back on track. I think we all agree on that. This budget does
+not raise taxes. In fact, it reduces taxes on the economy as a
+whole during this period of time.
+ Now, again, what the President is proposing is when all
+private economists agree we will be back on a path to growth,
+that we are going to restore the tax rates that prevailed in
+2001 that only apply to a very small percentage of Americans
+and a very small percentage of small business owners.
+ Now, you are saying, you are implying something that is not
+true, which is that we are proposing today a broad-based tax
+increase on the American economy 2 years out when recovery is
+established. Now, that is not----
+ Mr. Ryan. Yes, you are.
+ Secretary Geithner. That is not remotely plausible.
+ Mr. Ryan. Your own budget acknowledges that.
+ Secretary Geithner. No. But it is just a critical fact; 97
+percent or 98 percent of small business owners have incomes
+below $250,000. Now, just one more important fact. The most
+wealthy, most fortunate, richest 1 percent of Americans
+received 75 percent of the gains in income across the overall
+economy over the last 6 to 8 years. This restores some basic
+fairness to the American economy in a fiscally responsible way
+that will leave our economy stronger for the future. Now, if we
+did not do this, Congressman, as I think you know as well as
+anybody, then we would be leaving the American people with the
+prospects of rising deficits in the future, and that would be
+bad for growth.
+ Mr. Ryan. Now, I want to get to a TALF question, because I
+want to--but turning on electricity, putting gasoline in your
+gas tank, heating your home, which is pretty expensive where I
+come from in Wisconsin, and having a government program that
+makes that more expensive--you may not want to call it a tax,
+but it is a tax. If it acts like a duck, if it quacks like a
+duck, it is a duck.
+ Secretary Geithner. You are talking about cap and trade
+now?
+ Mr. Ryan. Yes. So to suggest that you are only taxing
+wealthy people, when in fact you are taxing anybody who
+consumes energy, that is just not straight. But I want to--let
+us get beyond that.
+ Secretary Geithner. That would be a good discussion to
+have.
+ Mr. Ryan. If you can, I want to ask you a sincere question
+about the TALF. Some analysts are telling us that in order to
+boost the effectiveness of the TALF in the current economic
+climate, the program should be expanded to cover securities
+rated below AAA to just secondary market securities. Are you
+considering heading in that direction?
+ Secretary Geithner. I want to do cap and trade really
+quickly. It is very important. I know that you keep coming back
+to this. Again, this is very important. It is critically
+important for our country that we begin the process now of
+changing the incentives Americans face for how they use energy.
+It is important to reduce our dependence on foreign oil, it is
+critical for climate change. You can't achieve that objective,
+again, without changing the incentives Americans face.
+ Now, what the President does is take a program that has
+been used successfully to reduce acid rain emissions used in
+countries around the world to help begin that process. This cap
+and trade program will raise resources, but those resources are
+going to be devoted to making the Make Work Pay tax credit,
+which benefits 95 percent of working Americans, permanent to
+help facilitate this transition to renewable energy. And if we
+raise additional resources, it will be targeted to offset those
+costs of higher energy costs. I just want to say this because
+it is important.
+ Now, on TALF--I am glad you raised this thing on TALF. What
+the Fed and the Treasury laid out on Tuesday was a program for
+broadening the class of assets we are going to provide
+financing, increasing the scale of financing we provide, and we
+are going to continue to look at ways to make that program more
+effective. Open to any suggestions, happy to receive feedback
+on this. We are getting a lot of feedback from market
+participants. But I am glad to hear you emphasize the
+importance of this program because, again, to get credit
+flowing again, we do not just have to reinforce banks, we need
+to make sure we are going around banks to get those
+securitization markets going again.
+ Mr. Ryan. Thank you. I want to be generous to my
+colleagues. I have already taken enough time. I appreciate it.
+ Ms. Schwartz. Thank you. And I think I am going to toss out
+my question and try and deal a little bit with what Mr. Ryan
+was pointing out. There is no question, it seems to me, on any
+factual basis that this budget is far more honest about what
+really we expect is going to happen. Now, of course, it
+includes some forecasts on what we think is going to happen in
+the economy. You have to make some forecast assumptions. But
+the notion, I believe, that Mr. Ryan actually said that the AMT
+relief on 26 million Americans--he didn't mention the number--
+the fact that we are going to eliminate, repeal, AMT on 26
+million Americans is a tax increase, is stunningly incorrect.
+ Mr. Ryan. I said it the other way around. I said imposing
+it is a tax increase; not imposing it is not a tax cut.
+ Ms. Schwartz. Reclaiming my time. I think that is what the
+record would show, is----
+ Secretary Geithner. Do not extend what would be a
+substantial tax increase.
+ Ms. Schwartz. Yes, exactly. So I just want to be really
+clear that we have been talking about. Exactly. Mr. Ryan has at
+least in previous moments said that he wants to see the AMT
+relief, and the fact that we are budgeting it forward is an
+important thing to do. So let me just be very clear that this
+is tax relief for literally tens of millions of Americans. And
+in the recovery package, didn't we actually provide tax relief
+to 95 percent of Americans?
+ Secretary Geithner. We did.
+ Ms. Schwartz. Right. So----
+ Secretary Geithner. And we propose to make that permanent.
+ Ms. Schwartz. And we propose to make that permanent.
+Absolutely. So what this budget does, in addition to being
+honest about where we stand on taxes, and, yes, returning to
+some tax fairness, I think that there will be some debate about
+some of the specifics, but some of the limitations for the
+wealthiest 1 to 2 percent of Americans--we are not eliminating
+tax deductions for charitable donations. There will be a 28
+percent which is, as you pointed out, double what most
+Americans get. Is that not correct?
+ Secretary Geithner. That is correct. And it is the level
+that prevailed at the end of the Reagan administration.
+ Ms. Schwartz. Again, we will have a debate here in Congress
+about some of those specifics, how many of those exactly stay
+as they are. I think that is our responsibility to have a
+shared discussion.
+ Number two. To suggest that is somehow going to hurt
+American business and American competitiveness is something
+that really is just blankly a difference of opinion for sure.
+So what I did want to ask, because I think it is important for
+us to communicate, is that not only is this budget honest about
+what we believe is going to happen in the future, but it also--
+and provides tax relief to many, many Americans, but it
+actually tackles some of the major issues that have been
+hurting our economic competitiveness. The failure to make
+investments in education, in educating our people, in energy
+efficiency and energy independence and--an area of my
+particular interest in health care--in innovation, in
+technology, in cost containment, which will affect our fiscal
+health and our economic competitiveness for our businesses.
+ Could you just elaborate on--you mentioned--it was a very
+nice line about the--both the moral and economic and fiscal
+imperative of taking actions. We are making up for 8 years of
+failure to make those kind of investments that is putting us in
+an economic disadvantage for our businesses. On health care
+alone, our businesses, small businesses and large, cannot
+sustain a double-digit inflation on their health benefits.
+Could you speak to why this is so important for our economic
+dependence, particularly our small businesses?
+ Secretary Geithner. Thank you. I think if you look at
+surveys of small businesses, what their priorities are, at the
+top of every business priority is to address the rise in health
+care costs. Now, if you look at what we spend on health care as
+a country, we spend almost twice what the typical mature
+economy spends on health care. And despite that, we don't
+provide materially better results in terms of life expectancy
+and we have large parts of our economy that don't benefit from
+quality care. So there is a competitiveness imperative, an
+economic imperative of addressing those health care costs.
+Unless we do that, we are going to face progressively higher
+fiscal deficits in the future.
+ And it seems to me the reasonable thing, to say that
+Americans should enjoy access to better quality care regardless
+of the circumstances of their birth. It is a clean, simple,
+stark imperative, but it is not enough. And if you just look at
+on the education front, what we are doing is trying to make
+sure that we are laying the foundation for a more productive
+economy by making sure that our children are going to benefit
+from much higher-quality education outcomes. And these are
+areas where our government has been unable to make significant
+progress over a long period of time. We can't afford to wait on
+that front. In this budget, we are trying to lay out for the
+American people a path to a more productive economy where the
+income gains are going to be more broadly shared.
+ Ms. Schwartz. And it will help us with our fiscal stability
+of our budget as well. The other side of the aisle has been
+very concerned about the costs of entitlement, but the fact is,
+wouldn't you say that we are actually making some very
+important steps now to contain the cost both for businesses and
+for the Federal budget as well?
+ Secretary Geithner. And because of the hard work of people
+in this room, the Recovery Reinvestment Act starts that budget.
+So the budget continues it, builds on it, but we started that
+process in the Recovery Act.
+ Ms. Schwartz. Thank you, Mr. Secretary.
+ Chairman Spratt. Mr. Hensarling.
+ Mr. Hensarling. Thank you, Mr. Chairman. And again,
+welcome, Mr. Secretary. And let me agree, you do have a great
+challenge in front of you and we acknowledge and appreciate
+your service.
+ Can we pull up Figure 6, please? Both you and the Chairman
+spoke about, I believe, if I heard you properly, about
+inheriting deficits; which begs the question what is inherited
+and what is manufactured and who did you inherit it from?
+ This chart is entitled ``Deficit Under Democratic
+Budgets.'' And I want to make very certain for the record I
+said ``Democratic'' for those who are sensitive about the uses
+of suffixes, participles, gerunds and that type of thing. But
+we all know that under our Constitution that the President
+can't spend a penny that isn't either authorized or
+appropriated by the United States Congress. And in this chart
+we saw declining deficits when Republicans controlled the
+Congress down to roughly, I believe, 160 billion. And now we
+are seeing that the 2009 OMB estimate is roughly 1.8 trillion.
+ So, number one, if you inherited deficits, you inherited
+them from a Democratic Congress, number one. And, number two, I
+believe and certainly you have your economic justification, but
+if you were inheriting 1.2 trillion and you are proposing 1.8,
+aren't you adding--isn't it true you are adding, I believe,
+$540 billion to that deficit, Mr. Secretary?
+ Secretary Geithner. Congressman, can I just say two things
+about this? One, is if you go back to the year 2000, to 1999,
+you will see that we started--we ended that period with
+surpluses. So your chart starts a little late to be fair to
+history. The other thing I want to point out is that in 2009--
+--
+ Mr. Hensarling. Mr. Secretary, are you saying this is an
+inaccurate chart?
+ Secretary Geithner. No. I am saying it starts in 2004. If
+you went back to 2009----
+ Mr. Hensarling. I am sure it would go back to 1789 as well.
+But is it not true, is it not true that in the last year of the
+Republican Congress it was $160 billion and you are proposing
+1.8? Is it true or is it not true?
+ Secretary Geithner. Congressman, as you know, the national
+debt doubled during the last 8 years, after a period where we
+started with surpluses.
+ Mr. Hensarling. Let us talk about that for a second. I am
+sorry, I don't have the advantage of having unlimited time as--
+--
+ Secretary Geithner. Can I just say this one thing you
+raised here? In 2009--again, this is very important to do--we
+start with no additional policies to fix the crisis. We start
+with a deficit of $1.3 trillion. That is a deficit produced by
+the policies that preceded it and by the deepening recession.
+Now, to fix this crisis, we have no choice but to move
+aggressively to put in place this economic recovery program,
+and that program----
+ Mr. Hensarling. I appreciate that. And you had that
+opportunity to say that earlier. I understand that you have a
+justification.
+ Secretary Geithner. But you asked that question, which is a
+very important thing to do. So it is 1.3 with no action, but no
+action will leave us with a deepening recession, higher long-
+term deficits.
+ Mr. Hensarling. All we are saying, Mr. Secretary, is when
+you talk about inheriting deficits, at least admit that you are
+adding to that deficit. And let us talk about the debt for a
+second. The President in his State of the Union address, said
+we have the responsibility to ensure that we do not pass on to
+our children a debt they cannot pay. Is it not true--can we go
+to Figure 7, please--that under the administration's proposal,
+that we will double the national debt in 8 years? Is that true,
+Mr. Secretary?
+ Secretary Geithner. Congressman, let me say what is
+critical about the long-term fiscal picture.
+ Mr. Hensarling. Is it true or not true?
+ Secretary Geithner. No. But this is very important. If we
+don't get the recovery back on track, if we don't act to fix
+this recession and address it, then as a country we will face
+lower long-term growth rates, huge damage to the productive
+capacity of our economy, much higher unemployment rates and
+higher long-term deficits. Now, what the President's budget
+does is bring our deficits down to 3 percent, and will
+stabilize that debt to the--what matters is the level of debt
+relative to the economy as a whole.
+ Mr. Hensarling. Mr. Secretary, I think we all agree we need
+more economic growth, but again are you not--are you or are you
+not proposing to double the national debt in 8 years under your
+budget?
+ Secretary Geithner. Congressman, what we are proposing to
+do is to fix the crisis we inherited and to make our economy
+more productive in the future, and to do so in a way that is
+fiscally responsible and brings our deficits down to the level
+where we stabilize the overall level of debt to GDP. So if----
+ Mr. Hensarling. It is clear that you do not wish to answer
+the question. I understand that. And I have a limited amount of
+time.
+ The last question I would like to ask, though, is when you
+talk about the need for more credit in order to create jobs,
+promote economic growth, why then--why would you have a budget
+that proposes increasing the tax on capital up to one-third? I
+have got to tell you, Mr. Secretary, for many of us, it seems
+to be ideological, and at a time when our Nation desperately
+needs more capital, you are going to increase taxes on it up to
+one-third. It simply makes no sense, Mr. Secretary.
+ Secretary Geithner. I would just come back again to say
+what the budget proposes to do to bring us back to fiscal
+sustainability. And I think we all agree we to have get back to
+a sustainable path. I think we all agree that is critically
+important.
+ So what the President's budget does is, when recovery is
+established, to restore those tax rates that apply to the
+richest Americans to the levels that prevailed in 2001. And,
+again, if you want to look at the record and performance of our
+economy during a period when those tax rates applied, it looks
+exceptionally good relative to the decades that preceded it,
+and it looks very good relative to the last decade.
+ Again, if you just look at the things we all care about,
+which is how productive is our economy, how much does private
+investment grow, that was an exceptionally good record of
+performance for the economy as a whole. Income growth was rapid
+and it was broadly shared. And I think that is the right test
+of our policies.
+ Ms. Schwartz. Mr. Chairman, could I just inquire--I just
+wanted to inquire just a point of fact. When the budget that
+you presented reflects the deficit, that is actually a
+reflection of reality and honest budgeting. It is not a
+proposal. You are not proposing increasing the deficit. You are
+reflecting the reality of the deficit that the administration
+has inherited. Is that just a point of information?
+ Mr. Hensarling. May I ask whose time she is on?
+ Chairman Spratt. She was asking for a point of inquiry.
+ Mr. Hensarling. Wait. That was a parliamentary----
+ Chairman Spratt. Would the witness please answer the
+question in two sentences or three?
+ Secretary Geithner. We do propose to increase the deficit
+in the near term because we have to do that to address the
+crisis we started.
+ Chairman Spratt. Ms. Kaptur.
+ Ms. Kaptur. Well, Mr. Secretary, how do you like your job
+so far?
+ Secretary Geithner. This is a critical debate for the
+country. I am pleased to have it. I think it is a really
+important debate, and I think it is my tribute to all of you,
+which is that this is the kind of debate that the American
+people want us to have. This is about some important choices.
+And we owe them an open and honest debate about how we are
+going to fix these problems.
+ Ms. Kaptur. Well, Mr. Secretary, we sure want to help you
+on that. And we are going to put up here the accumulated budget
+deficits under the Bush administration, including $1 trillion
+of war costs that were unpaid for. So that is where we start.
+ But let me just say, Mr. Secretary, that unless we deal
+with the seized-up credit markets, none of our budget proposals
+on either side of the aisle are going to work. And I really
+want to focus my beginning questions on these today.
+ During the 1980s, our Nation faced worse financial problems
+in the financial sector than we actually do today. Although,
+every day that passes seems to get worse. Back then, we had
+3,000 insolvent institutions, saw the banks in Texas fail but
+one. Continental Bank of Illinois, as you know, went down.
+ Have you had an opportunity yet to meet with the senior
+statesmen in our country who were responsible for resolving
+that situation at no cost to our taxpayers?
+ Secretary Geithner. I have looked very carefully at the
+record of what they did during that period of time, and I have
+had the chance to talk to many of those who were there at that
+time. Yes.
+ Ms. Kaptur. I would like to bring Mr. Seidman and Mr. Isaac
+over to see you some time, and I hope you find time for us.
+ Secretary Geithner. I would welcome that.
+ Ms. Kaptur. I think it is really worth hearing about what
+happened. And I think you were about 2 then, I don't know, but
+I think it might be very interesting for you.
+ Secretary Geithner. Unfortunately, I was much older then,
+but older today.
+ Ms. Kaptur. All right. Let me talk about frozen credit
+lines. The district that I represent has unemployment rates in
+Toledo, Ohio, of 14.3 percent. Going over into Ottawa County, a
+rural area, 17 percent, and growing worse each day.
+ At the same time, we are one of three leading solar centers
+in the hemisphere. We have struggled through 20 years of the
+loss of manufacturing jobs, and I have factory floors right now
+that cannot get loans to hire hundreds and hundreds of people.
+What can you do to help us?
+ The second part of that question is in the automotive
+sector. I represent the most popular vehicle in America, the
+Wrangler and Chrysler Jeep, and the best GM facility in the
+hemisphere, GM hydromatic with the new 60 transmission. Our
+unions, our companies have worked together. If America is going
+to rebuild its automotive industry, it is going to be from the
+heart of the Ninth District of Ohio.
+ We are stuck into this architecture that we can't seem to
+extricate ourselves from. Both companies are owned by Cerberus.
+How can you help us let our industry compete? We are ready to
+do that, and we are handcuffed. Again, it is dealing with
+frozen credit lines and being a part of an architecture by
+which we can't win, solar and auto.
+ And then my final question to you is, what is your position
+on whether we need to reinstitute the regulations on short
+sellers the SEC removed in 2006?
+ Secretary Geithner. Let me go quickly through those. The
+last is really a question for the SEC.
+ Ms. Kaptur. I hope you have an opinion.
+ Secretary Geithner. I do not believe that particular
+measure, but this is the SEC's responsibility, would be
+effective in the current environment. But the SEC Chairman is
+looking at a range of things as part of her new
+responsibilities to be responsive in that area, and I am sure
+she would be happy to talk to you about those details.
+ On the automobile industry, as you know, we are looking at
+how to try to help bring about the very fundamental
+reconstruction that is going to be necessary to get this
+industry back on a path to long-term viability without
+government support. This industry is facing extraordinary
+challenges. The financing environment is making it dramatically
+worse, you are absolutely right, and we are looking at how best
+to support that process.
+ Now, the Recovery Act and the budget has very, very
+substantial increases in tax incentives, and other support for
+clean energy, innovative new technologies, which will be very
+powerful and beneficial. And I want to come back to where you
+began, which is small businesses across the country are finding
+it much harder to borrow. And that, to fix that requires that
+we get capital into the system where it is necessary and that
+we are providing direct support to get these lending markets
+going again.
+ The stimulus package has a very substantial increase in
+loan guarantees from the Small Business Administration, which
+we are very, very supportive of, and we are looking at whether
+we can bring these initiatives together to provide more
+substantial support for businesses across the country on the
+lending side.
+ Ms. Kaptur. Mr. Secretary, I appreciate that.
+ And I would hope there would be an iterative process by
+which we could bring some of these companies to you, whether it
+is tele-video, whether you assign somebody in your office. But
+every day that goes by and our unemployment gets worse and I
+have companies that can't get credit, I am saying something,
+somehow, we need to be able to link to what you are doing. I
+see TARP money flying out the window, and I am looking at our
+companies and saying, something isn't working here.
+ Secretary Geithner. And we are open to meet with anybody.
+We are meeting with people across the country all the time. And
+as you know, in the automobile industry, we are in daily
+contact with the full range of people that are critical to
+making that restructuring plan work.
+ Chairman Spratt. Mr. Diaz-Balart.
+ Mr. Diaz-Balart. Thank you, Mr. Chairman.
+ And thank you for being with us here today, and thank you
+for agreeing to take on a pretty tough job.
+ There are about 4 million people now that are roughly
+paying the AMT, alternative minimum tax, roughly. In your
+proposal, those numbers would more or less be the same
+throughout the next years. Correct?
+ Secretary Geithner. We are proposing to extend it and, as
+you know, continue to extend it and to index it.
+ Mr. Diaz-Balart. But roughly we are dealing with about the
+same number of people paying the AMT. And then you are going to
+still keep those that are not paying it, which are roughly now,
+I don't know, 20-plus million, from not paying it. Correct?
+ Secretary Geithner. I am not sure where you are going. I
+would be happy to give you the detailed numbers on the
+estimated impact.
+ Mr. Diaz-Balart. The reason I am asking that is, because
+those that are not paying the AMT are going to continue to not
+pay the AMT, in your numbers though, you are considering that a
+tax reduction to them? In other words, you are including in
+your tax cuts the AMT, even though most people don't pay it and
+are going to continue to not pay it. So it is not a tax cut for
+those who are not paying the AMT. Correct?
+ Secretary Geithner. Congressman, again, I am not sure where
+you are going. You know, we can talk about baselines as much as
+you want to talk. What matters to the American people and to
+the economy as a whole is, what are we doing, going forward, to
+overall tax rates across the economy? And what is critically
+important is to recognize that, for the next 2 years, we are
+reducing taxes for--reducing the tax burden for the overall
+American economy. And when we get recovery back on track, we
+are proposing very modest increases that apply to a very
+limited section of the most affluent, most fortunate Americans.
+ Mr. Diaz-Balart. Well, let's talk a little bit about that,
+because in Florida, where not everybody is affluent, yet
+everybody uses electricity. And as you know, at least in
+Florida, and I know it is around the country but let's talk
+about Florida, those are regulated industries. They pass on the
+cost of increases to energy to the consumers. And yet, you do
+have anywhere between $600 plus to $800 billion in this cap-
+and-trade deal on a tax on energy production.
+ So let me ask you this. Is it not wrong that--who is going
+to pay the money for that cap-and-trade? Energy producers?
+ Secretary Geithner. Congressman, this is a good issue, an
+important issue, so let's just go through it.
+ What the President's proposal does is beginning in what we
+expect to be 2012, not tomorrow but in 2012, just to put in
+place a program tried, based on things that have worked in the
+past that is designed to change the incentives for how
+Americans use energy so that----
+ Mr. Diaz-Balart. By charging more?
+ Secretary Geithner. By reducing our dependence, that we
+reduce our dependence on foreign oil.
+ Mr. Diaz-Balart. When you talk about incentives, is it by
+charging more?
+ Secretary Geithner. Well, you can't change behavior, how
+people use energy, unless you affect the incentives for how
+they face this economy.
+ Now, the really important thing is that the resources this
+will raise are going to--go back to 95 percent of working
+Americans. And, there is $15 billion in the President's
+proposal to help facilitate this transition to cleaner energy
+technologies. So that is the way to think about it. Remember,
+it is a program that will take effect in 2012, and the
+resources raised will go back to 95 percent of working
+Americans.
+ Mr. Diaz-Balart. Sure. That is like what we are told in the
+stimulus that some families, many families, will get up to $800
+back in tax credits. However, every household is being charged
+$9,400. That, by the way, is the kind of math that frankly
+scares me.
+ Secretary Geithner. I don't understand that math. I don't
+think that is a remote reflection of reality in the budget.
+Again, it is very important.
+ Mr. Diaz-Balart. That was in the stimulus.
+ Secretary Geithner. For the next 2 years, for this period
+of challenge we are going through in this economy, the overall
+tax burden on the American economy comes down; 95 percent of
+working Americans get a significant tax credit; there is
+expanded earned income tax credit, expanded child care tax
+credit.
+ Mr. Diaz-Balart. We are talking about the cap-and-trade
+here. I am trying to see if I can get you to answer that.
+ Secretary Geithner. I did. On cap-and-trade, I said that in
+2012----
+ Mr. Diaz-Balart. There is going to be an increase.
+ Secretary Geithner. We want to work with Congress on a
+program based on something that has worked to bring down acid
+rain emissions that will generate resources that we will put
+back into----
+ Mr. Diaz-Balart. When you say generate resources, that is
+through?
+ Secretary Geithner. Through changing the cost of energy
+use, which you have to do.
+ Mr. Ryan. Will you yield?
+ Mr. Diaz-Balart. Yes, I will yield to the ranking member.
+ Mr. Ryan. Are you suggesting that the $15 a week in the
+Make Work Pay fully offsets the higher energy prices?
+ Secretary Geithner. Well, what I am saying, and this is the
+really important thing, which is, the resources that cap-and-
+trade we estimate will raise will go back into the economy,
+concentrated on 95 percent of working families. Now that----
+ Mr. Diaz-Balart. So you can't answer the question, really.
+ Secretary Geithner. It is good policy. It is fair policy.
+And if you believe in the importance of reducing our dependence
+on foreign oil and reducing our dependence on carbon-intensive
+energy uses, then you have to be prepared to change the
+incentives for how people use energy.
+ Mr. Diaz-Balart. In other words, if you believe in that,
+and then it is okay to charge people more for their energy, is
+in essence what you are saying.
+ Now, let me ask you a little bit because in the few seconds
+that I have--I am out of time. Thank you.
+ Chairman Spratt. The time of the gentleman has expired.
+ Mr. Doggett.
+ Mr. Doggett. Thank you, Mr. Chairman.
+ Thank you, Secretary, for your important leadership.
+ With that we could eliminate the first 4 years of the Bush
+administration and its horrible effect on the world as quickly
+as the Republicans have eliminated it from their chart. I can
+hardly blame them for wanting to forget and push away the
+disaster that was the first 4 years; I am surprised they didn't
+eliminate the entire 8.
+ As far as the suggestion that they are concerned about
+borrow and spend, that was the principle theory of the last 8
+years, as they drove our debt up literally by the trillions. I
+think they may have certainly borrowed more money from abroad
+than all previous Presidents put behind--that came before them.
+And these are the same folks that still want a free lunch. They
+are the folks that endorsed what the Senate did during the
+recovery, economic recovery debate that proposed trillions of
+dollars of additional tax breaks that we would borrow money to
+achieve.
+ I applaud the fact that you make the hard choices to raise
+a little of the revenue along with some of the spending cuts to
+help us get to more fiscal reality.
+ And I appreciate very much your testimony in the Ways and
+Means Committee, where you endorsed our effort to stop tax
+haven abuse. The President has spoken courageously over recent
+months about the need to stop tax provisions that are designed
+to encourage companies to export jobs overseas. It is more than
+just the Stop Tax Haven Abuse bill that Senator Levin and I
+have introduced. There are a whole series of measures that are
+needed that are revenue raisers but accomplish other purposes.
+ I know that some of our colleagues, both Democratic and
+Republican, have promoted the idea that we need a significant
+reduction in corporate taxes. Secretary Paulson, when he
+explored that issue last year, was not proposing a reduction in
+revenues. In fact, he was willing to challenge some of the most
+popular provisions that corporations rely on to reduce their
+taxes today. And I think it is critical as you go forward on
+this that while you hear people complaining about the corporate
+tax rate, that we look at the effective corporate tax rate and
+the steady reduction in corporate revenue that is being
+contributed from those taxes.
+ In terms of gross domestic product, I believe that only
+Korea and Mexico have corporations that contribute less than
+ours do.
+ And then in a separate area that you have talked about very
+articulately, the whole issue about cap-and-trade, what you
+have said is very important. The Treasury has unique expertise
+to conduct the auction system, which is what has been proposed
+in legislation that I have and a number of our colleagues have
+suggested. And a cap and trade system that is guided not by
+extreme ideology and not by political expediency, but is guided
+by good science, wherever that science leads us in terms of
+what we need to do. But a system where we put a limit on carbon
+pollution, and then we rely on a market system, which works so
+effectively on acid rain, to help us achieve the important
+objectives of moving to a less energy--more energy independence
+and less dependence on carbon pollution.
+ I think, sadly, as the questions and comments here, just as
+in the Ways and Means Committee, as the administration develops
+its plan, I hope it will continue reaching out, as it has, to
+try to include people of all political parties. We don't have a
+monopoly on truth. But, sadly, the comments indicate that we
+will get the same level of bipartisanship, the same level of
+cooperation that we got on the economic recovery package in the
+House. And we have to realize that moving forward on this
+critical objective.
+ Let me just ask you one unrelated long question that I
+would ask for perhaps a follow-up in writing. In 2007, there
+was a review by Fitch Ratings of mortgage-backed securities
+that were backed by subprime mortgages. It found evidence of
+fraud and misrepresentation in just about every file. Given the
+suspicion that is widespread that loans underlying some
+mortgage securities are incompletely documented or fraudulent
+on their face, my question would be whether Treasury has
+sampled all the loan files that it is proposing to obtain for
+evidence of misrepresentation and fraud before it offers any
+type of direct or indirect guarantees; and, if you have not,
+whether you will commit to conducting such a review so that we
+can have this question about fraud and misrepresentation
+answered in a credible and a transparent way.
+ Secretary Geithner. A very important issue. I am happy to
+respond to you fully in writing on the range of things we can
+do to help address that risk.
+ I think it is very important, though, to point out that, as
+we come to Congress with comprehensive proposals for financial
+reform, we are going to need to do a lot of things to make sure
+we fix this mortgage market, and we don't put the American
+people in the position again where anything like this could
+happen in the future. And that is going to require a lot of
+changes.
+ Chairman Spratt. Mr. Campbell.
+ Mr. Campbell. Thank you, Mr. Chairman.
+ And thank you, Mr. Secretary, for entering the maelstrom
+here.
+ First, a couple of quick TARP questions. How much of the
+original $700 billion is currently remaining and has not been
+invested?
+ Secretary Geithner. Congressman, I would like to give you
+an accurate accounting of the detailed numbers in writing,
+rough orders of magnitude.
+ Mr. Campbell. Approximately.
+ Secretary Geithner. I think the commitments outstanding
+are, in terms of money committed and spent, are in the range of
+just under $400 billion. That would leave something around $300
+billion left. But we have already laid out a variety of
+potential uses for those resources.
+ Mr. Campbell. Which comes to my next question.
+Approximately, when do you believe you will have an opinion or
+be able to assess whether the remaining TARP funds are adequate
+to stabilize the financial system, in your view?
+ Secretary Geithner. I don't have a judgment on that yet.
+Again, we are moving as quickly as we can to use the resources
+we have as effectively as possible. We are trying to bring a
+comprehensive set of reforms to the programs so we deliver more
+transparency and accountability. The assistance comes with
+tougher conditions to protect the taxpayer to make sure that
+these resources aren't going to benefit shareholders and senior
+executives, to make sure they result in higher lending than
+would otherwise take place, and that they are targeted to parts
+of the economy that are likely to benefit most from the
+assistance.
+ So we are trying to reform the program completely, use the
+resources as quickly and effectively as we can. And in that
+context, we are looking at what is next and what might be
+necessary to get ahead of this. And what I really want to point
+out, and I am very glad to hear the recognition of this across
+the aisle, that if you look at the history of financial crises,
+most governments make the tragic mistake of not doing enough
+soon enough. They underestimate the costs; they are too
+tentative. And that leaves the system more at risk and the
+economy, therefore, more at risk. And it is very important we
+find a way to work together to make sure that we are getting
+credit flowing again.
+ Mr. Campbell. Is CitiBank too big and too interconnected to
+fail?
+ Secretary Geithner. Congressman, I want to say something
+about our banking system. We have a system of 9,000 banks. The
+vast bulk of this system was not part of the problem. It is
+going to be part of the solution. They are going to be able to
+provide the credit that their communities need.
+ Now, there are parts of the system that are going to need
+some carefully conditioned, temporary, financial support as a
+bridge to private capital coming in. And it is very important
+that your government, and we will do this, make sure we make
+those resources available. Right now, because of the intensity
+of this recession and what we are going through, the markets
+are unwilling and unable to provide that capital. And so we are
+going to do what is necessary to make sure those resources are
+available, because if we don't, you are going to see less
+credit available, and that might create the risk of deepening
+the recession.
+ Mr. Campbell. Is that a yes?
+ Secretary Geithner. Congressman, again, I want to just--
+this is a very important thing, and I want to say it----
+ Mr. Campbell. I agree.
+ Secretary Geithner. Carefully and clearly. The President
+said in his State of the Union, your Nation's financial
+authorities have said it; it is very important, and we will do
+this, to make sure that the major institutions in our country
+have the resources and the funding and the ability to play
+their continuing role in our markets going forward. And that is
+a very important commitment. The President has made it. The
+Chairman of the Federal Reserve has made it. The Secretary of
+the Treasury has made it. We have made it together as an
+entity. And I will repeat that.
+ Mr. Campbell. Let me get, if I can, to just one other line
+of questioning which is relative to the numbers, budget
+assumptions, which basically assume 3 percent plus growth by
+next year, up to 4.6 percent growth 2 years after that, and all
+with virtually no inflation, inflation of 2 percent or under
+all those years. That is what is in the budget assumptions.
+ Do you at Treasury, does that comport with your present
+best estimate of what you believe will occur?
+ Secretary Geithner. Congressman, the way the budget process
+works is the Council of Economic Advisers independently comes
+up with their best judgment of the likely path of the economy,
+growth, inflation, interest rates.
+ Mr. Campbell. Correct.
+ Secretary Geithner. And that represents their best judgment
+at that time. And it is very important to point out, because
+there has been a lot of concern about this, if you look at that
+forecast against CBO's latest range of estimates, it is within
+that range. So we believe it is a realistic forecast. And all
+economists agree that it is realistic to expect the economy to
+begin to recover beginning late in this year and into next
+year.
+ Now, one last thing.
+ Mr. Campbell. I have 30 seconds, so let me just say and
+then you can go ahead. It is just that, when I would make
+budgets in my business sometime ago, it is very easy to
+increase sales by 5 percent, increase margins by 5 percent,
+hold expenses, and, boom, profit is enormous. And so the budget
+numbers here are highly sensitive to things like the inflation
+numbers and the growth numbers. And if these growth numbers are
+not met or the growth numbers are met with substantially higher
+inflation, which I think a lot of people believe that, if you
+are to have these growth numbers, you would have more
+inflation, then the numbers will be--then the budget numbers
+are highly sensitive then. And if you are off at all, even
+these numbers, which we obviously on this side of the aisle
+don't like very much, but that they would be significantly
+worse.
+ Secretary Geithner. Mr. Chairman, can I just respond? This
+is very important. I don't think this budget faces that risk.
+Again, if you look at the long-term inflation forecasts by
+private economists, look at the long-term growth forecasts for
+private economists, which are the most important things to our
+long-term fiscal position, CEA's estimates are right there on
+those things. And, again, that is a realistic budget. And I
+agree with you about the concerns you expressed, but this
+budget is not vulnerable to those risks.
+ Chairman Spratt. Mr. Berry.
+ Mr. Berry. Thank you, Mr. Chairman.
+ Thank you, Mr. Secretary, for your service. I know you are
+having a wonderful time.
+ I generally judge administration testimony by how I think
+it would fare at the breakfast table at the Rice Paddy Motel in
+Gillett, Arkansas. I think you would do pretty good. You hold
+your own.
+ Secretary Geithner. Is pretty good good, or is pretty
+good----
+ Mr. Berry. Sir?
+ Secretary Geithner. Thank you for saying that, Congressman.
+ Mr. Berry. I meant that as a compliment. Sometimes people
+don't understand me very well.
+ Secretary Geithner. Is that an invitation?
+ Mr. Berry. I talk too fast.
+ I find it interesting here this morning that my colleagues
+across the aisle are suddenly obsessed with intellectual
+integrity, deficits, and fuzzy math. And we have been
+underwater with those things since January of 2001, after
+leading this country out of the fiscal economic wilderness that
+we were in, successfully. And so I appreciate what you are
+saying. I may not agree with all of it, but I appreciate it,
+and I know you are doing the best that you all can come up
+with.
+ I want to make one point. Repeatedly, regardless of the
+administration, the party, or anybody else, the value of cheap
+food in this country is continually ignored by the people that
+make economic policy. Production agriculture has been assaulted
+by this administration publicly. And I think it would be a good
+thing for people in positions like yours and others in the
+administration to take a serious look at the value of
+agriculture to this country. It is still 20 percent of our
+economy. It is about the only industry that has not appeared on
+our doorstep right now begging for some kind of relief. They
+are actually getting less help now than ever before. But I
+think they are due some credit for the great way they produce
+and feed this country in a safe and cheap way. And I would hope
+that that would at least rise to the surface and to the point
+where someone in the administration might even recognize it in
+a positive way.
+ So I am just an old dirt farmer and love it. And I don't
+think that the American agricultural community has to apologize
+to anybody for the contributions that they have made to the
+success of this country. And I thank you for listening to me,
+and I invite you to the Rice Paddy Motel any time you have got
+time. We will go down there and show those boys something.
+ Secretary Geithner. I welcome that, and would be happy to
+do it.
+ Mr. Berry. Thank you.
+ Secretary Geithner. And I, of course, agree with you that
+the future of American agriculture is critical. We have a level
+of productivity in agriculture which is the envy of the world,
+and it is important we recognize that.
+ And you are right, and I think you are saying this, that we
+do propose in the budget to reduce some subsidies to those at
+the highest end. And you understand why we are doing that.
+ Mr. Berry. Yes, but pardon me for interrupting you. They
+are the people that produce the food. That is where that stuff
+comes from.
+ Secretary Geithner. And it just underscores how difficult
+these challenges we face. And we are going to have to make some
+hard choices together, and we are going to have to do it as
+carefully as we can to make sure we are not burdening the
+economy in ways that we can avoid. But we are going to have to
+get back to a path of fiscal sustainability, and it is going to
+be hard to do that. But I respect and understand the point you
+are making, and I will always listen carefully.
+ Mr. Berry. Thank you.
+ Thank you, Mr. Chairman.
+ Chairman Spratt. Mr. Jordan.
+ Mr. Jordan. Thank you, Mr. Chairman.
+ Secretary, we appreciate you joining us this morning and
+appreciate some of what I would call good things in the budget
+dealing with the AMT. I think an acknowledgement that we have
+some real concerns in our entitlement programs, we certainly
+appreciate that language as well. But let me just kind of lay
+it out. And you have touched on this, but I want to package it
+and frame it in a way that it gets framed for me back home in
+the Fourth District of Ohio when I talk with families and small
+business owners. And our district, just so you understand, of
+the 435 districts in this country, the Fourth District in Ohio
+is 16th in manufacturing jobs. And, frankly, we were doing
+pretty well until of late with this auto industry, and now,
+obviously, we are feeling the impact just like the rest of the
+Midwest and, frankly, the rest of the country is.
+ But when I talk with folks back home, here is the picture
+they get. And I know you are going to disagree with some of it.
+But, frankly, they see--and I would argue any one of these
+things done at any time is difficult for our economy, but when
+you attempt all four in the midst of a recession, I think it is
+scary, frankly:
+ Raising taxes. And I know there has been a debate here in
+this committee. But the way we look at this is there is a net
+tax increase over the 10-year time frame of your budget. Taxing
+the successful out there. Not necessarily a good message to
+send to the business owners when we are trying to get out of a
+recession.
+ An unprecedented level of spending, whether you start with
+the $780 billion in the stimulus, the 410 in the omnibus with
+the 9,000 earmarks, and now a budget that projects a doubling
+of the national debt over the next 10 years.
+ Further, nationalization of health care, setting aside the
+billions of dollars you set aside to do the things in health
+care.
+ And then, finally, the one that I would, frankly, if you
+could, Secretary, focus on the most is the cap-and-trade.
+Because when you come from a district like I get the privilege
+of representing, with that much manufacturing, the cap-and-
+trade proposal scares me. Just like yesterday in the Detroit
+News where they talked about, I think the headline was, ``Cap
+and Trade Will Sink Michigan,'' was the headline of this
+editorial from the Detroit News. It concerns those kind of
+districts that, where you have heavy industry. And, frankly,
+the cap-and-trade will disproportionately impact the Midwest,
+where so much of our energy comes from coal-fired power plants
+and oil and gas those things.
+ So respond, and, again, this is straight from the good
+families and business owners I get the privilege to represent.
+I happen to think they are right when they come with these four
+concerns, all done as we are trying to get our economy
+recovered from this recession.
+ Secretary Geithner. Thank you very much for raising those.
+So, let's just go through this because it is very important to
+do.
+ Small business owners in America today will face the
+prospects of a zero capital gains tax rate; substantial
+reductions in the rate of growth in health care costs; a range
+of other incentives that are very important to getting us to a
+clean energy economy; keeping their overall tax burden
+unchanged except for 2 to 3 percent of the highest earning
+small business owners, and, again, those increases only come
+beginning in 2011, and they only restore those tax rates to the
+level that prevailed going back to 2001.
+ So it is not reasonable or fair or true to represent this
+budget as increasing the tax burden on small businesses who are
+struggling so much across the country. In fact, this budget is
+very good for businesses across the country.
+ Now you said several times----
+ Mr. Jordan. Focusing on the cap-and-trade, I mean, laying
+out the four issues, cap-and-trade is the one that concerns.
+Again, that is why I talked about the type of district I
+represent. I talked about the Detroit News editorial yesterday.
+ Secretary Geithner. I would like to do that, and I would be
+happy to do that again. But I just want to reinforce something
+you said. Now, you said we are going to substantially increase
+taxes on the American economy over time and substantially----
+ Mr. Jordan. $1.4 trillion. $1.4 trillion over 10 years.
+ Secretary Geithner. Let's just go through those. If you
+look at the President's budget, you will see that the overall
+tax burden, revenues to GDP over this horizon are quite close
+to long-term average. Now, another thing you will see is that
+the overall level of spending in the budget relative to GDP
+after you account for interest rate costs for these inherited
+deficits and you account for the effects of the aging of the
+Baby Boom, the overall size of the government relative to GDP
+is very close to historical norms. So this is not a budget that
+raises materially the overall tax burden.
+ Mr. Jordan. Mr. Secretary, isn't it true that your 10-year
+budget doubles the national debt? I mean, your numbers, when
+you add them up, we go from 11-point-something trillion to
+doubling that.
+ Secretary Geithner. What increases the national debt is the
+size of the----
+ Mr. Jordan. Too much government spending. That is what
+increases the size of the national debt.
+ Secretary Geithner. No. It is the size of the deficits we
+have inherited and the costs of getting us out of this
+recession.
+ Now, if we were starting from a different place, if we were
+starting from where we were at the end of the last decade, if
+we were starting without a recession this deep, then we would
+be able to give the economy a path for higher growth rates,
+lower deficits for the future.
+ Now, given where we are, though, our common obligation and
+our only choice really is to move aggressively to try to get us
+out of a recession and fix our financial system, and that costs
+resources. If we did not do that, then growth will be weaker,
+unemployment higher, more small businesses would fail, and we
+would face higher deficits in the future because our overall
+productive capacity of the economy, future revenues would be
+lower. And that is very important to start with.
+ Now, briefly on cap-and-trade, just to repeat, what the
+President is proposing is to put in place a cap on emissions
+with a market-based mechanism for allocating those credits; it
+will generate resources, but we are going to put those
+resources back into the hands of working Americans.
+ Now, you are framing this in a way that----
+ Mr. Jordan. If a working American has to pay more for the
+car they purchase, for the energy bill they pay each month, all
+their utility bills, and then you give them some back, aren't
+they going to have to pay more on those bills than they are
+going to get back on the tax credit?
+ Chairman Spratt. The gentleman's time has expired, more
+than expired. And we have got to move on because there are
+three votes coming up on the floor, one of which will occur in
+about 10 minutes; it is a resolution. I plan to stay here
+through at least that. There are a couple of suspensions coming
+up behind it. But I will stay here at the sacrifice of a vote
+so that other members can ask questions.
+ Let's move now to Mrs. Tsongas.
+ Ms. Tsongas. Thank you, Mr. Chairman.
+ And thank you, Mr. Secretary. This has been quite a
+discussion.
+ I would like to move on to the issue or focus on the issue
+of housing. I am from Massachusetts. I represent three old
+industrial cities, one of whom happens to have the highest
+foreclosure rate in the State. So I was very grateful to see
+the action that your administration, President Obama's
+administration, has taken, and I look forward today to
+supporting legislation that will help further that.
+ We know it is only one piece, one leg of the stool. But I
+am curious; one of the challenges we have had ongoing is we are
+constantly playing catch-up around dealing with the foreclosure
+issues. So what do you look at as the benchmarks as to whether
+or not this is working, sort of the timing around how you will
+measure those? And what are you thinking in anticipation of any
+potential problems that may arise?
+ Secretary Geithner. Excellent question. The best things to
+look at are what is happening to overall mortgage interest
+rates. And as I said earlier, they are coming down. What is
+happening to the amount of refinancing? That is a measure of
+how many people are benefiting from lower interest rates, and
+those numbers are reported at relatively higher frequency. And,
+as important, you are going to see relatively detailed high
+frequency reporting of the number of loan modifications that
+are going to occur that will help make mortgage payments more
+affordable for, we estimate, between 3 and 4 million Americans.
+And you will be able to see how many are occurring and the
+broad benefits. Those are the right measures.
+ Ms. Tsongas. Is there sort of a minimal level that you are
+going to look at?
+ Secretary Geithner. In terms of interest rates?
+ Ms. Tsongas. No, just in terms of refinancing.
+ Secretary Geithner. In the President's program, we laid out
+some initial estimates of people who would be eligible to take
+advantage of this new refinancing program; and again, I think
+those estimates are in the 3 to 4 million range. And so you can
+measure how many happen against that benchmark.
+ Now, outside that program, you see hundreds of thousands of
+families now every week taking advantage of lower interest
+rates to refinance, and that is another measure, too. So you
+see broad refinancing trends in this program, outside this
+program. And those are the right measures. Overall interest
+rates, number of refinancing, and the kind of sustainable loan
+modifications necessary to help responsible families stay in
+their homes.
+ Ms. Tsongas. And if we start to see the kind of issues we
+had with Hope for Homeowners, where in spite of our best
+intentions, it just didn't work, it wasn't effective, how
+quickly can you deal with those kinds of obstacles?
+ Secretary Geithner. Well, the legislation changes that are
+under consideration now will make Hope For Homeowners, we
+believe, substantially more effective. And we want to move to
+put those in place as quickly as possible.
+ Ms. Tsongas. Thank you.
+ Chairman Spratt. Mr. Etheridge.
+ Mr. Etheridge. Thank you, Mr. Chairman.
+ And, Mr. Secretary, thank you for your time this morning
+and your hard work. People don't realize the hours you are
+putting in, and I had the privilege to chat with you at the
+Ways and Means the other day.
+ But I don't know in my lifetime of any administration that
+has inherited the challenge that this one did before they came
+in office and then faced the Armageddon almost since you have
+been there.
+ So let me change the tone. And I want to associate myself
+with Mr. Berry's comments as relates to agriculture, and I will
+come back to that at the end if I have time. But let me change
+the tone for just a minute, because I am very pleased that the
+President has placed such a strong emphasis in this budget on
+education.
+ I spent 8 years as State superintendent of schools before I
+came here. I was the first in my family to graduate from
+college. So education is a critical piece, and it is the
+foundation we are going to build, I think, a future on. So let
+me ask you to comment on two pieces in here very quickly,
+because I think the American Opportunity Tax Credit in the
+economic recovery piece was a good piece to start, but now we
+are talking about in this budget building on it. And that goes
+back to early childhood education, actually a critical
+component. If we are going to stop dropouts, we have to stop
+them before they really get to be dropouts.
+ And the other piece is that it is critical to say to a
+young person, some say in high school, I do it in middle
+school: You can go to college, and here's the pathway. And I
+hope you will take a minute or so and cover that, and then
+leave me time to ask one other question, maybe, because I think
+it is important to get that on the record again. This is a
+long-term commitment for the future of our country.
+ Secretary Geithner. I completely agree.
+ And, again, just to say the three key parts of it, and we
+have got a terrific Secretary of Education with huge
+credibility in this area, and a President deeply committed to
+progress in this area.
+ Substantial resources to early childhood education, proven
+programs make big impact on outcomes; a sustained commitment,
+range of different ways to help improve quality of teaching in
+our elementary/secondary education; and a greater financial
+commitment to help people afford higher education, both
+community colleges and 4-year colleges. Those three things,
+there is a rich ray of other things in there, but those are
+really the critical things.
+ Mr. Etheridge. Called Pell grants, which are critical to a
+lot of youngsters who would not have an opportunity to ever
+enter the doors of a college or university.
+ You know, Margaret Mead once said: ``Never doubt that a
+small group of thoughtful committed citizens can change the
+world.'' And, indeed, it is the only thing that ever has. I
+think we are at that point in history. I think we have that
+opportunity.
+ Mr. Berry mentioned earlier about agriculture, and let me
+just touch on that. And you don't really have to comment on
+that, but I want to have an opportunity to work with you
+because my home State of North Carolina, about one in five jobs
+are tied to agriculture, as many as high tech jobs as we have
+and major universities and all the things we do, and we are
+currently going through a major crisis. There is about $130
+billion annually to the whole U.S. economy, as he had
+indicated, and 14 percent of the workers. In North Carolina, it
+is about 20. So it is much higher. But we are going through a
+unique crisis. And I think if we don't deal with it quickly, it
+could grow, and that is credit in the rural sectors that
+could--things that are happening on Wall Street may very well
+hit the country road. And we have seen where a lot of the
+poultry growers, who are people who really are affected,
+contract; they aren't fitting any of the categories. They don't
+get unemployment. They aren't fitting in these categories. And
+I hope you will allow us to work with you to find a way that we
+can, through maybe the Department of Ag or through the
+Treasury, to reach out and help these folks until this thing
+turns around. They aren't asking for a hand out; they are just
+asking for a hand up. And I hope you will allow us to work with
+someone in your office to deal with that. It is not just my
+State. It deals with Louisiana, Arkansas, and I think
+Pennsylvania and other places as well.
+ Secretary Geithner. Congressman, we have had a chance to
+talk about that already. And I will absolutely commit to work
+with my colleagues at the Department of Agriculture on how we
+can best be responsive to that concern.
+ Mr. Etheridge. I appreciate that. And I thank you very
+much.
+ Thank you, Mr. Chairman. I yield back.
+ Chairman Spratt. Mr. Edwards.
+ Mr. Edwards. Thank you, Mr. Chairman.
+ Mr. Secretary, welcome to the committee. My Republican
+colleague Mr. Ryan said that the Obama budget plan and
+proposal, and this is a quote, is not good economics.
+ Mr. Chairman, I would like to put that criticism in a
+little bit of perspective.
+ This is the chart that shows when the Bush administration
+took office. So that we are reading this chart correctly, the
+blue line is where we were at that point. That meant there was
+a surplus of nearly $200 billion a year when they took office.
+ I would also point out that Mr. Ryan, who is genuine in his
+economic beliefs, articulate in expressing them, but I would
+also say, in fairness and in due respect, he was one of the
+chief architects of the good economics, if that is what he
+wants to call it, of the Bush era.
+ So, Mr. Chairman, this chart shows what happened once the
+good economics of Mr. Ryan and the Bush administration went
+into place. We went from the largest surpluses in American
+history to the largest deficits in American history. And I see
+my chart didn't even go to 2009. I am glad this one has been
+amended, because the chart would have to be rewritten because
+the deficit is so bad in fiscal year 2009 left by the Bush-Ryan
+good economic programs that there wasn't enough room on the
+chart to show what the actual deficit is. Am I correct, the
+deficit, you said the Obama administration assumed is $1.3
+trillion. Is that correct?
+ Secretary Geithner. And I think, just to be fair, that
+understates the underlying deficit because that is a deficit we
+start with. But we start also with a deepening recession and a
+financial crisis that is putting a lot of pressure on the
+economy. And so the right measure of where we are starting from
+has to incorporate the cost of fixing it. So I think we are
+starting with a deficit that is enormously high because of the
+deep challenges we all face.
+ Mr. Edwards. And I can understand why Mr. Ryan and others
+might feel threatened that the American people voted for a
+change to try a different approach, because the good economics
+of the Bush-Ryan programs led us into not only the largest
+deficits in American history but the worst economic mess we
+have faced perhaps since the Great Depression. And following
+the advice that insanity is doing the same thing over and over
+again and expecting a different outcome, I am, frankly, glad
+that the Obama administration is trying to do this differently,
+in a more responsible way, even if those who are the architects
+of the worst disaster economically in my lifetime call this not
+good economics. So I consider that criticism, frankly, to be a
+compliment.
+ I want to be correct in understanding a statement you made.
+You said something to the extent that approximately 75 percent
+of the income growth of the past 7 to 8 years has gone to 1
+percent of Americans. Could you clarify that? If it is anywhere
+close to that, if my understanding is correct, that is just an
+astounding fact.
+ Secretary Geithner. I am looking for the precise fact,
+Congressman.
+ Mr. Edwards. Is that approximately correct? We can fine
+tune the answer.
+ Secretary Geithner. That is an independent assessment that
+I believe is correct. But let me just paint the context. We
+face this very long-term rise in inequality across the country.
+That rise in inequality accelerated over the last several
+years.
+ Mr. Edwards. That was another result of the good economics
+of the previous 8 years.
+ Secretary Geithner. And I will read the exact quote, and
+these are from analysis based on data from 2002 to 2006 during
+the last expansion: The top 1 percent took home 73 percent of
+all income growth.
+ Mr. Edwards. So one of the primary problems we face today
+is not that the wealthiest 1 percent of Americans don't have
+enough money after paying their taxes; it is, frankly, that the
+middle class has lost ground and real income over the last 7 or
+8 years. Would that be a correct statement to make?
+ Secretary Geithner. The basic troubling challenge that the
+economy has faced over the last decade is you saw income growth
+for average Americans slow significantly. And we need to bring
+about the kind of substantial changes in the basic direction of
+economic policy to try to address that basic challenge. And
+that is one reason why it is so important that we do a much
+better job of improving education outcomes and bring some more
+fairness and balance to the overall----
+ Mr. Edwards. So this administration wants to pursue
+policies and help the middle class in the belief it creates
+more wealth in America if we have a healthy middle class. Some
+who were the architects of the good economics that led us
+through the worst crisis since the Great Depression want to
+continue policies to cut education, and health care programs,
+and job training programs that help the middle class while
+actually pushing for more tax cuts for the wealthiest
+Americans.
+ So I compliment you for not following the good economics of
+the past 8 years and trying it a different way.
+ Thank you, Mr. Chairman.
+ Chairman Spratt. Thank you, Mr. Edwards.
+ Mr. Secretary, we have votes on the floor. And we will be
+coming back as quickly as we can. We are mindful of your need
+to get out of here by 12:30, and we will abide by that. In the
+meantime, if you need some office space just behind us, you are
+welcome to use these facilities.
+ Secretary Geithner. Thank you, Mr. Chairman.
+ Chairman Spratt. That applies to your entire staff.
+ Secretary Geithner. Thank you, Mr. Chairman.
+ Chairman Spratt. We will be back as quickly as we can.
+ [Recess.]
+ Chairman Spratt. We will go first to Ms. McCollum.
+ Ms. McCollum. Thank you, Mr. Chair.
+ And thank you for your testimony today and for your
+patience during our voting interruption.
+ I want to focus on health care for a little bit. I just
+find it totally unacceptable that in the wealthiest nation in
+the world, 46 million Americans don't have health insurance and
+millions more encounter a health care system that is
+unresponsive and inadequate to meet their basic medical needs.
+And along with that, there are too many that are underinsured.
+And underinsurance leads to poor medical outcomes. It leads to
+more expenses for families. And it is my opinion that health
+care should be a right in this country, basic access to health
+care, and not just a privilege for those who have financial
+means.
+ Now, this budget makes it really clear that you are not
+going to wait to do health care reform. You are going to move
+forward. President Obama is living up to his promise to provide
+health care for America. Families and businesses are
+struggling. They can't afford to pay for their health care. I
+hear this all the time about the increasing costs and the
+decreasing coverage along with that increase in cost. So with
+the current economic conditions, the economic forecast dilemma
+that we find ourselves in, the housing crisis, families are
+continuing to be squeezed. And I am just, for the record, going
+to put in a few things for an example here: 1 percent of the
+increase in the unemployment rate, it is estimated that as many
+as 1.5 million Americans lose their health care coverage. Over
+2.5 million American families face foreclosure every year.
+Every year, 2.5 million American families face foreclosure
+because of medical costs. They lose their homes because of
+that. So, clearly, we know medical costs have an impact on
+workers' wages, it reduces their take-home pay. We know it
+makes them have to make hard choices about children going to
+college, making repairs on their homes, sometimes staying in
+their homes, let alone preparing for retirement. So as a member
+of this committee, the Budget Committee, and the Appropriations
+Committee, I am very interested to hear what some of the
+economic consequences you think that there will be if we do not
+address this problem of rising health care costs in a very
+fiscally responsible way? So could you maybe talk about the
+impacts that will increase access to health care and lowering
+costs that are in this budget and the effects, not just of the
+short-term but the long-term? And then if you could maybe touch
+on how decreasing health care costs, what that means for the
+future of Medicare and other programs for our families, seniors
+and that?
+ And with that, I will listen to your answer. Thank you.
+ Secretary Geithner. You said it very well. The President in
+the budget laid out a set of broad principles to guide our
+common effort to reform our health care system. And those
+principles are to protect families' financial health; make
+health care coverage affordable; to aim for universality; to
+provide portability of coverage; to guarantee choice; to invest
+in wellness and prevention; to improve patient care and quality
+care; and to maintain long-term fiscal sustainability. I think
+those broad principles provide a framework in which we can come
+together and reach consensus on how best to fix this system.
+ And I think you said it exactly right, which is that it is
+not just a moral imperative, because in a country with these
+resources, it is just hard to understand why we can't deliver
+better health care more broadly spread to all Americans, again
+regardless of how fortunate they are in life. And our system
+does not deliver high enough quality care, despite how much we
+spend on it. So you see businesses facing huge increases in
+costs. Those get passed on to families. And that is a big
+burden on the overall economy as a whole. Again, our approach
+is to try to reduce the level of cost by improving the
+effectiveness of care, by using information technology in a way
+to help get a lot of these inefficiencies out of the system, to
+preserve for people the basic framework of choice that is so
+important. And this is going to cost money, so we have got to
+figure out a way to do it that is fiscally sustainable.
+ What we did in the President's budget is to lay out some
+very specific ideas for how we can pay for these changes. But
+it is a critical priority. And as the President said in the
+State of the Union, it is time to move on this. We can't afford
+to wait. And I think it is a really important part of the broad
+set of programs in the budget to give Americans a sense that we
+are going to be moving towards fixing these long-term problems
+in ways that will make our economy more productive in the
+future, grow more rapidly than it otherwise would.
+ Ms. McCollum. Mr. Chair, I thank you.
+ And I believe we are going to see savings when we take care
+of health care for Americans. And I would hope at some point,
+we will figure out a way to capture the savings on property
+taxes, insurance costs, and all the other hidden ways we are
+paying for this poor health care and lack of health care that
+we have now.
+ Chairman Spratt. Thank you, ma'am.
+ Mrs. Lummis.
+ Mrs. Lummis. Thank you, Mr. Chairman.
+ And thank you, Mr. Geithner, for being willing to
+participate in this lively debate.
+ And I want to tell you that, coming from the Mountain West,
+from Wyoming, you are scaring the wits out of my constituents,
+you are scaring the wits out of the American people, and this
+is how it is happening. You have a $646 billion cap-and-trade
+proposal in these budgets. And while you expressed a concern
+that the President wants to undo the huge damage to productive
+capacity of our economy, cap-and-trade is the biggest damage
+you can do to the productive capacity of this economy.
+ We are an energy-producing State; 50 percent of the
+electricity in this country comes from coal; 20 percent comes
+from nuclear, both of which are targets of your budget. And yet
+even if you wanted to go to the cleanest-burning hydrocarbon,
+natural gas, this budget creates disincentives for the
+production of natural gas and leads the American people to the
+assumption and belief that solar and wind can replace nuclear,
+coal, oil and gas. It cannot. It cannot do it.
+ And yet you are going to put in a cap-and-trade system that
+you believe will not impact the American people; yet we know it
+is a regulated industry and that people who are producing
+electricity go through a regulatory process that guarantees
+them a profit as part of their investment. That doesn't happen
+with the producers of oil, gas, coal, uranium, wind and solar.
+So your proposal will destroy, I am serious, destroy the
+productive capacity of my economy.
+ Here is a couple of ways that it does it. One, it takes the
+AML moneys, the Abandoned Mine Land Moneys, that were
+guaranteed to the States under SMACRA and a more recent
+agreement by Congress for which President Obama voted when he
+was a U.S. Senator and takes it away. He is undoing a previous
+piece of legislation that was agreed on by easterners and
+westerners, unions and non-unions, Republicans and Democrats,
+and was supported by President Obama.
+ Furthermore, you take away the intangible drilling costs
+deduction for oil and gas producers domestically, domestically.
+So what you are going to do is send oil and gas production
+overseas. You are not increasing energy production in the
+United States. You are making us more dependent on foreign oil
+and gas. And to take a commodity like natural gas, in
+particular, that is the cleanest-burning hydrocarbon, and
+punish it and punish the people in this country that produce
+it, is the most counterproductive thing that you can do and
+gets away entirely from the President's goal of not reducing
+the productive capacity of this country.
+ So I challenge the statements that you have made. They are
+inconsistent with the realities of this budget. And I strongly
+encourage you to revisit the effects of cap-and-trade energy
+production in this country which will be retarded and it will
+increase our dependence on foreign oil. And of course, I want
+your reaction to the fact that you are scaring the wits out of
+the people in this country that produce energy.
+ Secretary Geithner. I welcome that challenge.
+ The President is proposing to do what we have not been able
+to do as a country, which is to put in place an energy policy
+that will put us on the path to more efficient use of energy,
+cleaner energy, and to help make that process work more
+quickly. Now, this proposal will reduce the cost of energy,
+some forms of energy, to the American economy. It will increase
+the cost of some other forms of energy to the economy, and we
+are proposing that for very clear reasons, which is that the
+American people want us to be more efficient in how we use
+energy, particularly those forms of energy that contribute to
+global warming, because of the long-term costs it will present
+to the economy as a whole.
+ And you have to look at the overall package in this budget.
+And the overall effect of these measures will make this economy
+stronger than it is today, and will lead businesses in this
+country with a set of powerful incentives instead of--for an
+example, a zero capital gains rate for small businesses, a very
+important example. Many small businesses will enjoy lower taxes
+under this because of Make Work Pay going forward. You need to
+look at the overall package. And this package of proposals will
+make the American economy more productive in the future.
+ Now, I understand your concerns about the impact of these
+cap and trade proposals. But as a country, it makes no sense
+for us to continue to actively subsidize the use of energy that
+is going to contribute to more damaging effects on the
+environment. And unless we address it as a country, we are
+going to be less secure and less prosperous.
+ Chairman Spratt. We have got time for one more question,
+and that is from Mr. Scott.
+ Mr. Scott. One more questioner or one more question?
+ Chairman Spratt. One more round.
+ Mr. Scott. Thank you, Mr. Chairman.
+ Mr. Secretary, a lot of concern has been expressed by those
+with incomes over $250,000. I know during the 1990s, the Dow
+Jones Industrial Average more than tripled for those with those
+incomes that had investments in stocks, bonds, 401(k)s and that
+kind of thing showed a substantial increase in assets. It seems
+to me that improving the economy where the Dow Jones Industrial
+Average will get back on track to going up rather than down
+would mean more to people in that income bracket than a 3
+percent differential in marginal tax rate. Could you say
+something about the value of getting the economy back on track
+as it affects people in the higher income brackets?
+ Secretary Geithner. I think you are absolutely right. The
+most important thing for us to do is to focus on policies that
+are going to get growth back on track as quickly as possible;
+to bring the recession to an end as quickly as possible; and to
+get our economy back to a place where we are growing at a
+sustainable rate. The President has proposed and this
+administration has moved with unprecedented speed to not just
+work with Congress to pass a very powerful recovery
+reinvestment act, but to move to take actions to get credit
+flowing again, to address the housing crisis and propose a very
+dramatic bold set of proposals in the budget that will again
+make this economy stronger in the future. The most important
+thing you can do and that we have to do is to get recovery back
+on track. That will be overwhelmingly more important than
+anything else, not just for our long-term fiscal future, but
+for, again, reducing the damage that a recession like this is
+going to bring to businesses and families across the country.
+ Mr. Scott. And it would be in the interest of those with
+incomes over $250,000 to get the economy back on track much
+more so than whatever the marginal tax rates that we are
+discussing would--whatever difference they may make?
+ Secretary Geithner. I completely agree. Another way to
+think about it, unless we get the recovery established and lay
+out to the American people a framework that brings our deficits
+down over time, then recovery will be delayed and growth will
+be weaker, there will be less private investment and less
+overall gains in income across the economy as a whole.
+ Mr. Scott. Thank you.
+ In terms of the auto bailout, would it be cheaper for the
+government to buy cars rather than lend the corporations money?
+The advantage there would be that workers would actually have
+more work to do. After you have done that, it certainly should
+be just as likely to prop up the auto industry. An added
+benefit is you get some cars to show for it.
+ Secretary Geithner. You are right to say we need to look at
+what is going to be the most efficient, the least costly way
+for the government to help facilitate the kind of restructuring
+we need. And we will look for the most effective use of
+taxpayer resources, if we feel there is a case for using
+taxpayer resources to help facilitate a restructuring.
+ The really important thing to recognize is that we are
+going to need substantial restructuring to put these companies
+on the path to viability. And it is going to require a lot of
+sacrifice by all the stakeholders in those companies. And we
+are embarked on a very careful process of trying to make sure
+that we can improve the odds of that kind of restructuring.
+ Mr. Scott. And finally, the auto dealers, some of them
+complained that some of their buyers can't get loans. Is that
+true? And if so, what are we doing about it?
+ Secretary Geithner. You are right that the financing
+environment has deteriorated dramatically for the companies and
+for the overall financing available for cars. And the
+government has already taken action to put capital into the
+finance company. And it is--we are, through these direct
+lending programs we announced on Tuesday, trying to get the
+auto finance market to start to open up again. But any
+effective solution to address the crisis facing the auto
+industry is going to have to directly address these problems in
+the financing markets, which are making everything harder.
+ Chairman Spratt. Mr. Secretary, could I ask you to take one
+question each?
+ Secretary Geithner. Absolutely.
+ Chairman Spratt. Go ahead, Mr. Nunes. One question if you
+will.
+ Mr. Nunes. Thank you, Mr. Chairman.
+ Mr. Secretary, I was glad to hear that you are a supporter
+of American agriculture. I sent a letter--actually two letters
+now to President Obama regarding a regulatory drought that we
+are experiencing in California where we are on the verge of
+idling 500,000 acres of the most productive farmland in the
+world. UC Davis just came out with a study that said that that
+was going to cost us 80,000 jobs. My home county is at 15
+percent unemployment, likely headed to 20 if this occurs. I
+would invite you, President Obama, we can all go have a big
+job-saving party. All we have to do is turn on the pumps in the
+delta so that we can pump water south. This is a regulatory
+drought dealing with ESA issues. But this is a very, very
+serious issue that we absolutely--I wanted to raise with you
+here today so that you know the seriousness of it. I want to
+talk a little bit about----
+ Chairman Spratt. Mr. Nunes, would you--basically would you
+reduce it to a question because he has got to get to the White
+House for a function at 1:00 and he needs to leave here--12:30
+was the agreed-upon time, and we have stretched it out.
+ Mr. Nunes. That was a statement. Can I just ask a quick
+question on cap-and-trade?
+ Chairman Spratt. A quick question would be fine.
+ Mr. Nunes. The point I want to make is that, in California,
+we attempted to limit greenhouse gases. I think that we can all
+agree that that is a good thing to do and you won't have any
+argument from me.
+ However, what we have seen in California is we went to 14
+cents a kilowatt in our cost of electricity now which is
+contributing to this outflow of migration leaving the State and
+jobs leaving the State. This is--just to throw out there, this
+is kind of an example. But in the stimulus bill, we spent a
+trillion dollars roughly. That trillion dollars would build at
+least 200 new nuclear reactors, which would get us, just
+hypothetically here, would get us to almost 80 percent of our
+electricity produced emission-free from nuclear power. And I
+think if you and I sat down and came up with a real plan how we
+are going to provide cheap, abundant electricity on the market,
+that at the end of the day, we could go through solar, wind,
+fossil fuels, and we would always come back to the same thing,
+that we have to invest in new nuclear power reactors. And I
+would hope that--and I would like to hear your answer to this,
+that we would look at building these 200 reactors or some
+number. And do you guys have a plan of getting these reactors
+on line and how many should we expect should be built in the
+next 5 to 10 years? Or should we expect any at all?
+ Secretary Geithner. Excellent question, but it deserves a
+more thoughtful response than I can give you here. I would be
+happy to talk to my colleagues on the energy side and come back
+to you with a detailed response to that question.
+ Mr. Nunes. Well, fair enough. I hope that we can look
+seriously at reducing the burning of fossil fuels, and I think
+nuclear power is going to be the way to do it.
+ Mr. Chairman, I want to thank you for indulging me.
+ Chairman Spratt. Mr. Yarmuth, one question quickly.
+ Mr. Yarmuth. Thank you, Mr. Chairman. I won't make a
+speech.
+ If I picked up a newspaper on Sunday and saw a sale that
+was, for 2 days only, 40 percent off, and that was Monday and
+Tuesday. And I went into the store on Wednesday, and I had
+missed the sale and was back to regular price, would I have a
+legitimate argument in saying that they had raised the price or
+just that I had missed the opportunity to take advantage of
+that? And my question is, is that an apt analogy to the issue
+of whether we are actually raising taxes under this budget? And
+is there any evidence that the tax--that sale that we gave to
+the wealthiest individuals in the country over the last 6 to 8
+years has had any measurable benefit to anyone in the economy
+outside of those individuals?
+ Secretary Geithner. Understand the analogy. I think that it
+is fair to say that economists are debating what the impact
+was.
+ I think what you can say is you saw relatively small
+benefits on actual growth rates relative to what it did to our
+long-term fiscal costs. And in looking at all these kind of
+things, what you want to do is just find a measure, a set of
+measures that have substantial effects on incentives and growth
+at the least cost for long-term fiscal prospects. And that is
+the balance you want to achieve. And in my judgment and the
+judgment of many economists, we got that balance wrong in the
+earlier part of this decade.
+ Chairman Spratt. Mr. Garrett, one question, please, sir.
+ Mr. Garrett. Thank you.
+ Thank you. There was a total lack of--or disbelief when the
+administration and yourself rolled out your reform efforts
+several weeks ago and the markets reflected that. There
+continues to be a lack of confidence in the market with this
+administration as regards to the proposal they have laid out.
+And now the administration says that they want to have a total
+regulatory reform basically in place, not just principles in
+place, for the G-20. How do you intend to reestablish that
+confidence by doing a rush to judgment on regulatory reform and
+a continued vacillation on some of these other proposals and
+establish that in a short period of time?
+ Secretary Geithner. Congressman, I just want to say that we
+have two important obligations now. One is to move together to
+try to get credit flowing into the financial system. And we
+have laid out a framework of efforts to do that, and we are
+moving quite quickly to put in place a program of capital
+support and direct credit lending on a substantial scale to
+help get credit markets flowing again.
+ But we also need to move to demonstrate to the American
+people and to the world that we are prepared to put in place
+the set of reforms necessary to prevent a crisis like this from
+happening again. We are not going to rush to judgment. It is
+going to be hard to do. And we are going to have to do it very
+carefully working with you. A lot of work has been done on this
+area. You are right to say it is going to be a complicated
+task, but I think it is important that we start that process
+quickly. And we look forward to working with you and your
+colleagues on how best again to begin that process of putting
+in place reforms to prevent this from happening. Because if we
+don't do that, then we are going to be leaving people with, I
+think, a deeper concern about whether we have the will together
+to fix this broken system.
+ Mr. Garrett. I appreciate that.
+ Thank you.
+ Chairman Spratt. That concludes the hearing. Thank you very
+much, Mr. Secretary, for your excellent and forthright answers.
+And we look forward to working with you on this problem in the
+months ahead.
+ Secretary Geithner. Thank you, Mr. Chairman.
+ Chairman Spratt. Before we finally adjourn, all members who
+did not have the opportunity to ask questions will be given 7
+days to submit the same for the record.
+ Without objection, so ordered.
+ [Questions for the record, submitted by Mr. Aderholt, and
+their responses follow:]
+
+Questions for the Record From Hon. Robert B. Aderholt, a Representative
+ in Congress From the State of Alabama, and Secretary Geithner's
+ Responses
+
+ 1. The President says he is reducing taxes for 95 percent of the
+population. Will the cap and trade proposal affect those making less
+than $250,000?
+
+ The President's clean energy agenda begins with an effort to lower
+the energy costs of American families through the American Recovery and
+Reinvestment Act (ARRA). A variety of tax credits, including credits
+for residential energy efficient investments, will reduce the carbon
+footprint of families and facilitate the transition to a clean energy
+economy while also reducing energy use and thus costs. In addition, the
+weatherization program provided for in ARRA will also lower energy
+bills by improving the energy efficiency of low-income residences.
+ The Administration is looking forward to working with key
+stakeholders and the Congress to fully develop a program to reduce
+greenhouse gas emissions approximately 14 percent below 2005 levels by
+2020, and approximately 83 percent below 2005 levels by 2050. The
+program will be implemented through an economy-wide cap and trade
+program in which all emission allowances will be auctioned to ensure
+that the biggest polluters do not enjoy windfall profits. The
+Administration's budget reflects the proceeds from the emission
+allowance auction only to the extent they are reserved for clean energy
+technology initiatives and to compensate families through the Making
+Work Pay Tax Credit. Additional revenues generated from an emission
+allowance auction above those shown in the budget will be used to
+compensate vulnerable households, communities, and businesses for
+increased energy costs. The exact form and amount of compensation will
+be determined as the emission reduction program is developed.
+
+ 2. How much of the national debt is held by foreign investors?
+Considering that the Chinese are now developing their own economic
+stimulus plans, how will that affect their inclination to continue
+holding our debt?
+
+ China's economic stimulus plan should not have a material effect on
+China's willingness to hold Treasury securities relative to any other
+securities in their portfolio of foreign exchange assets. We have long
+encouraged China to shift towards domestic demand--particularly
+household consumption--as a source of future Chinese growth. Such a
+shift would reduce global imbalances and the requirement to finance
+them, and would help assure sustainable global growth.
+
+ 3. Through TARP, Treasury has already guaranteed up to $25 billion
+in loans for automakers GM and Chrysler. In an annual report released
+in March 2009, GM stated that it might have to seek bankruptcy
+protection. Will GM and Chrysler be receiving additional TARP funds?
+
+ The Presidential Task Force on the Auto Industry (including
+Treasury) remains committed to providing Chrysler and GM with
+sufficient assistance to help give them a chance to achieve financial
+stability. The task force is evaluating their restructuring efforts and
+the alliance being proposed for Chrysler. As the President laid forth
+in his announcement on March 30th, we will not be making any further
+decisions until the self-imposed deadlines, which was 60 days to the
+date for GM and 30 days to the date for Chrysler.
+ For Chrysler, as the President noted in his announcement on April
+30th and his commitment on March 30th to provide both adequate working
+capital to help Chrysler through this restructuring period and a loan
+up to $6 billion to the Chrysler-Fiat Alliance, the U.S. government has
+committed to provide assistance sufficient to help give Chrysler a
+chance to achieve financial viability. Working capital: The U.S.
+government is prepared to provide approximately $3.3 billion in debtor
+in possession financing to support Chrysler through an expedited
+chapter 11 proceeding.
+ Loan to the New Chrysler: Upon closing, the U.S.
+government loaned $6.6 billion to New Chrysler including proceeds of
+$6.3 billion and a guarantee of $350 million that is expected to remain
+undrawn. This loan was made in the form of a term loan with $2.0
+billion due in 30 months and the balance 50% due on the 7th anniversary
+and 50% due on the 8th anniversary of the loan. The interest will be an
+appropriate combination of cash and payment-in-kind. There is also an
+additional note of $288 million which is a fee for making these loans.
+The loans will be secured by a first priority lien on all of Chrysler's
+assets.
+ For GM, after the President's March 30th announcement, the
+Administration provided GM with $6 billion of working capital for 60
+days while the Company developed a more aggressive restructuring plan
+and a credible strategy to implement such a plan. During that time
+period, Treasury also placed $361 million in an SPV for the Auto
+Warranty Commitment Program, which will not be drawn, and Treasury
+exchanged an $884 million loan to GM for a portion of GM's equity
+interest in GMAC. From the date of GM's filing for bankruptcy until the
+completion of the 363 sale of assets to the New General Motors, the
+Administration funded $30.1 billion of debtor-in-possession financing
+to the company.
+
+ [Questions for the record, submitted by Mr. Blumenauer, and
+their responses follow:]
+
+Questions for the Record From Hon. Earl Blumenauer, a Representative in
+ Congress From the State of Oregon, and Secretary Geithner's Responses
+
+ ENERGY AND CLIMATE CHANGE
+
+ 1. As the President's budget indicates, global warming is one of
+the greatest challenges the world faces. The Ways and Means Committee
+is poised to play an important role in legislative solutions, including
+the cap and trade proposal outlined in the budget. In addition to new
+legislation, however, we should examine existing policies to ensure
+that our federal efforts are not working at cross-purposes. For
+example, the federal tax code is replete with incentives, some direct
+and others unintentional, that encourage carbon-intensive activities.
+To address these concerns, this Committee drafted a provision that was
+included in the energy tax package that passed the House last year
+requiring a ``carbon audit'' of the tax code. Under this provision,
+Treasury Dept. must contract with the National Academy of Sciences to
+undertake a ``comprehensive review of the Internal Revenue Code to
+identify the types of and specific tax provisions that have the largest
+effects on carbon and other greenhouse gas emissions and to estimate
+the magnitude of those effects.'' Do you know whether the Department
+has initiated this study yet? If not, when do you plan to do so?
+ (FYI: we sent a letter, co-signed by Reps. Doggett, Larson, and
+Stark, to then-Treasury Secretary Paulson back in December urging them
+to start and requesting a response. We never heard back. A copy of this
+letter is included.)
+
+
+
+ Section 117 of the Energy Improvement and Extension Act of 2008
+(Division B of the Emergency Economic Stabilization Act of 2008)
+requires the Secretary of the Treasury to enter into an agreement with
+the National Academy of Sciences to undertake a carbon audit of the tax
+code and authorizes the appropriation of $1.5 million to carry out this
+requirement. Although authorized, the funds that would enable the
+Treasury Department to enter into an agreement with the National
+Academy of Sciences have not yet been appropriated.
+
+ 2. I was pleased to see the comprehensive climate change
+legislation proposed in the President's budget. The summary document
+indicates that the program will be implemented through a cap-and-trade
+system which will include 100% auction to ``ensure that the biggest
+polluters do not enjoy windfall profits,'' and that a majority of the
+auction revenues will be spent on ``investments in a clean energy
+future'' and ``returned to the people.'' Do you have any more details
+on how the administration envisions spending the revenues? In addition
+to the ``Making Work Pay'' tax credit, does the administration envision
+other tax policies to support its greenhouse gas reduction goals?
+
+ The President's clean energy agenda begins with an effort to lower
+the energy costs of American families through the American Recovery and
+Reinvestment Act (ARRA). A variety of tax credits, including credits
+for residential energy efficient investments, will reduce the carbon
+footprint of families and facilitate the transition to a clean energy
+economy while also reducing energy use and thus costs. In addition, the
+weatherization program provided for in ARRA will also lower energy
+bills by improving the energy efficiency of low-income residences.
+ The Administration is looking forward to working with key
+stakeholders and the Congress to fully develop a program to reduce
+greenhouse gas emissions approximately 14 percent below 2005 levels by
+2020, and approximately 83 percent below 2005 levels by 2050. The
+program will be implemented through an economy-wide cap and trade
+program in which all emission allowances will be auctioned to ensure
+that the biggest polluters do not enjoy windfall profits. The
+Administration's budget reflects the proceeds from the emission
+allowance auction only to the extent they are reserved for clean energy
+technology initiatives and to compensate families through the Making
+Work Pay Tax Credit. Additional revenues generated from an emission
+allowance auction above those shown in the budget will be used to
+compensate vulnerable households, communities, and businesses for
+increased energy costs. The exact form and amount of compensation will
+be determined as the emission reduction program is developed.
+
+ [Questions for the record, submitted by Mr. Connolly, and
+their responses follow:]
+
+Questions for the Record From Hon. Gerald E. Connolly, a Representative
+ in Congress From the State of Virginia, and Secretary Geithner's
+ Responses
+
+ 1. Under the previous Administration, the initial TARP funding was
+directed to banks and large institutions. With its Housing
+Affordability and Stabilization Plan, does the current Administration
+believe that individual homeowners were underserved by the economic
+recovery efforts of the past?
+
+ All of the initiatives the Administration has introduced under the
+Emergency Economic Stabilization Act (EESA) have had the common goal of
+stabilizing the financial system in order to avoid systemic failures
+and to prevent a deeper recession and further damage to the productive
+capacity of the American economy. Rather than focusing on specific
+constituencies or segments of the population, the Administration has
+laid out a broad strategy designed to address the major challenges
+facing the financial system in order to support the broader economy and
+benefit all Americans. The Administration's housing initiatives address
+one of these major challenges while complementing other Financial
+Stability Plan initiatives focused on strengthening confidence in
+financial institutions, re-starting credit markets, increasing
+liquidity for legacy assets, and developing a modern financial
+regulatory regime.
+ The ongoing adjustment in the housing market remains at the center
+of the economic and financial crises. Falling home prices are a major
+financial challenge for many families. At the same time, financial
+losses related to the housing sector adjustment continue to be a
+significant headwind for banks and other financial institutions.
+Foreclosures are particularly problematic because they not only impose
+significant financial and emotional burdens on families; they are also
+costly for communities and neighborhoods. For all these reasons,
+addressing the housing crisis and reducing foreclosures is an important
+objective. We have taken aggressive action to prevent avoidable
+foreclosures with up to $75 billion ($50 billion of which is from TARP
+funding) pledged to the Home Affordable Modification Program and will
+reduce monthly mortgage payments to an affordable and sustainable level
+for as many as 3 to 4 million struggling borrowers. We have also
+introduced a Home Affordable Refinance Program to help as many as 4 to
+5 million borrowers who--through no fault of their own--have suffered
+home price declines that had prevented them from taking advantage of
+today's low rates. We have also taken important steps to strengthen
+confidence in Fannie Mae and Freddie Mac, and alongside the Fed we have
+helped push mortgage rates to historic lows, increasing refinancing
+nationwide.
+
+ 2. You recently reported that almost one in five mortgages in the
+country have zero or negative equity. With continuing falling housing
+values, millions more Americans will find themselves underwater unless
+we act on their behalf. In my home district, the 11th of Virginia,
+housing values this past year fell almost 13% in Fairfax County and 32%
+in Prince William County. As you noted in your written testimony, 2.5
+million Americans lost their homes last year. In addition to the over
+10,000 foreclosures in my district, many thousands more homeowners
+currently owe more on their principal mortgage than the value of their
+home. How will the President's Housing Affordability and Stability Plan
+assist homeowners with negative equity, but not currently facing
+foreclosure?
+
+ Falling home values in Fairfax and Prince William counties, as in
+other counties across the country, have made it challenging for
+families to refinance their mortgages or sell their homes. Even
+borrowers with perfect credit who are current on their mortgages may be
+unable to take advantage of historically low interest rates if they
+have insufficient equity in their home. The Making Home Affordable
+Refinancing program is designed to allow borrowers with mortgages owned
+or guaranteed by Fannie Mae or Freddie Mac to refinance even if the
+loan-to-value (LTV) ratio on their first mortgage increases to as high
+as 105%.
+ The Administration's housing plan also provides support for
+families who are struggling with their mortgage payments and, because
+home values have dropped, are unable to sell or refinance. The Making
+Home Affordable Modification program can help homeowners with negative
+equity reduce their mortgage payments to affordable levels. There is no
+LTV ceiling to qualify for the modification program, so being
+underwater does not disqualify borrowers from taking advantage of the
+program.
+ The Home Affordable Modification Program uses incentives to
+servicers and investors to reduce borrowers' interest rates--or write
+down their principal, if the servicer chooses--to bring down the
+monthly payment to a level the borrower can afford. Additional
+incentives are available to borrowers to help them pay down their
+principal more quickly. The Administration also supports amendments to
+make Hope for Homeowners, a program designed specifically to help
+underwater borrowers, more widely available.
+
+ 3. The credit crunch that precipitated the difficulties in the
+financial sector has had troubling effects on municipal governments and
+their ability to issue municipal debt in order to fund critical
+infrastructure programs across the country. While Congress looks for a
+legislative solution to allow municipalities to access credit, do you
+anticipate a role for the Treasury Department in removing the barriers
+to capital?
+ Thank you for your time, Secretary Geithner; I look forward to
+working with you and the Administration as we fashion the Fiscal Year
+2010 budget.
+
+ Treasury is currently evaluating developments within the municipal
+market and analyzing potential policy options to address liquidity
+concerns. As part of this process, Treasury continues to maintain an
+ongoing dialogue with various market participants, government entities
+and other experts. Effective policy options should satisfy the
+following broad principles:
+ Minimize the burden on U.S. taxpayers;
+ Encourage private markets and avoid anti-competitive solutions;
+ Preserve market integrity; and
+ Increase market liquidity.
+ Once this process is completed, Treasury will be better positioned
+to offer possible recommendations for implementation.
+
+ [Questions for the record, submitted by Mr. Langevin, and
+their responses follow:]
+
+ Statement and Questions for the Record From Hon. James R. Langevin, a
+ Representative in Congress From the State of Rhode Island, and
+ Secretary Geithner's Responses
+
+ Secretary Geithner, thank you for testifying in front of this
+committee today. Each passing day paints a clearer picture of the stark
+economic challenges we currently face--just in my home state of Rhode
+Island, our unemployment is at 10.3 percent, we have seen a sharp
+contraction in manufacturing output, home values remain in decline and
+millions of properties continue into foreclosure nationwide.
+ At the center of this crisis are our capital and credit markets,
+which have become virtually paralyzed in the wake of the subprime
+mortgage meltdown. In an attempt to address this, Congress has
+appropriated hundreds of billions of dollars for the Troubled Asset
+Relief Program (TARP) and the Recovery Act. We will now be considering
+a request for an additional $250 billion contingent reserve for further
+financial stabilization in FY10.
+ It appears very clear to me that one of the key drivers of our
+economy is small business, as is the case in Rhode Island. And yet the
+media has been dominated by reports of relief to our country's
+financial and manufacturing giants.
+
+ QUESTIONS FOR THE RECORD
+
+ 1. Can you please take this opportunity to specifically outline how
+the tax relief set forth in the budget will impact our nation's small
+businesses?
+
+ The President's Budget proposes several steps that will help small
+businesses.
+ Eliminate capital gains taxation on small businesses. The
+President's Budget will provide small business owners with a new zero
+capital gains rate on new investments in their businesses, which should
+help them plan for expansion and succession. Current law provides
+individuals a 50-percent exclusion from tax for capital gains realized
+on the sale of certain small business stock held for more than five
+years. The amount of gain eligible for the exclusion is limited to the
+greater of $10 million or 10 times the taxpayer's basis in the stock.
+For stock issued after February 17, 2009 and before January 1, 2011,
+the exclusion is 75 percent. The Administration proposes to increase
+the exclusion to 100 percent.
+ Make permanent the 2010 limits for small business expensing. The
+President's Budget will prevent the small business expensing provision
+(section 179) from returning in 2011 to the levels in effect before
+2003. Instead of reverting to a maximum deduction of $25,000 that
+begins phasing out at $200,000 of total qualifying investment, the 2010
+levels will be made permanent, meaning a deduction of up to $125,000
+and with the phase-out beginning at $500,000 of total qualifying
+investment (indexed for inflation after 2006).
+ Extending the current rate structure for families earning less than
+$250,000 after 2010. Most owners of small businesses pay taxes on their
+business income at their individual rate, and thus extending the
+current rate structure for single filers with income below $200,000 and
+for joint filers with income below $250,000 means that over 97 percent
+of small business taxpayers will either receive a tax reduction or see
+no change in their taxes when the rate structure is extended.
+ Make permanent the tax credit for research and experimentation. By
+making this credit permanent, the President's Budget will help provide
+more incentives for innovation and increase stability in the tax code.
+
+ 2. What percentage of small businesses will see their taxes reduced
+under this plan?
+
+ Most small businesses are organized in ways that the businesses
+themselves don't pay taxes, but the owners do. This is true for sole
+proprietorships, partnership, and S corporations. We estimate that over
+97 percent of small businesses will receive additional tax relief or
+see their rates remain unchanged when the current rate structure for
+families earning less than $250,000 is extended after 2010.
+
+ 3. You just recently announced a new ``Financial Stability Plan''
+to provide up to $1 trillion in financing capacity. While I am sure
+there are many details that still need to be worked out, I am very
+interested in learning more about how this plan will be used to
+leverage financing for small businesses.
+ What programmatic steps will be taken and investments made to
+restore liquidity to the frozen secondary credit markets and increase
+SBA lending--particularly within the SBA 7(a) loan program?
+
+ In 2008, the Small Business Administration (SBA) typically
+guaranteed about $18 billion in loans, but this year new lending is
+trending below $10 billion. While some of this decline is due to the
+weakening macroeconomic environment, much of the slowdown in lending is
+due to problems in the secondary market for SBA securities. In the
+past, banks would originate SBA-guaranteed loans to small businesses,
+and then sell a portion of these loans to a broker. The broker would
+then bundle a number of similar loans together into a security, which
+was ultimately sold to investors. This process of securitization was an
+important source of liquidity for banks, and accounted for over 40
+percent of all loans guaranteed by the SBA.
+ However, since October 2008, this market has ground to a halt. The
+investor base for these securities has essentially walked away, leading
+to a backlog in credit markets that has had a profound impact on small
+business lending. Given that there are fewer investors willing to
+purchase these securities, banks throughout the country have become
+less willing to originate new small business loans. If banks do not
+believe that they can sell a portion of their SBA loans into the
+secondary market, they are less willing to originate new loans to
+creditworthy small businesses.
+ As part of its Financial Stability Plan, the Obama Administration
+has implemented several programs to strengthen our banking system and
+provide financial institutions with the capital and the confidence they
+need to restart lending to businesses and families. But Treasury has
+also taken steps directly targeted towards unlocking credit for small
+businesses:
+ Higher Guarantees and Lower Fees for SBA Loans: Treasury
+worked closely with the SBA to ensure that $730 million was included in
+the American Recovery and Reinvestment Act to--among other measures--
+temporarily raise guarantees to up to 90 percent in the SBA's 7(a) loan
+program and temporarily reduce SBA fees for eligible loan guarantees.
+The 7(a) program--the SBA's largest--is specifically designed to help
+small businesses who cannot find credit elsewhere access capital by
+guaranteeing loans up to $2 million, and 7(a) loans can be used to
+finance purchases of land, buildings or equipment as well as working
+capital. Higher SBA loan guarantees will ensure that lenders have
+greater safeguards against possible losses, which should encourage
+lending to small businesses. Temporarily eliminating certain SBA loan
+fees--which could save a business owner $31,500 if he or she took out a
+$1 million 7(a) loan with a 90 percent guarantee--will help encourage
+small businesses to borrow, and banks to lend.
+ Efforts to Improve the Terms of the TALF for SBA Loans:
+The Term Asset-Backed Securities Loan Facility (TALF) provides
+investors with financing in an effort to stimulate demand for asset-
+backed securities--including securities backed by SBA loans--and unlock
+frozen secondary markets. In February, Treasury and the Federal Reserve
+worked together to improve the terms with which the TALF lends against
+SBA securities to make it more attractive to use TALF financing to
+purchase these assets. Coupled with the Treasury's purchase program
+described below, we expect the TALF to encourage private investment in
+SBA securities.
+ $15 Billion in Direct Purchases: In an effort to build on
+those earlier steps, Treasury announced its intention in March to make
+up to $15 billion in direct purchases to unlock lending in SBA's
+secondary markets. By doing so, Treasury is providing an assurance to
+banks and other lenders that if they originate a new 7(a) or 504 first-
+lien loan, there will be a buyer in the secondary market, which will
+provide them with money they can use to extend more credit to other
+borrowers. This measure works together with the temporary increase to
+up to 90 percent loan guarantees and the temporary elimination of SBA
+loan fees to help encourage banks to lend. These efforts mean that
+lenders will know both that they have greater protection against losses
+during these difficult economic times and that they can securitize
+loans to get new money to lend to more small businesses.
+ Call for Banks to Increase Reporting for Small Business
+Lending: Last month, Treasury announced that the 20 largest recipients
+of assistance through our Financial Stability Plan will be required to
+report their small business lending every month. In addition, we called
+for bank supervisors to require all banks nationwide to report their
+small business lending every quarter--rather than simply once a year.
+Together, these changes should make it easier for us to track whether
+or not banks are lending to small businesses, and how well government
+efforts are doing to stimulate this lending.
+ Targeted Tax Relief for Small Businesses: As part of the
+Recovery Act, the Obama administration has implemented several tax cuts
+that increase liquidity for small businesses, including a provision
+that allows small businesses to ``carry back'' their losses for up to
+five years instead of two, effectively allowing them a rebate on taxes
+paid in recent years.
+ As President Obama said on March 16, these efforts are only part of
+the Administration's plan to improve the flow of credit to small
+businesses. In the coming weeks, we intend to further our efforts to
+ensure creditworthy small businesses can borrow the money they need to
+maintain and expand their operations, and I am open to any ideas from
+Congress as to how we can best accomplish that goal.
+
+ 4. How much small business lending is expected to be leveraged
+under these initiatives?
+
+ As noted above, while the SBA has typically guaranteed about $18
+billion in loans in 2008, that figure was trending below $10 billion
+for 2009 prior to the actions taken by the Administration through the
+American Recovery and Reinvestment Act and the Financial Stability
+Plan. In the first quarter of FY2009, lending in the 7(a) program was
+down 57 percent from the previous year. As much as $3 billion in loans
+remains on the books of community banks, preventing them from making
+new loans even to businesses with strong credit histories.
+ It is difficult to project exactly how much small business lending
+will be leveraged through our efforts, but our pledge to make up to $15
+billion in direct purchases is an illustration of our commitment to
+stand ready to make any purchases necessary to restart the secondary
+market for SBA loans. As in any recession, we anticipate that demand
+for small business loans will remain somewhat diminished, despite our
+efforts to increase access to credit. However, in the weeks following
+our March 16 announcement, average weekly loan volume for the 7(a)
+program is up more than 20 percent over the period from January 1 to
+mid-March. While we cannot identify an exact figure for increased
+lending for the rest of the year, we do anticipate that the actions we
+take across several different channels will provide banks with the
+confidence to originate significantly more lending than they would have
+otherwise done.
+
+ 5. Broadly speaking, when do you anticipate we will start to see an
+impact of the recovery package that Congress passed last month?
+
+ Some parts of the American Recovery and Reinvestment Act (ARRA)
+have already begun to have an effect. For example, starting in early
+April, withholding was reduced to allow the speedy distribution of tax
+relief. The unfolding of recovery programs is being carefully monitored
+and publicized at an easy-to-use government web site, which is updated
+nearly every day (www.recovery.gov). We expect to see noticeable
+benefits from the stimulus program in the second half of 2009, with
+strong growth continuing through 2010 and 2011.
+ Among the highlights of recent announcements related to the
+provisions of ARRA:
+ Providing State Fiscal Relief: The Department of Health
+and Human Services has made approximately $87 billion available to
+States through increases in the Federal Medical Assistance Percentage
+(FMAP), which defines the percentage rate at which the Federal
+government provides matching funding for most Medicaid and certain
+foster care and adoption assistance expenditures. This change results
+in an increase in the Federal portion (and a corresponding decrease in
+the non-Federal portion) of such expenditures. With respect to
+Medicaid, States to date have drawn down nearly $17 billion of the
+approximately $87 billion in additional Federal funds, which
+contributes to State fiscal relief. States will have until December
+2011 to draw down Federal funds at this higher matching rate.
+ The federal government will send out $250 economic
+recovery payments to people who receive Social Security and
+Supplemental Security Income (SSI) benefits beginning in early May 2009
+and continuing throughout the month.
+ The U.S. Department of Housing and Urban announced in mid-
+March that, subject to HUD approval, public housing authorities can
+begin spending nearly $3 billion to make significant improvements to
+tens of thousands of public housing units nationwide. HUD is informing
+3,122 local housing authorities in all 50 states, the District of
+Columbia, Puerto Rico and the U.S. Virgin Islands that spending can
+begin on a backlog of previously underfunded capital improvement
+projects.
+ On April 1st, Secretary of Education Arne Duncan made
+available $44 billion for States and schools under the American
+Recovery and Reinvestment Act (ARRA). These funds will help avert
+teacher layoffs in public schools and tuition increases in public
+colleges, while driving crucial education reforms. On April 13, the
+Secretary released an additional $108.8 million in Recovery Act
+funding.
+ Making Work Pay Tax Credit: The Making Work Pay (MWP) Tax
+Credit provides a tax credit for more than 95% of working families--
+over 120 million households--in the United States, providing up to $400
+for working individuals and $800 for working households, and increasing
+families' net income by more than $65/month. According to ADP, the
+nation's largest payroll service provider, more than 80% of workers
+paid through ADP received the MWP tax credit in paychecks dated March 1
+or later and essentially all their clients began using the new
+withholding tables by March 6th. During the recovery period, MWP is
+expected to put more than $100 billion into the pockets of hard-working
+Americans.
+ Expansion Of The First-Time Homebuyer Tax Credit: On
+February 25, 2009 Treasury announced the expansion of the First-Time
+Homebuyer Tax Credit which allows eligible taxpayers to receive a tax
+credit of up to $8,000 on either their 2008 or 2009 tax returns. Unlike
+with the prior first-time homebuyer credit, individuals do not need to
+pay this credit back. This credit will contribute to stabilizing the
+housing market and is estimated that it will help 1.4 million Americans
+purchase their first home by providing over $6.5 billion in credits.
+Over $3 billion of credits have already been paid out to first-time
+homebuyers.
+ Build America Bonds: The Build America Bonds, Qualified
+School Construction Bonds, and Qualified Zone Academy Bonds programs
+are intended to help states and localities pursue needed capital
+projects, such as infrastructure development and public school
+construction. Based on the most recent available data from Bloomberg
+and Treasury calculations, as of July 10, 2009, approximately $14.844
+billion in Build America Bonds had been issued in approximately 159
+bond issues. Some have estimated that over the next year to 18 months,
+between $100 billion and $150 billion may hit the market.
+
+ The hearing is concluded.
+ [Whereupon, at 12:38 p.m., the committee was adjourned.]
+
+
+
+