the committee will come to order before we hear from secretary geithner the committee will meet to consider the oversight letter for the hundred twelfth congress the house rules require each committee to adopt a two year oversight agenda a copy of the letter has been distributed ahead of time is located in the folder in front of all members of this list is not exhaustive but highlights significant areas for committee oversight the committee intends to vigorously exercise its constitutional prerogatives to ensure that the taxpayers money is well spent with regard to all programs within the committee's jurisdiction i want to thank the ranking member for working with us to finalize a lot and i now recognize mr levin for his state new food this week thank you all right thank you mr levin at this time are there any questions for staff if not i ask unanimous consent that the committee adopt the oversight letter for the hundred twelfth congress and without objection so ordered i also ask unanimous consent that staff be authorized to make technical and conforming changes to the letter and without objection so ordered with no further business on the committee's agenda this meeting is adjourned i would now ask the staff to prepare the witness table so that the committee can come to order for the previously scheduled hearing on the president's fiscal year two thousand and twelve budget the committee will come to order on the president's fiscal year two thousand and twelve budget proposal before i begin this afternoon i want to recognize an individual who is not with us today because his courage and conviction has landed him an invitation to the east r white house it goes without saying that it is an immense honor to serve with our car colleague from atlanta mr john lewis his role in the civil rights movement is well documented and after today when the present united states but still is upon him the nation highest civilian honor the presidential medal of freedom it will be well recognized on behalf of this committee and the people i represent the fourth district of michigan i want to extend a heartfelt congratulations to john the success of the civil rights movement was a victory for the african american community and for every american it may be a bit out of character for this committee but i would ask that we break with tradition and all join in a deserved round of applause for the honorable john l with that welcome secretary geithner it's good to see you again and have you before the committee it's been said that the power to tax is the power to destroy but last year's election shows the american people are increasingly concerned about the power of deficit to destroy jobs the sound dollar and ultimately their children's and our country's future unfortunately the president's budget features too much of both it will result in record high deficits while pushing the federal tax burden over twenty percent of our economy a level never never sustained in our nation's history and let me be clear mr secretary americans are not taxed too little what america has under this administration is too little job creation more borrowing taxing and spending is certainly not the answer to what ails our economy in two thousand and nine we were promised that spending one trillion dollars on a stimulus plan would drive unemployment under seven percent by now instead unemployment has remained at or above nine percent for a record twenty one months stimulus advocates also promised one hundred thirty seven million jobs by now we are woefully short of that mark as well today almost fourteen million americans are looking for work but can't find it in a record number of given up trying to sit on the sidelines of our economy a full six point two million are long term unemployed and the average duration of unemployment is a record thirty seven weeks that's almost double the level record level before this recession vice president biden recently said that the unemployed should just hang in there and wait for jobs to return but at the current pace it could be twenty twenty or by beyond before the u s returns to full employment and that's a long time to just hang in there the fact is americans shouldn't have to wait any longer for some real solutions and frankly this budget is a missed opportunity in the words of erskine bowles chairman of the president's own deficit commission this budget goes nowhere near where you'll have to go to resolve fiscal nightmare as i look through this budget proposal on left wondering if there wasn't a printing error because it looks almost identical to last year's budget we again have massive tax increases now totaling one point nine trillion dollars that will hit small businesses middle class families american employers with world wide operations and investment income the very investments we need to jumpstart the economy even the same things are missing from this budget there are platitudes about tax reform but tax policy proposals that move in the opposite direction and there's nothing on entitlement reform and there's a little more than lip service about getting the deficit under control during the simpson bowles commission which three members of this committee  were members of we heard testimony that once the nation's debt reached ninety percent of its economy that country would see economic growth declined by about one percent and in the u s that would cost us about a million jobs and mr secretary we're not at ninety percent our gross debt is now one hundred percent of our economy and we can ill afford to lose out on the needed job creation simply because washington can't get its spending under control despite that another warnings with being presented today fails to deliver real change i'd hope for so much more and i'm left wondering how many more experts need to ring the alarm bell before this administration begins to hear it and act accordingly i ask unanimous consent to insert a washington post editorial from today's paper and title president obama's budget kicks the hard choices further down the road now i'm sure many of my friends in the minority can't wait to chime in and set the record straight let me allow please allow me to admit something we all share part of the blame for where we are today however that's not the issue the issue is whether or not we will all be part of the solution and mr secretary you and i have had many good discussions about where this country needs to go and today i'm not interested in boy or boilerplate but interested in finding solutions that reduce the cost and complexity of our tax code that deals with the unsustainable costs of our entitlement programs and that brings our debt back under control all of these will help unleash the private sector to create good paying jobs so mr secretary i look forward to hearing from you today and also later in the week will hear from your colleagues from the department of health and human services as well as the office of management and budget on these topics topics and with that i yield to the ranking member mr levin for the purposes of an opening statement to think you mr chairman the president's budget is in sharp contrast to the house republicans anybody's unnecessary combination of investing in economic growth and reducing our deficit the republican two thousand and eleven group blueprint which the house who debate this week reflects starkly different priorities it disinvest it would take our country backwards through extreme cuts the president's budget churchy response will pay to a sustainable fiscal situation it points its point of departure is an economy that has been through a wrenching recession and recovery that is still gathering strength since the recovery began more than one point three million private sector jobs have been created more than in all eight years of the bush administration together our efforts were designed to ensure a sustainable economic recovery and we must be sensible to that is we take needed steps to reduce our deficits that is why as the president's budget lazy one point one trillion in deficit reduction over the next decade it invests in proven public private partnerships jobs innovation and growth it makes permanent enhances the credit extends to build america bonds program which republicans oppose and which is financed over one hundred eighty billion dollars in vital infrastructure improvement it also provides an additional five billion for the highly example that i know you mr chairman is very familiar with hemlock semiconductor received one hundred forty two million dollars in tax credits to help maintain its global leadership in producing the poly crystalline silicon used in manufacturing and solar panels the vivid example of a successful public private partnership the house republican plan disinvestment jobs and growth in our community it cuts more than one billion dollars from the clean water revolving fund chokes funding for the energy advanced research projects agency which is conducting cutting edge research to foster the production jobs of tomorrow completely eliminates the cops program to put police officers on our street every day it takes a hatchet to the community development block grant program that tax cuts that are not paid for at a time when tax revenues as a percentage of the economy are near an all time record the administration's estimates permanently extending the tax cuts for upper income households alone would increase the deficit by nearly one trillion dollars over ten years the president's budget focuses on preserving the tax relief for working families making less than two hundred fifty thousand dollars  would permanently protect the middle class and it permanently extends vital assistance to working families that we had to fight republicans to include in the december tax compromise more broadly the chairman you mr chairman has criticized the president's budget as lacking a plan for tax reform if we're going to have tax reform we're going to need to work together not against each other to make the difficult choices necessary for responsible reform no where is it more true than on the debt limit as the secretaries you mr secretary as you make clear the need for fiscal responsibility and the need to support economic recovery must complement each other not undermine one another and vitally we cannot jeopardize the economic recovery by putting  risk the full faith and credit of the united states the majority must not irresponsibly put our economy in severe jeopardy by using the debt limit as leverage or as a bargaining chip we took necessary steps to prevent a recession caused by a financial crisis from becoming a depression we cannot risk a new financial crisis that would reverse the new d thank you chairman camp ranking member eleven and members of the committee it's a pleasure to be here before to talk about the president's budget the president's budget presents a comprehensive strategy to strengthen economic growth and expand exports with investments in education innovation and the nation's infrastructure alongside these investments the budget presents a detailed multi year plan to cut spending and reduce deficits our deficits are too high they are unsustainable and left unaddressed these deficits will hurt economic growth and make us weaker as a nation we have to restore fiscal responsibility and go back to living within our means the president's budget cuts the deficit he inherited in half as a share of the economy by the end of his first term these cuts are phased in over time so that we protect the recovery in order to make it possible for us to invest in future growth and to restore fiscal sustainability the president proposes to reduce nonsecurity discretionary spending to its lowest level as a share of the economy since dwight eisenhower was president to achieve this the a five year freeze of annual non security discretionary spending at its two thousand and ten level and this will reduce the deficit by more than four hundred billion dollars over the next ten years the president also proposes to reduce requests for defense spending to freeze civil service salaries to improve efficiency in government services to arrange a program eliminations and reductions these savings create the necessary room for us to make targeted investments in support reforms that will help strengthen future economic growth the most important thing we can do to promote our long term growth is to improve the quality of education of education to invest in innovation and to building america's infrastructure without these investments america will be weaker and less competitive as part of the strategy for growth the president proposes reforms to our tax system designed to encourage investment we proposed to put in place a permanent and  credit for research and development in the united states to eliminate to eliminate capital gains on investment in small businesses to encourage advanced manufacturing and clean energy technologies to keep taxes on investment income dividends capital gains low to reform and extend the build america bonds program and to make college more affordable for middle class americans these tax incentives are in company or a company by reforms that would reduce incentives to shift income and investment outside the united states and to close loopholes and tax preferences that we cannot afford now in addition we propose to pursue comprehensive tax reform that would lower the corporate tax rate our present tax system for businesses combines a very high a very broad range of expensive tax preferences for specific industries and activities we need a more competitive system that allows the market not tax planners and lobbyist to allocate investment a system in which businesses across industries pay a roughly similar share of earnings a system that provides more stability and certainty that is more simple to comply with and we do all this without adding to our future deficits we've begun the process of building support for corporates for a conference of corporate tax reform mr chairman i want to welcome your personal support for conference reform i believe we have the opportunity to do this now the president's budget also outlined some responsible reforms on the individual side we propose as we have in the past to allow the two thousand and one and two thousand and three tax cuts for the wealthiest americans to expire to limit certain deductions tax expenditures for those same high income americans to restore the estate tax to the two thousand  levels and to close the carried interest lupul these proposals and i want to emphasize this these proposals will help ensure that the savings we achieve together through spending restraint are devoted to deficit reduction not to sustaining lower tax rates for the most fortunate two percent of americans this budget would achieve dramatic reductions in our deficit over the next decade that are necessary to stop the national debt from growing as a share of the economy and to stabilize our debt burden at a level that will not threaten future growth now this is only a first step a down payment on the long term reforms necessary to address our long run deficits to address the long run deficits over that we face of the next century not just the next decade we'll have to build on the progress and the very substantial progress that's been achieved in the affordable care act to reduce the rate of growth in health care costs although and in addition to that although it's not a contributor to our short term or medium term deficits we should work together across party lines to strengthen social security for future generations now we cannot grow our way out of these deficits they will not go away on their own and they will not be solved by cutting deeply into programs into investments that are to growth and competitiveness we have to work together to find consensus on a multi year plan to cut deficits where we can so that we can invest where we need and that reduces our deficits making a multi year commitment will allow us to make sure that the changes are phased in as the economy recovers and making a multi year plan will help give businesses and individuals adequate time to adjust and prepare for the impact of those changes on the economy the president's propos represent an importing starting point for discussion and we recognize that there are many valuable ideas on both sides of the aisle and we know as you know that we need both parties and both houses of congress to come together to an absolute best for the country in december we were able to come together to find bipartisan consensus on a very strong package of tax incentive self sustaining recovery and restore confidence we want to bring that same commitment to the challenge of restoring fiscal responsibility thank you i'll be happy to take any of your questions well thank you very much mr secretary i think we can agree the economy is not adding jobs at the rate it needs to and i think that's particularly why i'm disappointed since disappointment on our side that the president's budget brings up some of the same tax hikes on american small business that congress even when both chambers are controlled by democrats already rejected about seventy five percent of small businesses are structured as passed through  partnerships or s corp's sole proprietorships and they're responsible for about two thirds of all new jobs created yet these are the companies the president was subject to massive tax hikes by raising the top marginal rates given that unemployment's been stuck at nine percent for twenty one consecutive months do you really believe that we should be raising taxes on small businesses and will you commit that any tax reform that we might move forward on would address the concerns of these employers mr chairman a very important question and you're right to think that the to emphasize that our overwhelming priority now for the country should be to make sure we're reinforcing this expansion to get more people back to work because we're still living with the scars of the damage caused by the crisis you can see it in high employment rates in millions of people still the risk of losing their homes the pressure on small banks small businesses across the country so that objective of strengthening growth should still be overwhelming focus and priority now we propose in the budget a series of very well designed targeted tax incentives for small businesses because as you said they're so important to job growth and innovation so for example as i said i opening statement we're to eliminate capital gains taxes on investment small businesses to make permanent pretty generous expensing for investment by small businesses and capital equipment now you're right that we are proposing again to allow to expire on the schedule agreed to by the congress last december these taxes that affect the top two percent of individuals and small business in the country the only effect percent of businesses and the vast bulk of those small business  referred to are structured as partnerships and we're talking here about our law firms investment firms businesses who choose to structure themselves as partnerships not as corporations and the vast  those small businesses you're referring to earn very very substantial amounts of revenue each year and again even in that case we're proposing to restore those tax rates the level that prevailed in the one nine hundred ninety s where we had the best record of investment  growth innovation job growth in the country seen in generations we think that's a responsible recommendation we recognize it's not popular on your side of the aisle but i want to underscore you said i think is that our challenge is to figure out a way to restore sustainability and strengthen economic growth we have to balance those two objectives and we're not going to be growing in the future unless we make some tough choices to restore fiscal responsibility and those are the types of tax changes tax reforms we think are consistent with our obligations well i'm encouraged by some of the comments that the president's made and you've made and also in your testimony today about the need for the reform of the corporate tax code and but given those comments then to see a budget that goes in the opposite direction instead of proposing reforms that broaden the base and lower rates which is i think the direction i think most people are saying on the business side and trying to level the playing field reduce complexity this is this budget is proposing changes continue to pick winners and losers that i guess my question is how do you suggest we achieve tax reform when particularly in the business side when the administration continues to push proposals that will raise taxes on some companies or some activities in order to offset the spending that's unrelated to those activities it's going in the opposite direction of i think the very encouraging comments that have been coming out of the administration and you as well you're right that in the budget we did not propose a detailed plan for conference of tax reform but we do propose a set of changes to the existing structure that would help as we as we see it improve investments as a united states and i think the way to look at those look at those changes is they help make the case for why we need conference reform as there's aspects of those proposals that make you uncomfortable you should view it as an incentive for us to do conference of reform and we are very serious as you know and we've talked about this a lot in trying to try to build consensus now on a set of fundamental changes to the corporate tax system that would improvements as for investment do so in a way that's responsible and to do that we have to lower the rate very substantially and eliminate or substantially reduce the broad range of tax preferences incentives that now create a lot of unfairness and distortions in the tax code but again we didn't the budget is we like to work with and i think mr secretary you have helped to shatter the myth that this is basically an increase in taxes on small business  explain that right and as i remember the analysis about seventy five percent of the high income that would be affected would be income over one million dollars a year is that correct that is roughly correct yes that's the estimate that's the estimate as one estimate and you indicated what percentage of businesses would be affected only two to three percent of all businesses in the country and again the vast bulk of those businesses make well over a million dollars in earnings a year and of course many many of those who make that much money are fundamentally what we would call  law firms or investment firms or other types of companies that structure that way to help lower their tax burden i mean no i ask you about investment because there's such a sharp contrast between the it's essentially nine invest to disinvest and cut the deficit except increase it by how much income tax cut over ten years well to extend the high income tax cuts for ten years would cost substantially over seven hundred billion dollars maybe closer trillion dollars all right now mr chairman it's interesting i think we need to have this discussion you used the term winners  focused every day and how to make the country stronger and more competitive and if we're going to be be able to meet a substantial share of the growing demand for goods and services around the world we want more of that to be met by invest in the united states and what the president's budget does is propose a range of reforms and incentives to make it more likely that that next great american business builds their next factory in the united states and great foreign competitors the united states built his or her next factory in the united states and we want to make sure the tax code is working to encourage those kind of investments and not to discourage those kind of investments and it's very important we think about fiscal policy choices we look at them through the prism of what's going to be a better strategy for growth and investment it's not simply an exercise of reducing future deficits although it's very important future growth how you do it is critically important and you have to set priorities and you have to make sure again you're preserving the capacity to invest in things that is important to the composers of every business in the country for example any business you talk to the countries manufacturing tells you will tell you that they need better access to high quality join in greeting the secretary to our hearing secretary geithner on page two of your written testimony you state that quote we must restore fiscal responsibility over the long term by reducing the rate growth and health care expenditures close quote i couldn't agree with you more in fact that's one of the main reasons why i voted against the democrats health care overhaul the last congress obama administration's own medicare actuaries have predicted that the national health care expenditures over the next decade would be three hundred eleven billion dollars higher because of the analysts have estimated the democratic health care law will significantly slowed the growth rate of medical costs close quote mr secretary could you tell us who are the analysts you are relying on for this claim and is a reason you're choosing to ignore the findings of your own administration's own actuary's actually question thanks for give me a chance to respond to that as us are long term deficits that we face over the next century are primarily driven by rapid rates of growth and health care costs and to a lesser extent by by so security obligations the most important thing we can do to resolve long term costs is to reduce the rate of growth in health care costs now in our system in our country we rely on the independent nonpartisan congressional budget office to analyze for the congress reforms acted and held to overtime will substantially reduce the rate of growth in health care costs for the public sector and they back to make the largest contribution to entitlement reform that this country has considered in generations and it is of course in recognition of the fact that the only path to long term response to school responsibility is through health care savings that these reforms through the congress are so important and of course we recognize that we're going have to build on that we haven't solved that problem definitively and we would welcome the chance to join with you in figuring out ways we can help make a further contribution even greater contribution to reducing the rate of growth in those costs but i would rely on s estimates one more clarification if i'm not mistaken i think what the actuaries said was if congress does not actos reforms then costs will grow more rapidly he was making a prediction about what congress might ultimately do not what savings last summer in an interview on the kudlow report you said that the administration wanted to prevent the rate on capital gains and dividends from rising beyond twenty percent can you please clarify whether this twenty percent rate is inclusive of the new three point eight percent tax increase included in the democrats health care law no it's not but we do propose in the budget to make sure that the top rates and events capital gains don't rise beyond twenty because again we want to have a budget that is encouraging investment united states so it's not inclusive so it does rise beyond twenty percent in this area but  maybe simplifying convention but when we think about the rate of on dividends or capital gains we do it we look at the statutory rate in the budget and again we think there's a good case for trying to make sure that we keep the overall tax burden on investment income the united states at a modest level we think that's good for future growth with the queen afford to do that again michelle terry our concern is at a time when the economy is what it is that we really hold to this the american public certainly those who are creating new jobs permanent deficit is an assault security program meaning that social security payroll tax can fully cover the benefits and other wards a cost of pay and benefits is no more than the revenues coming in to pay them you would agree we are on a very tight time schedule hears all ask a few simple questions and i'd ask you to be brief and responding if you would how are we paying benefits if we don't have sufficient payroll taxes is the treasury paying social security interest it is earning from the ious treasury gave the system when it borrowed payroll taxes from social security to pay for other government spending and we have the ability to meet our commitments associated beneficiaries and we will continue to meet that obligation but we recognize as too many of your colleagues that over the longer term but we have some time to get this right we need to make sure that we strengthen social security secure so sturdy for future generations and that's going to require some changes and we're as the president said we're willing to work with all of you to figure out a best way to do that but deficit is expected to hit one point one trillion the fourth year in a row of trillion dollar plus deficits meanwhile the debt held by the public will be near twelve trillion next year double what it was in just two thousand and eight m secretary were well the money come from to pay the interest of security congressman again i think you're making our point it is very important that we find a way to reduce our long term deficits that's not so we can defer forever and what the president's budget does is propose a detailed mix of policies both spending restraint as well as tax reforms that will bring those deficits down dramatically dramatically over i understand that but where are you going to get the money to pay social security going to have to b we have the resources to meet those commitments time to come now of course we don't want to put off those questions for ever it would be good for the country i think for us to come together in ways to strengthen social security and we're willing to begin that conversation with the congress whole we're borrowing much less from the russell than we were just three years ago right now our current account deficit the amount we borrow from the rest of the world to meet our obligations is now about half the level it was at the peak in two thousand and seven and that what that means is americans are saving more and the funding a larger share of the deficits but a substantial share of our outstanding debt like is true for every major economy is held by by foreigners and again we agree and what this president's budget reflects is a recognition that if we're going to grow in the resolution for this year and next having said that at one point in time to president united states indicated that he was only advocating and the extension of the tax relief for those people making less than two hundred fifty thousand spending but that doesn't necessarily mean that it's not going to be ultimately a cost that we're going to have to pay my question to you have there been any comparisons between the cost of is going to have a high return as you say a large bang for the buck if we're making investments you want to make sure you're not cutting into things that will hurt future growth raise unemployment the future raise our long term deficits in the future and what the president's budget is reflect our view of where those choices should be made so again we want to make sure we're increasing investments in education in infrastructure in research and development not cutting those because if we do a smart job of making investments and support reforms in those areas future growth will be stronger will be more competitive our deficit will be lower in the future if we cut deeply into those investments will be weaker as a country it will be harder to solve our long term fiscal problems but those are exactly the kind of tradeoffs that this committee and your colleagues in really i have to go vote but the point i'm trying to make is that the insistence on the overall tax increase for the upper income did increase the deficit and that money was in order to do it and so to come back and to talk about savings it seems to be a dramatic inconsistency supporting both of those themes those those temporary tax cuts were expensive we can't afford to make them permanent and i agree that if we're going to make cuts in spending as we have to do we want to make sure that those savings go to support investments and cutting future deficits not sustaining tax cuts for the top two percent of americans that we can't afford but thank you mr brady's recognized thank you mr chairman secretary and this budget doesn't matter either for job creation or attacking these that are time together as you say because consumers are confident that america's going to really tackle its federal or fiscal deficit and businesses don't believe congress is serious about this and think you're making repeating two mistakes in the last two years one is using rosy economic forecasts as you did last year in the year before the white house excuse me mr secretary these forecasts or point four and point five percent higher than c and doesn't sound like much but just that just that difference wipes out three fourths of the reported savings in this budget over the next decade and then secondly on job creation i don't understand why the  administration comes back with higher taxes on us companies trying to compete when overseas because all we're doing in this budget is encouraging companies to manufacture overseas eighty seven billion dollars more in energy taxes again on u energy companies encouraging them to send their workers overseas and then finally this budget takes a walk at real estate partnerships traditional partnerships to build our shopping centers apartments movie theaters office buildings none of which can stand almost tripling of their taxes so how in heaven's name does the white house believe it will generate the economy which is very sluggish by taxing the manufacturers and job creators most likely to get us out of these tough times excellent questions and let me just respond quickly on each one i actually think if you look carefully at the economic assumptions in the budget they're actually quite realistic and quite conservative you're right some parts of the tenure some of the estimates look a little higher than the consensus forecast but other cases are lower and more conservative but i think if you look at these are just one example the average growth rate estimate over this period of time is significantly lower than the average strength of past recoveries so we're trying to be conservative and again we don't we have one great strength of our system is in the end c b s assumptions govern in this case and you'll be able to rely on them to make sure that we've been balanced by think they're reasonably conservative now very important that as we think about tax policy that we're doing things that encourage investment now you're right that we are proposing to reduce some tax benefits that go to some parts of the american business community but we're proposing very substantial and very broad based incentives for investment and if you look at the overall net impact of those in terms of tax revenues it's a very very modest change and i think again what it does is shift the incentives in the tax code if these were enacted to encourage the next company to build the next plant here in the united states and i know you're right that we are we are proposing to eliminate some loopholes some preferences things that we think are expensive and don't don't have much impact on growth and we know people can disagree with again this isn't your budget necessarily but the white house would please carry back to the white house this message because they kill jobs those tax increases are dead on arrival in this house we've got to find a better way and work together with you to get t the union talk about lowering corporate tax rates as a way to expand jobs within the budget however i'm worried that the administration isn't paying as much attention to small  businesses in terms of creating jobs obviously you know i don't have to tell you the way that small businesses are set up many most pay as passed through entities their their income taxes and and therefore i believe there are a number of things within the president's budget that impact those small business owners and so if i could just kind of read you a list of things that i and interesting to hear your yes yes or no answer if you think that if any of these are a tax increase on small business owners the president sponge it as you know poses to phase out personal exemptions on itemized deductions in addition the president's budget proposes to live otherwise allowable itemized deductions commonly known as the p s limitation you consider these two tax increases on small businesses those pass through entities that are oftentimes partnerships as corpse many of those often itemize their deductions to make it easier  on the following which is again that those tax changes only impact two to three percent of small businesses and those small businesses affected overwhelmingly are businesses that earn substantially more than a million dollars and you're right that many of them are structured as pastor entities but in that context most of the ones that are affected by this are typically like a law firm or investment partnership president budget proposes to re classify many groups of and dependent contractors as employees you've testified to this before for tax purposes and many of those small businesses contract with those outside individuals you consider the new payroll tax on those small businesses a tax increase on them and they'd be reclassified but i wouldn't say that we ought to let me just tell you what the objective of this is you know this is a very complicated provision of the tax code and we're very hard for people to comply with it and we're posing is a very simple thing is that congress authorized the s to issued guidance for comment on how to make sure that we simplify the ease of complying with this and make sure that businesses are on a level playing field because right now the current system apart from being way complicated to comply with creates a lot of unfairness across businesses and it gives some businesses the opportunity to frankly lower their tax burden way that's unfair to their competitors so we want a level playing field in a more simple thing to comply with and what we're proposing is just that congress gives us the authority to issue guidance for comment and of course once the i r s goes out with the drafts anybody affected we have a chance to comment on that and suggest how that could be improved with the small businesses be paying more than they have those employees it depends on their circumstance again what we think is fair is one of the tax code where businesses pay roughly the same amount of income tax relative to earnings in our current system as you know it's deeply unfair some companies pay a lot more than the average some people pay less than the average and we think we want to move to a system where again it's a more level playing field and it's a more simple system to comply and another another great in the  president's budget that's changed is the top rate for the estate tax obviously many small business owners farmers are concerned about what happens in two years to the estate tax is the rate and again with those rates in those exemptions a tiny tiny tiny small fraction of the states are affected by those changes and again we think that's the best way to balance our obligations for fiscal  all the other objectives how to make sure we strengthen the economy as a whole and my state of ohio there are roughly fifty thousand people that are employed by the end of pendant oil and gas industry it's by producers it's a pretty big industry most of these are employed most of these images are employed by small business owners a lot of family owned businesses and you know the president budgets proposes to repeal the marginal tax credit to repeal the expensing for intangible drilling cost and to repeal the percentage depletion do you consider this a tax increase on independent oil and gas producers i would yes what it does is again what it does is reduce a very very substantial subsidy that now goes to  the oil and gas industry and we're proposing to eliminate that because it's very expensive and it works against a national priority which is to encourage the economy as a whole to shift to less carbon intensive forms of ener future and to reduce our ultimate dependence on the types of energy that again contributes to climate change and could threaten future growth prospects that's the rationale for that change one of my constituents is a small business owner family operation says that if this proposal becomes law the love that parade the industry in ohio last year joint tax suggested that this will not only hurt the domestic production  of oil and natural gas but i will ironically increase our dependency on on foreign fossil fuel do you agree that no i don't but here's a different way to look at this when we allow parts of the american economy to pay much lower taxes on the average that means taxes are higher on all other businesses in your state and i think we have to ask yourself is that fair and does that make sense to inefficiency it probably hurts growth overall because it what it what it means is people who sit in this room are allocating investment not the market as a whole and again we want the market to decide which businesses grow not not the community of tax lobbyist and tax planners again when we allow certain parts much less than their fair share of taxes then it means every other business in the country is paying higher taxes a result one final question do you consider the individual mandate within the health care bill the penalty levied upon people who refuse to accept to take on individual insurance the penalty that they have to pay to the i r s tax because i think you know my answer to this question which is we do not but that's not a judgment i also really make that's a judgment certainly made in different different rooms different bodies than this but i can tell you that i fully support the health care reforms that were passed because i think they're very important to helping make sure that the cost of business is better for health care or reduced over time and that we can restore fiscal responsibility to school sustainability to our long term deficits do you think though it's kind of ironic that the treasury secretary i think that's not a tax but the justice department argues that it is take a restroom break which should be done in about ten minutes and we'll really resume our hearing thank you that hearing will be recessed for about fifteen minutes mr stark is recognized thank you chairman and thank you mr secretary for taking the time to explain much of this stated that the affordable care act contains a sensually every cost containment provision that policy analysts have considered affective in reducing the rate the very important question and thank you for asking it what these reforms do over time is change the incentives for how americans use health care and set in motion what we believe are the most powerful sets of ideas out there for reducing the rate of growth in health care costs over time and of course there's a lot of uncertainty that surround these us and that's but as i said earlier we rely on the c b o t make these judgments for us and in their judgment these reforms over time will very very substantially reduce our long term deficits by reducing the rate of growth in costs now as the president made clear  are we want to build on those reforms ultimately we're going to have to do more and we will be we welcome the chance to work with people on both sides of the aisle to strengthen those reforms so they can deliver even more savings in the future but i agree with your and i've been given a quote from a blog you did some time ago talking about in the absence of health care reform i wonder if you could dig back our competitiveness is a country again you know i think it's important recognize if you ask businesses what they care about most among their concerns they care a lot about the burden rising health care cost puts on them and so if we care about competitiveness and growth and jobs not just access to affordable care you have to make sure these reforms take hold they're allowed to work overtime thank you thank you thank you mr davis is recognized thank you mr chairman thank you for joining us today mr secretary i'd like to switch subjects to a different area that's very current from a standpoint of job creation and job sustainment and that's to talk about unemployment insurance for a moment could you tell us who pays unemployment insurance taxes well as you know and i'm sure you know this based on your question businesses pay the unemployment insurance taxes now if you're an economist you give a more complex answer to that because ultimately of course the economy as a whole pay those taxes but but ultimately it comes out of pocket so the direct incidence is on businesses you know some people would say that well it's a i won't give them a competent well i guess that leaves me next question if you were been an employer and paid these taxes i mean i have i've written the checks every quarter to the i unfortunately have been in the public sector all my life but i have helped manage substantial organizations of people no fault in that but it does give a difference in context the reason i wanted to sixty seven billion dollars over over the next decade if you were an employer as i was or many of us on the committee were paying those checks and were looking at long term capital investment forecasts trying to decide whether to hire or not hire  what to do if you're employer having to face that decision do you think that getting for example nine thousand dollars in relief now in exchange for a sixty seven thousand dollars tax tab in the future through increased unemployment insurance taxes is really a good deal so i do think it's a good deal ok because our job is to figure out what makes sense for the country a time we have limited resources and as many people in your side said we have to recognize that we face unsustainable long term deficits so we're going to have to do things that are going to be painful  some short term relief for states and for employers with reforms that make the base the base of this excess mince more fair across companies as a whole and again there may be different ways to do this  concern that i've got is that in fact we have so many issues that are hitting if there are not reforms to the reform in health care dealing with things like this it can place a burden i mean i hear constantly from employers back in my district that there a lot of fear frankly at the small business to the mid sized business levels about hiring now that we had on another issue with you why the proposed tax increase in the budget i guess my final question to be this is if you're an employer and you're trying to make businesses across the country are doing today and if you look at what's happened to recovery over the last eighteen months in businesses are expanding investment at an accelerating rate pretty strong rate much more rapidly than g d p is growing overall and we've created more than a million  private sector jobs just in the last three quarters much more much more quickly than the last two recessions that were much milder recessions and so we've got a long way to go but making progress now i would look at the overall mix proposals in the president's budget the tax side because it is my view that if you look at their overall impact on business and competitiveness they are very strong very powerful help improve investments for incentives for invest in this country help gains tax rate to forty four percent combined with things like this it might create a bit of a disincentive for that but you know we'll win in a different place on that and with that back thank you mr record is recognized thank you mr chairman  was only one sentence attached to the the no cost stimuluses it's been referred to trade and so i'm happy to say that i'm really encouraged with the president's position and latest  action on his export initiative which council which i'm a member of and then also his recent developments in the go shooting the korean trade agreements on excited about job possibilities the doubling of exports and the engine it will provide to our economy so congratulations on that but it shows you how much can change in a couple of years and so one of the things i am concerned about hoping that something might result in a change in a position that you've taken a remind you of a letter that one hundred eighteen members of congress signed along with myself and eric cantor voicing our opposition to the tax simplification program dubbed a single return or simple return excuse me that you considered last congress proposal that would basically have the i r s prepare your taxes for you and mail you a bill this is in my opinion hardly tax simplification it's more like the fox guarding the hen house i think there would be a lot of people that might agree with that so i want to assure you that we're still aware of that proposal and i wanted you to be aware of our opposition and hope that there might be some change in your thought as we come you know maybe a year or two later the other thing so i want to move on i really may get back to the small business thing i'm concerned the administration's budget targets small going to fall on these paths through pass through businesses the s corporations partnerships and so forth ships whose income is reported on their owner's individual tax return and as you said it's three percent of small businesses however the committee on joint the joint committee on tax taxation found last year that roughly fifty percent of all small business income would be subject to this tax hike i'm particularly concerned about its impact on the millions of small businesses that are located all over the state of washington across this country so do you believe that this is fifty percent of our income do you believe that higher taxes on hundreds of thousands of small recovery exports are growing really quite rapidly and it's really across the board from agriculture to high tech and it shows how fundamentally strong resilient this country is and you're right emphasize so the question for us for the future is how to make sure that continues and for that to happen you want to make sure that you can see more investment in the united states by u s companies by foreign companies that'll help contribute to stronger export growth alongside these trade agreements and i heard you on your second quarter second concern you now on this the way i think about this which is again i think this is the fairest way to do it those proposals again to a very small fraction of small businesses only two to three percent and the incidence mostly overwhelmingly on businesses in that category that make substantially more than a million dollars a year how do you address the fact though that is fifty percent of our income that income you're referring to again it's concentrated in businesses that are actually not small they're actually quite large and overwhelmingly those businesses are structured like law firms and firms similar structure that you could say those like communities of individuals that earn a lot of money because they're very productive and they are allowed under our tax system to structure that themselves that way to resist really the way to encourage economic growth again i think it is i think is as many people on your side have said again  future economic growth depends on two really important things one is better incentives for investment in this country and confidence that we're going to reduce our long term deficits we have to do both if the business community if american people of foreign investors are not confident we're to reduce those long term deficits then they're going to invest less here and future growth be weaker so we have to balance these different objectives and again those are the rates that prevailed during the ninety's which was the best record for small business creation best record for investment gro one mr mcdermott is recognized to give us your chairman of the sector for coming president's budget cuts at that are huge cuts the deficit but still invests in the country the alternative plan by the republicans we're going to vote o about forty eight or seventy two hours is cut spending and use the savings to protect tax cuts for the wealthiest top one percent now the republican spending plan in my view is a dark view of the future one that throws the middle class under the bus the republican plan if you read it carefully sends one message to america's middle class to the unemployed to the working poor we don't care about now for example they want to cut spending for states to repair highways and bridges they want to cut social security administration social security offices close across the country for a month next year these programs are help put america back to work won't help they don't grow the economy they keep the lights out for senior citizens for example republicans want to cut seven hundred fifty eight million dollars from the women's infant and children program the wic program now that program provides funding to keep low income mothers and soon to be mothers as well as their children get food and health care referrals the program was signed into law by none other than the great icon president reagan to which all the republicans in the congress pray every day as their patron sain now these are just a few examples of the drastic and disastrous cuts the republicans are proposing they don't cut defense even though the secretary of defense is desperately calling us to stop buying weapons is department doesn't need they don't seem to think that the wealthy have any responsibility to this country or for those who have less fortunate lives and it also seems republicans don't understand the idea of investing paul krugman has called these republican spending cuts eating the future that comes from a native american saying that you can tell when a tribe is on its way down when they eat their seed corn now basically the republican focus on cutting spending from these programs they cut things that don't have an immediate benefit but they really take a lot hit the long term and the republicans as they eat our seed corn are doing it at the expense of the middle class and the poor now the president has taken meaningful steps to balance the budget and bring manufacturing back to united states and i would like you to quote talk about the question about the build america bonds and the other investments and contrast that with what's in the republican budget there is we understand two trillion dollars sitting in private hands and they won't invest it so we have no alternative but to do it from government level because the private sector is not doing it i'd like to hear you talk about the president's investments  improve on on the contrasts you described although i agree that the choice we face is a pretty stark choice in different strategy for the country and what we're trying to lay out is a more and more i'm more confident of vision of what it's going to take for us to grow in a world where we face a lot of competitive challenges i want to just highly again some of the proposals in the budget which we think are going to be good for investment future growth again we've proposed to make permanent and expanded credit for research and development zero capital gains for small  education so that we improve the quality of education investments improving the overall quality of infrastructure i mean if you're a business and you have to deal with our infrastructure it's like a tax on competitiveness so those things we think are critical capacity to grow in the future to compete with these companies around the countries around the world are getting very good at things that we used to be uniquely good at and again we have to make sure that as we speak about the budget we think about what's a better strategy for growth and of course we have to do that in a way that's going to be fair to the over to the overwhelming majority of the american people were coming out of a financial crisis caused devastating damage not just to low income americans but across middle class americans you see that in high unemployment rates millions of americans still on food stamps millions americans still risk of losing their homes and after decades of very substantial increase in inequality and so we have to find a way to make these fiscal choices to restore balance restore gravity to our fiscal position but the republicans are going to have the chance not just in the debate about the c r but when they put together their budget resolution they're going to have a chance to lay out a ten year plan like the president does explain how the republican leadership in the house believes we can bring these downs over time and what mix of spending restraint longer term what mix of tax reforms that and that will give us a chance to have a good debate and we'll have a good debate we won't agree on everything but  president obama this is his third budget and i just find it peculiar that you would state just now that you're waiting for us to leave isn't it i mean you know i came out so i didn't apply the let me just correct that obviously the president as president has a responsibility for laying out to the country in the world every year a budget delays at a ten year path to reduce deficits and that's the beginning of waiting for us to come up with our no no no no no not at all we have to take the lead of the initiative and you're going to disagree about some of those choices and we have twelve to figure out what makes sense but what i meant is that i know that you're having this debate about about current spending for this fiscal year but as important as that debate is that you're going to have a chance to lay out an alternative vision about how to bring those deficits down the reason my point is just to come back to where you began your focus understandably as we are and how to demonstrate the american people we can bring some restraint to spending that's unsustainable  your report your budget page looks like it's page fifty two you state even or i should say the president's budget not your budget even with this fundamental change however an aging population and  continued high level of health costs will pose serious long term budget problems medicare medicaid and social security will absorb a much larger share of federal resources than in the past limiting what the government can do in other areas the level of high debt to g d p that is projected risks and unsustainability without further policy changes but you don't really say you kind of punt on entitlement reform and other subjects and your budget comes to listen to your colleagues say that but i guess i would say the following in response we have a unsustainable deficit over the next ten years which we have to deal with we have to bring that down to something that's sustainable and after that decade we face unsustainable long term deficit s primarily driven by health care costs now the affordable care act brings about very very substantial cost savings that will help reduce those costs but we need to recognize we need to build on those the president made a few suggestions in the budget of how to go beyond the affordable care act to build on those things for example reforming that amid medicare i'm actually glad you brought up medicare and your savings because it when you when you look into the fine print when we go to the appendix on page two eighty two of the medicare trustees report which you're using for your brilliant savings that now you've solved the medicare crisis over over time we're now it's only two point four trillion according to your math but in the back the chief actuary says this the chief actuary doesn't believe long term projections because here's what they say for these reasons the financial projections shown in this report for medicare do not represent a really reasonable expectation for actual program operations in either the short range or the long range and i'm assuming that's judge of what reforms cost and what the actuary was doing is making a prediction about what future congresses may or may not do that's really your job your decisions now of course if congress does not act reforms or repeals them or modifies them then they will save less money over time and that's what that report that's a prediction of our congress will do not a prediction about what the law would do if congress were to stick with it so you think if we just stick with the with the president's current budget without any policy changes to entitlements that we're going to be ok no i would say this if you enact the president's budget which is unlikely because you want to change it but if you enact that degree of over the next four to five years then you will stabilize our debt as a share of the economy at an acceptable level and if you leave in place the affordable care act then you will have made a very substantial contribution to those long term deficits that start start to accelerate in the decades ahead now what the president said i think the last three years i've heard you say almost exactly the same thing just worded differently and every year the budget problem gets worse over time no actually and you know in some ways it's getting better because the economy's doing a little better than we expected but the way our constitution works the president proposes congress has to legislate and you will now share with us the privilege of how to make decisions about these long term costs and again when i think it's very important for us to do and this is a better way for us to do it is a lock in multi year savings over time if you try to do it in one year recognized thank you mr chairman and secretary geithner's good to see you again before the committee secretary at a time when every american is concerned about our ability to compete whether here or abroad  it's apparent to many of us that the administration has launched a full scale assault on american energy security now they have been denials by the administration that a moratorium on drilling exists but permits are not being granted in fact just this past weekend the second largest the second largest shallow water drilling company in the united states filed chapter eleven one thousand jobs at stake and this is also only due to the administration's polic not because of the economy it's not because of some foreign event it's solely due to the policy made in the white house now i've questioned you before we're going back and forth through letters energy policy and in a letter you said to me a while back there was one line in there that really bothered me and i'll read it back to you it says to the extent the credits encourage overproduction of oil detrimental to long term energy security and this  referring to the eight i believe it's eight different provisions in the budget that will be repealed these are tax preferences for oil and gas that have been in existence for quite a long time so my question is it's a very simple starting question is there an overproduction of oil in the united states today because i think i would come at the question this way when you allow individual industries united states to a much lower tax rate than their other businesses means all other businesses pay higher taxes and that makes the country as a whole less competitive but do we really have an over production of oil in the united about our long term energy security issues that we have to figure out ways to frankly clean the tax code out of special benefits to go to a limited number of industries that mean that the rest of americans pay higher security and media energies for a long time to come but again we think it's good policy for the country to not providing very generous incentives that encourage the production dependence on carbon intensive course of energy but when you say very generous incentives and if you compare actual equivalent energy metrics with wind and solar the subsidies for those are much higher on a per unit basis of energy than they are  as a whole and i know and i know that this is going to be painful for parts of the energy industry but i think overall a good thing for every american no i don't think so i think that for all we really have if we tax our current look at the industry specific tax benefits i think it's a boon to recognize that they only exist because other businesses pay higher taxes so if you care about overall competitive industry about trying to scale those back over to there's also a provision capacity companies and this is going to affect us companies that do drilling overseas making them less competitive than american companies now i have to question why should u tax law favor a state owned enterprises chinese state owned enterprises of oil and state owned enterprise over and above u s companies i definitely would not support that and i very much doubt that these proposals have that risk but again we're not going to will give you a chance to speak mr secretary on this could you give us an idea of where we were with tarp where we are with tarp and where we're going with the lighted with your bottom proposal on reinsurance you can already sense th words companies who are receiving a subsidy to compete with american companies are taking note of what you proposed in the last issue is that the department of labor is proposing some new rules on with their public hearing next month and of course we share your interests trying to make sure these come out with a reasonable balance but we'll watch that stuff carefully you understand we're posing on the reinsurance i don't need to go into that but again we're trying to make sure there's just a level playing field for american companies on the on again let me just say a few things about where we are when i came into office the cvo estimated this program would cost us about three hundred fifty billion dollars we now believe that outside of housing  these programs will show a positive return to the american taxpayer very substantial amounts that's because we ran a strategy that had private capital not the taxpayers money come in and bear the largest burden of trying to solve a crisis recapitalizing the banking system etc and we've been very very successful managing those investments generate if you just look at the bank investments for example billions and billions of dollars in positive return that we can use to meet our long term challenges these programs were incredibly successful in restructuring the automobile industry restorin profitability and we have a much stronger private financial than we had going into the crisis because of the success of the president's strategy not just hundreds and hundreds of billions of dollars of taxpayers resources but we're going to show a positive return outside housing i think it will prove to be the most successful financial rescue in modern history even recognizing that we still face a lot of challenges ahead and digging out of the crisis repairing the damage caused b well as one who supported that initiative i would point out and i think it's important again that that legislation took place in october of two thousand and eight so we're grateful for your efforts to make sure that the initiative worked and understanding that even though it was proposed by the previous administration it is one of those instances in the house of representatives where moderate democrats and moderate republicans cast the correct vote and the current speaker of the house  housing every time you talk about the economy turning around and i'd like to hone in on that for just a minute because you're probably aware of i'm from nevada so we have some real housing problems and about a fact for the last four years straight actually forty nine straight months has continued to have the highest foreclosure rate in the united states one in every seventy nine housing has received a foreclosure notice we have one county i believe one in forty nine homes to foreclosure notice we have over four hundred thousand households that own more on their mortgage than they're worth to put that better perspective three twenty five thousand now selling for one hundred six thousand just trying to put this thing in perspective help you understand when i talk to my constituents of course they blame the banking industry willing to negotiate when you talk to the banking industry want to give you two quotes two of your quotes and i don't disagree with these quotes but i think you can help shed some light on it you said i personally believe that there's going to be a good case for the government preserving some type of guarantee to make sure that people have the ability to borrow to finance a house even in a very damaging recession i think there's going to be a good case for that he also said i think we're not going to preserve fannie and freddie in anything like their current form we're going to have to bring fundamental change that market some people would say that those two conflicts one another the more i read it i think it makes more sense for perhaps my constituents could you shed some light perhaps on where we're going in the housing industry and so th still very very hard and to be realistic it's going to take several more years to hear the damage caused by the crisis now we're trying to do two things we're trying to make sure that we can reach as many americans we can to give them a chance to stay in their home which they can afford it the programs we've helped put in place have helped roughly two and a half million americans have a chance to take advantage of a modified mortgage that lowers their monthly payment and stay in their home we can't help everybody  because a lot of people got themselves way overextended and we don't think we can justify using taxpayers money to help them stay in homes they can't afford but we're going to try to make sure we reach as many people as we can those programs are still in place now are making a huge difference for millions of americans and we want to make sure that they do as much as they can now longer term obviously we have a housing system that is a mess and did not work overwhelming depend on the government now still and what we laid out last week was a plan to gradually wind down fannie and freddie gradually restore this market to a market where private capital provides most of the mortgages in this country but still has the government play a limited role a targeted role in helping provide affordable housing alternatives rental as well as ownership to low income americans and we've proposed a variety of other models for trying to make sure that the government is providing some kind of protection against a risk of a very severe recession in the future we're not going to that with fannie and freddie though we don't think they can be part of the solution and we want to begin a debate in congress with the relevant committees about how best to craft legislation that would achieve those objectives wind down fannie and freddie restore the private markets the dominant place in housing finance but with better protections for consumers more capital against risk homeowners holding more equity in their homes and some protection in a future crisis against the risk of a mild recession turn into depression that's a very difficult challenge to do and of course for the reasons you begin with we want to make sure these reforms are phased in gradually because we are not going to take any risk that we slow the process of repairing the housing market we damage the recovery all right thank you and while he did not express necessarily where he felt the rate should be lowered to it was a very positive statement that that's an issue you want to work on do you have a sense of where the president wants to go from the thirty five percent corporate rate to what level well my own view is for it to be worth it you've got to move it substantially lower the average evaluating thirty's or below thirty into the twenty's the average rate of our major trading partners now is in the high twent and you were to make it meaningful difference you want to get it down substantially towards that level and are you of the belief that by doing that you're incentivizing more domestic activity economic activity try to encourage more investment here domestically rather than abroad absolutely i think there's two very important rationales for doing this one is again you want the market allocating investment you want the markets choosing which countries which companies grow which companies  succeed you don't want the tax system making those judgments getting in the way those judgments and so if you clean up the tax system lower the rate broaden the base you probably improve overall growth and efficiency but as important as that you want the tax code working with not against the objective of encouraging investment here in this country with those same goals applied to an individual taxpayer i think generally we're going to have to do comprehensive  and as many people have proposed in the past the probably the best way to do that to simplify the system make it more fair is to also lower the rates and broaden the base as i understand it on the president's two thousand and twelve proposal he actually wants to raise the top marginal rates from thirty three to thirty six and from thirty five to thirty nine point six both of which would be over the corporate to right that we're talking about reducing if those same goals applied to corporations as an individual tax payers why would the administration want to see an increase in those rates well again what i would do is compare if you think about those rates in context to the race that prevailed in the ninety's and we were doing fine as a country then actually it's a record that  of the world then and we'd be thrilled to recreate today so i think those rates are something that completely consistent with a strategy of making sure we're more competitive we're growing and recognize that again as many of your colleagues recognize we have unsustainable fiscal deficits and if we're going to save money together in reducing spending we want to make sure those savings go to deficit reduction and improving incentives for invest in the country well we don't have the same economy in two thousand and eleven as we did in the ninety's and i would hope that we'd all work together to reconstruct the tax code that works for the current economy both domestically and in the world rather than going back to the ninety's and try to reconfigure the same kind of tax structure that may not be a quibble to what we need to do today and i just can't understand if we on the one hand agree that we need to lower the corporate tax rate to stimulate investment why all of a sudden then we also want increased taxes on individuals if we want those same tax payers to take their hard earned money invested in the economy create economic activity to do the things that we all want to see happen to raise everybody's vote well it seems to be a little income group us that we want to decrease the or lower the corporate tax rate and yet the same time still in an economy with nine percent unemployment they want to increase taxes on people who want to see invest in this economy kinds and again you're raising very important questions that just reflects the difficulty of the choices we face but my sense is if you if you gave businesses the choice they choose that next they'd say we are comfortable living in the economy but we see a modest increase in marginal tax rates for only two percent of americans and we see a more competitive tax system i think they prefer to play in that for next year for a moment because the plan house republicans released on friday pertaining to this current year's budget could create an immediate crisis for millions of americans who depend on social security the republican proposal cuts the social security ministrations operating budget for the rest of this current year by one point seven billion dollars below what the so security ministration needs for this current year twenty eleven that's over five hundred million dollars below what the administration spent to serve the public last year with a smaller population of beneficiaries as a trustee of social security i wonder if you give me comments as to whether or not you think that's the way we should be the most important programs that the federal government has for americans especially those of retirement age again suspect i would not support those changes for the reasons you said now my understanding is that from what we're being told that if the cut is made as the republicans propose in their current year budget proposal it would be the loss of three thousand five hundred jobs it was shut down the so secure ministrations offices for one month which means each and every one of us who services seniors in our office disabled americans in our offices constituent services would have to explain to members in our community that for a period of about a month there would be no one answering the phones no one responding to queries no checks going out beneficiaries no social security numbers issued newborn babies over half a million retirees widows and severely disabled workers would face these delays starting with the creation of a budget like this is that something that you think as a trustee for so security that we can at this stage handle you know again i would not support cuts that would have that impact for just the reason you said and again i try to be careful i've not looked at those cuts we don't know what the house  to actually pass and we would take a very careful look at anything the house passes and try to make sure that people understand the full implications but i get the the most important thing again is as we find a way to restore gravity to position we're not cutting into basic services and critical investments that will hurt the economy longer term now it's just short term but long term as well and now on a related note our republican colleagues are threatening to shut down the government unless certain cuts are made in certain programs and that would come through a vote on the debt ceiling limit and they would vote that some have said that they would vote against it some members on the republican side have said that they would vote against increasing the debt limit and keeping the government you have to first pay our other creditors including china and others who have lent us money that's why some of us call it the pay china first proposal do you believe that we should be holding the government and all those who depend on the services that the government provides hostage in order to make certain cuts that could ultimately have a devastating impact on americans i don't congressman as you know i believe that america has to meet its obligations that we're a country that pays its bills we meet our commitments and we cannot afford to do anything that would create a risk of jeopardizing this recovery slowing the pace of expansion slowing the pace of employment growth and to create any uncertainty in the minds of the american people in the broader investment community that america will not meet its obligations very damaging to the recovery and again i want to just to take the more confidence are this of course completely confident congress will act as it always does to raise the and i very much welcome the comments made by the republican leadership both in the house and the senate that recognizes that america's obligation is going to meet and now we are going to have to have a very important debate about how to restore fiscal responsibility and we're looking forward to economy whether it's businesses or individuals and they get it they get the gain while the rest of the population doesn't touch on them some we in fact you had a conversation with my colleague mr study about the tax loopholes i go for us today on what really i think is one of the most important issues for our constituents they understand that our fiscal house is not in order and they are demanding that it be that it be put in  order just by way of clarification i get to also board appreciate that the president is the one who holds the keys as to whether or not the government shutdown he has he has said that that he won't sign something bill in the blank  whether or not this government shutdown is squarely in the president's lap you said just a moment ago that you thought it was appropriate for the market to decide which companies grow and succeed many of us on our side of the island many americans believe that this administration has grossly distorted the market and made it much more difficult for companies to be able to succeed in the way that that the normal business processes work where the government isn't coming in to bail out their competitor or to change the playing field so i think it's incredibly important that we that we recognize that that the kinds of things that are being said here aren't don't necessarily square with with with what the reality is or at least the perception of folks out there but i want to talk about your what you have said what the president said this is a ten year path you said today we we need to take the lead in the initiative and so for so many of us we're just dumbfounded astounded by the fact that the administration hasn't taken this opportunity to address the issue of entitlements clearly the automatic spending that's in in the in the budget in the pejorative opinion on greece but certainly the financial situation why didn't you all address the entitlement situation look at the risk repeating myself what the president's budget does is reduce our deficit  now you're right to point out as we do that that's just a first step and solving the tenure deficit which is essential and important does not by itself solve the long term deficits so would you get a medal but again this president and this body has already passed and put in place the most sweeping entitle to reform to reduce costs that we've considers the country and just contrast it with for example what this body passed in the that what was passed in the area of health care in fact will increase cost the federal government increase our deficit and our debt as as as opposed to decrease it so i it's just it really is remarkable for again when you say we take the lead and initiative but there's no evidence of this administration taking the lead an initiative on entitlement reform taking the lead in a nation of an expanding entitlements and expanding automatic spending i want to address a particular issue in the area of health care as a physician the the issue of sustainable growth rate and how physicians are compensated for the remarkably high quality care that they deliver  you where are you getting that three hundred forty one i have been able to to determine that we identify ways to cover the cost for i believe the first two years yes but not for the remaining eight correct and we're assuming it is an assumption or it's a prediction it's a hope that congress will as they've done the last two years figure out a way to make sure they can sustain sustain those rates at levels congress seems to want to and do it a way to pay for it but we only identify how to do in the first two years so there's not the take care of that and that that that money will be there not not on your own we'll probably have to join you and figure out ways to pay for that but we don't solve it we don't identify how to do it over the full ten years ok well let me just register finally my my real concern about  believe is a remarkable lack of leadership on the part of this administration in not addressing the issue of medicare medicaid reform all right thank you mr doggett's recognize thank mr chairman thank you mr secretary the budget the president has presented seeks to add some improvements in our fiscal operations both through revenue and spending changes and as important as those spending cuts are some of them even painful cuts in spending the revenues also very important in fact it's the principle job of this committee you don't believe that we can achieve a balanced budget without some additional revenues no i don't i don't think you can achieve the necessary reduction  deficits are critical to long term growth without looking at sensible carefully designed tax reforms as well right and with reference to those tax reforms one that you have been involved in of late is corporate tax reform we recently as you know had a hearing in this committee on this according to bush administration treasury report taxes on us corporations represent a smaller percent of their profits in fact than in other developed countries across the o e c d i believe that last year there was a report out that corporate tax receipts represent a little over seven percent of federal tax revenues fifty years ago it was about three times that amount that we got president reagan which i think provides us some guidance here when he approved the nine hundred eighty six tax reform act he actually right corporate tax revenues for the federal treasury by about one hundred twenty two billion dollars you have said that the guiding principle here in the president has said in the state of the union is that at a minimum we should not borrow money  shift more of the tax burden to individuals in order to have corporate tax reform and i want to assure that that is a firm an unyielding position of the administration that would not be borrowing from the chinese to finance such reform and we will not be shifting more the board and individuals that's right when we say revenue neutral we need we would not support tax reform that reduce revenues from the corporate sector but it also means that we don't think it's realistic achievable or desirable to try to raise revenues from higher taxes on businesses because we live in a much more competitive world and though as what you said is right the average effective tax rate on u s business today is about the average or a competitor's but our stature rates are revenue neutral you're not going to have them could not going to last seven and not going to try to go so materially higher you've included in this budget proposal again international tax loophole closures that you've had in the past and one of those that i've been particularly interested in is the one that deals with corporations that develop electional property patents various other forms of intellectual property formulas and the like here in the united states perhaps even using our research credits and then just before they are to be marketed they shift the ownership are they joint venture it off shore we had testimony on this last year at our hearing from  assistant secretary who said that the administration would support moving forward to deal with this narrow but very costly problem that i believe your budget that you just submitted says cost us about twenty billion dollars over ten and my question to you is does the administration continue to support dealing with this serious problem of shifting intellectual property overbroad  overseas as a separate independent matter from broader reform we hope to eventually achieve we do we can do in two different ways we can do it by reforming the current system as we propose to reduce these the opportunity our tax code provide to shift income  income from intangibles like you suggested or we can do it through conference or reform but again the overriding objective should be to make sure that we're reducing both the incentive and the opportunities in the tax system to shift income  investment outside the united states and i believe there are at there are proposals not unlike the one mr brasero talked about for social security in this continuing resolution to make significant cuts to internal revenue service tax and for i know some people who would like to see that amount cut to zero but we've had testimony in the past that for every dollar that we cut in tax and force we are reducing revenues by three to fourteen dollars does that remain true that  raise at least four dollars every dollar you cut is the same cost thank you mr smith is recognized thank you mr chairman thank you mr secretary for your time and your service we heard earlier commentary on social security and what could be accomplished or what could not perhaps speculative we accomplished now a furlough as apparently was suggested would that not be an administrative problem if you know i don't have the privilege of the responsibility of statements for various reasons but i certainly i think you can agree facing some significant challenges we've touched on taxes here today you know the estate tax i hear a lot of input from we would make sure the doc tax only effect we think less than one half of one percent of the states in any given year and again we're not proposing it because we like doing it only proposing it because as you're saying over and over again we have unsustainable obligations unsustainable deficits and they will hurt future growth country if you don't fix them and we're going to do a bunch of things to spread the burden of that but again our proposals would only affect less than one half of one percent of all estates in a given year i can appreciate that i mean it certainly reduces the political push back i would hope that you would share the concern of many of my constituents not just about the state tax or death tax but that narrowing of the tax base that fewer and fewer people are paying taxes whether it's at the federal income tax that fewer and fewer people are paying  how how do you think we could address that well if you look at our tax system today there is lots of unfairness across the system and you referred to one piece of it which some people think is unfair which is lower income americans pay payroll taxes but many don't have to pay the income tax as a whole but the vast majority of the payroll tax but i'll take the other side of it it's also true that as many of our most successful executives said you be you can be a very successful this is then today and pay a much lower effective tax rate than people work for you and that doesn't seem fair either and again we were trying to propose some initial reforms to leave us with a more simple more fair system and i can appreciate that as well now on the capital gains tax rate is there any concern that letting that go back up or even pushing it back estate tax for the next two years will be imposed a top rate of thirty five percent with a five million dollar exemption and effective for two thousand and thirteen president obama has proposed to make permanent the state tax plan that were in generation to grow up in eastern kansas mr secretary as you probably know kansas state and i hope you have an important for the or an appreciation for the importance of the family farm to this nation can and we feel like we're under attack here a new combine cost over three hundred thousand dollars and new tractor over two hundred twenty five thousand dollars that's with nothing attached to it if you  implemented one hundred seventy thousand on top of that so as you can see the cost of the necessary equipment to manage a farm can be quite high and it can easily top one and a half million just in equipment as several years back the u s did a study there were nearly eleven thousand kansas family farmers that had land and buildings valued at over two million so the cost of implements and land values when added together is really not hard to get to the three and a half million cap on a state tax that the president's budget is proposing and in addition i want to note the average net income on the family farm is approximately forty five thousand a year now i've heard the president state that everyone needs to pay their fair share of taxes but under the president's proposal it's not unreasonable to expect that a significant percent of kansas family farms could be placed at risk when trying to comply with federal tax well then most likely could not meet the capital requirements to maintain ownership between generations so i would like to see if you realize how this proposal negatively treats family farms i would ask you how do you advise family farms address this challenging issue and perhaps as a follow up it's been promised the taxes will be raised on those earning below two hundred fifty thousand dollars with the net income of the family  one half of one percent of the states in a given year including the families that you are concerned about in the skies and we share those concerns one very important point in the tax package passed by the congress at the end of the year the president proposed it was included in that provision for one year any business in the country can fully expense capital investment fully right up against a tax of the cost of a new combine attractor and that's one reason you're seeing capital investment start to accelerate now to being a two year so again if you look at the overall mix of things we're proposing we put in place they will substantially improve the capacity and the competitiveness of american businesses american companies all right thank you mr thompson's recognize  thank you for being here the gentleman from kansas is truly interested in saving the family farms i have a bill for you see me after the after the hearing i think it's important that we discuss this bill today this budget today on the same day we're beginning the debate on the on the c r in a couple of colleagues have juxtapose some of the differences i think one of the major ones speaks directly to the issue that mr herder raised that he was juxtapose what's happening today in the c r and the president's budget specifically things such as the build america bonds which were so successful i know sacramento airport use those they generated twelve hundred fifty jobs and probably every district across the country can say something similar and i'd like to hear how you deal with that because that's certainly a job creator of  job killer in the in the c r and also on energy issues i notice the president's budget extends a sixteen zero three treasury grant program which is so important for renewable energy and the section forty eight opportunity for us through encouraging encouraging and investing in renewable energy how we can use that to create more jobs and i should also mention because it was brought up today the  by someone on the other side about the potential loss in traditional traditional energy jobs that the c r make some cuts that will make it impossible to get permits renewed recover not just in the short term but long term and i would share the caution that as you look at how to make these tough choices across the deficit as a whole be careful not to cut investments that will hurt jobs careful not to cut investments that will hurt our competitors in the future and when you think about our broader fiscal challenges make sure you bring a long term perspective and that you're putting in place restraints that we can live with over time that concern i've got is about the taxation but i want to get in terms of president's budget but i want to touch on a couple of things one we're all interested in jobs because we know if we grow jobs it cuts the deficit so we've got to do that i think you agree with that but let me tell you the realities i'm a guy who's been in business thirty years had a thousand employees four years ago so i understand the middle markets pretty well i was chairman of the ford chamber i've dealt in these middle market small companies let me give you my observations from florida  one severe lack of credit for small medium sized businesses you know that i've seen you knowledge it numerous times so it's really compared to what was four years ago unfortunately fog a mirror you can get credit today they can talk about credit but a lesser going to put up a half million dollar cd you're not going to get that line of credit or whatever you need the second thing is health care it's to me it's a big entitlement program for thirty two million or fifty million people but it doesn't do anything to bend the curve for small medium size business i had one of our largest employers the other day in sarasota they were getting ready ideally to hire three hundred people they could hire more their health care bill went up a million and a half dollars but that goes across the board even with small companies everybody says ver just got out of my health care bill it went up twenty percent it's killing jobs lack of credits killing jobs now the third thing in comes to the budget with the president is increasing taxes i want to go back to a point you made you said it only affects by raising taxes two to three percent was in your opening comment that might be true of the percentage of businesses that make up over thirty five percent but how many jobs do they create there's a lot of people and most of them that might make a dollars today but they have seven hundred employees they need more capital and if we raise their taxes along with the lack of credit health care costs going up and then you start raising their in pockets of the country particularly for businesses that were lucky in their choice a bank because their bank is overextended they were the victims of bank having to reduce leverage and strengthen capital but we're hoping that's going to start to improve the numbers suggest is starting to improve the price of credit much much lower than it was a time in the last two years or so and the small business program that's now working its way through the system is going to help a little bit help small banks the capital from the government help states while more financial power  credit programs and we have to make sure that the examiners the supervisors in the bank supervisors aren't getting a piece i really want to make a comment on it's very important a stance i'm glad you asked it again and i'm just telling you the  numbers that the independent tax people tell the congress or inform the congress of it is two to three percent of all companies of companies and employers are men and you're right they employ substantial people but the vast bulk of those companies affected by that are companies that make substantial amounts of earnings now you're right that their taxes will not all law firms investment they're not alike and they are you know there are but those are not that those are not law firms investment firms are overwhelmingly still earning substantial lots of money and again these are the rates that prevailed at a time when the small business been in this country but we don't have the right answers we've got today that that's my call right or our time is expired and mr secretary i know t happening anyway but my specific question that i would post to you deals with what my friend from louisiana talked about about the potential downside impacts of the president's proposal to  eliminate outdated fossil fuel subsidies for the oil companies that and invest in energy for the future by the way some of us have introduced legislation that would do exactly that have a number of co sponsors i would hope that you could analyze for us in a world oil market where a barrel of oil is fungible and a price is determined internationally that is no range of two to three trillion dollars or more if it keeps going up what impact eight billion dollars would have on the two to three trillion dollar to which it has any chairman my question comes from north dakota and you know back in the eighty's we had a real financial problem and we increased taxes and the problem just continued a decade ago we had the same problem lot of other states did after the dot com burst and really we took the opposite approach we tighten our belt we didn't raise taxes we encourage the private sector growth and today we're below four percent unemployment we encourage oil and energy industry to grow encourage those kind of jobs they're all positive so my question to you really relates to the importance of small business and you know my own experience is when you tax small business that's negative for them they're not you know creates uncertainty and so in this budget i see the taxes going up on small business i mean most small business a lot of small businesses pass through and so they're painted as ordinary that i think fifty percent of small business is paying their taxes ordinary income so again my question to you just relates to how can we increase the taxes on the small business and how can that be good for our economy again that would respond but i'll come back at the the economic policy institute nonpartisan independent group finally had a chance to analyze the republican continuing resolution that's before us this week and they determined that if an acted as proposed it would result in over eight hundred thousand jobs being lost in the both the private and public sector given the policy implications behind their continuing resolution i find that eight hundred thousand number very fascinating because the day president obama was sworn in you may recall that we were losing eight hundred thousand jobs a day since then we had a  month since then we've had eleven consecutive months of private sector job growth the day he was sworn in seventeen trillion dollars already been destroyed in the stock market since then over thirteen and a half trillion has been restored and the day he was sworn in he inherited the previous administration a one point five trillion dollars budget deficit now the first year which you guys said control the budget was revised downwards five hundred fifty billion it's going up again next year but that's primarily due to the continuation of the bush tax cuts that all of them supported on the other side and i think we just have a country very stark contrast between two different visions for our country right now one that's often a very cold dark assessment about the future of our nation the possibility of economic growth and one more hopeful and optimistic i see that in the budget that this administration has proposed especially in the area of innovation and competitiveness i agree and i think most people would agree with the president's state of the union he says we have to out innovate help build i'll create outcompete the rest of the nations in the world and there are smart investments in doing it and bad spending that we have to get control of in order to bring balance to all of us and i'd be interested again if you want to submit a written response or whatever  o highlight some of the more important vestments you feel we have to move forward on in order to create the sustainable long term economic growth that we face in this nation all right mr black is recognized thank you mr chairman mr geithner i want to read from  written testimony here you say our deficits are too high and they're unsustainable left andress address these deficits will hurt economic growth to make us a weaker nation then we must go back to living within our means which i couldn't agree with you more but this budget predicts over the next ten years that we're going to lower our deficit to three percent and i'm just thinking about my fourteen year old grandson and ten years from now what i can say to him is you know dylan i'm really sorry that we could only lower this three percent and by the way you're going to have at least a fifteen trillion dollar deficit that you and your family now that you start out are going to have to pay back and i'm really sorry that i just couldn't get it quite done for you why is that our goal to still be at a deficit not a balanced budget and not growing our economy to the point where we can start paying down our debt that just seems like not a very good goal to me excellent question i agree with you it's a place to start but it's not enough address or for other reasons the entitlements but it's not true that the federal health care reform adopted and then they did adopt many of the recommendations from congress's own independent advisory commission i hope you read it the medicare payment advisory commission very specific recommendations and that by having a medicare center for innovation medicare can test and use new payment models to improve patient care at the bring the cost i have never heard anything about that from box ever ever ever will but you know that and my second area i think you should address a wide brush we are now having a weird situation of increasing private jobs and the public jobs going down and if you don't think that's not going to cost us money you're wrong all right mr shock is recognized on institutions over fifty billion i'm specifically interested in a couple things one why it's in one step where with a broad brush saying all institutions above fifty billion whether they took  not and then at the same time we exempt out some aunties that actually took tarp and then i think the question that is begged is when the ministration says we're making money on tarp why would need we need a tax to begin with  and then the other question deals with the budget really seeks to penalize those companies that utilize deferral and for those of us that have companies in our state that are large multinationals i guess my question would be how does that help create jobs and more importantly how does it help us become competitive in the world climate when for a company that may only have ten or twelve percent overseas we may be able to get the skin but if seventy eighty percent of what they sell is manufactured and sold in other countries i would i would suggest that perhaps they are just going to leave if we continue to make it more and more uncompetitive for them to remain in america reform law that we put in place so that you so able to hope to lead the charge on and to talk about the impact on the u s economy i would have liked to have a conversation and heard from you you're thoughts about the what we're hearing more about the taxation on america's a class with the bill will bring about how it's going to kill jobs in america i would like to talk to you about that or how it's going to kill small businesses well the small businesses that the small business will never use the tax credits that they've been afforded under the new law would like to how to conversation about love the false leads that have been spewed about us and continue to be even though small businesses are using tax credits even though we're not killing small businesses in this country killing job creation and growth as you've just said that we've consistently lost loved ones continue to see growth in the private job market and that there is not going to be an increase because of the bill on taxes in the middle class would like to have an opportunity to argue about that unable to so i think i answered the questions for you but thank you very much for being here today mr secretary i want to thank you for your time a very generous i'll certainly give the opportunity to respond now if you like to touch on any of those things or to respond in writing at your thing congress could do is to make sure the reforms are put in place to reduce the rate of health cost growth remain in place are enacted congress sticks to them and if we can find ways to go beyond that we welcome a chance to do that second observation to make we allow discussion about  economy and what's going to be good for future growth i just want to emphasize that by any measure you can look at the fact of the stock market's up about one hundred percent since we came into office or you can look at overall of the profitability for the american business community as a whole the american private sector look at tr growth you look at dynamics innovation what's happening export growth the american business sector is in dramatically stronger position today because of the actions taken by congress and the president the fed over this period of time our losses so that we don't hold the taxpayer harmless and those costs come down dramatically as i said outside of housing we're likely to earn a positive return but because of the independence that still estimate we still have some risk of loss we felt obligated to put in the budget how would we close to recoup that so the taxpayers aren't exposed to that and we propose a very modest fee only on those from that were eligible the largest eligible for the emergency assistance was just one final thing on  think about the think about this way the current tax system at the margins makes it more likely that a company in your state is going to build a plant in outside the united states rather than inside the united states and what it means is that if you have to come together the current tax system will favor with lower tax burden the company that builds that next plant outside the united states it's a complicated thing here in the united states and again a time you give any particular industry a tax benefit tax credit it means all other businesses on average pay higher taxes that's not fair and makes us less competitive that's something we're  changing nice to be here today thank you actual questions good discussions we look forward to look for to continue them with you and let's see if we can do corporate tax reform all right thank you and thank you for being so generous with your time and if members have questions all submit them to you in writing and i hope that we could receive response thank you again mr secretary this hearing now adjourn