color hearing daughter and welcome our witness today who happens to be a know personal friend about thirty years ago longer than either one of us care to admit i was working at the office was secretary of defense for the comptroller  g in the navy by the name of hank paulson joined us in the office there and we worked together for the next eighteen months two years as part of the defense effort and i for all these years since not had an opportunity to continue our friendship but i've enjoyed renewing it since he come back to washington and i was never surprised by any of the many achievements that he is a he is a racked up in his the course of his career in the president could not have chosen better in selecting h administration's economic team about the entitlement obligations of this country into the future and we understand those concerns and we share those concerns but just as amount of backgrounds that you weren't here and it happened before you came let me bring you up to what what where we've been over the last six years six years ago as the economists it o and b looked out over the next ten years they foresaw nothing but surplus is coming up by a point six trillion dollars in  we had a tentative understanding in both houses and both parties in the congress as we got to this point with some precedent surpluses we'd make on president use of the surplus we had in surplus such as security we would force where ever borrowing again that surplus and spending it instead what we wanted to do what we wanted to do was take the surplus in social security and use it to buy down outstanding debt reduce the debt owed by the ever with less debt otherwise to pay the public would therefore be better percent to eighty two leaders obligations under social security and for that matter medicare to that idea i'm talking about had a corny nine blackbox but is that a serious substantive core to it that was the core idea of reducing reducing the publicly held there we employed president bush to embrace this idea and here to this idea in the budget  sent us and not to continue borrowing in spending the social security surplus i made the response of the president for example on a saturday morning address the weekend after you finished budget up here i was two thousand and one i said mr president may seem like we're sitting on an island of surpluses but we're surrounded by a sea of their long term debt and at least part of the largest that we find here the five point six trillion dollars in sur ought to be treated used to retire some of that long term debt so we can make it surely solve on the obligations of social security and medicare well into the future the bush administration took a different path one driven mainly by substantial some would say massive tax cuts a trillion seven hundred billion dollars and all over a period of ten years when it turned out that the ten year surplus of five point six billion dollars was overstated by as much as twenty five thirty five percent when other factors began to take a toll recession terrorism and other things began to take a toll on the budget the bush administration did not make any kind of mid course action they went full speed ahead and as a consequence we have seen that accumulation on a scale that has not been experience and the second world war that could have a chart number eight i think it is chris this is just a simple back of the envelope way of looking at the dead accumulation over the last six years president bush came to office we had a outstanding debt subject to limit total censure toward debt of five point seven trillion dollars that debt today six years later is three trillion greater nearly sixty percent greater the debt that will be incurred under this budget in the remaining two years of the bush administration is indicated by the on budget deficit which is about four hundred fifty billion dollars in each of the four coming years even if your budget submitted today is adopted that means we will add about four trillion dollars in debt during the course of this administration as compared to a contrasted with five point seven billion dollars trillion dollars outstanding at the time the bush administration took office and that's a concern to all of us and i'm sure it is to you in the ways to mitigate it by saying well you have to look at as a percentage p one way to look at it is by looking at what it's done to debt service because of all the entitlements of all the mandatory spending items in the budget this one is truly obligatory the others can be manipulated with great political  medicare and social security so that's where we are in the budget we received today we hoped might be at least the first step towards a change of course but we've been through this budget and you'll forgive our skepticism but we think the revenues are overstated and we think that the spending is understated and therefore we think the go about its budget in two thousand and twelve is doubtful at best here the major concerns we have this budget assumes that the alternative minimum tax will remain in full force in effect from two thousand and eight on board most of the forecast period for most of the time frame of this particular budget the a m t will be there collecting money like a vacuum cleaner c b l says over a ten year period of time the a m t the alternative minimum tax if not adjusted if not indexed inflation will collect one trillion forty one billion dollars more than the regular tax system collects in addition we found as we look through the budget and everywhere that an assumption is made about economic conditions o m b is a bit brighter a bit more optimistic than c b s as a consequence  in revenues that means that the sixty one billion dollars surplus that you're forecasting for that year if it were derived by using c d o numbers would instead be a ninety four billion dollars deficit so these are the reasons we're concerned let me show you next chart and this is where we plot the likely course of this budget assuming that something is done to neutralize the effect of the a m t so that is not paid by middle income taxpayers for whom it was never intended and assuming that war costs continue after two thousand and nine your budget has a placeholder of fifty billion dollars after providing a supplemental of one hundred seventy billion dollars in the supplemental one hundred iraq the persian gulf or afghanistan or north american air defenses nothing incrementally and that's hard for us to believe what did it were so i would hope it happens but i don't think it's realistic forecasting drop out when we adjust is dramatic you can see it here instead of moving to balance in twenty quell the budgets and deficit by one hundred forty five billion dollars and over the next five or six years it goes deeper into deficit such that if the end of the timeframe is four hundred sixty billion dollars in debt this is a matter of major concern to us because we don't believe that budget achieves tagline which we heard repeatedly yesterday namely we balance the budget but don't raise taxes they simply does raise taxes by a substantial amount and if you example it's a small cut but they can relate to big factor education job training function five hundred of our budget will be up here with the president just a few weeks asking for an extension of fast track trade negotiating authority we think one complement to fast negotiating authority is to have in place a robust job retraining program educational program so that we will have a workforce is proficient sharp well educated competitive with any anywhere in the world in other words we believe we've got to make those human capital investments to achieve that goal if we're going to have a free trade global free trade economy we don't see that commitment to investing in human capital the function that deals with education and job training is cut by nearly four billion dollars next year and by more in the out years four billion dollars education the department of education is cut by one billion five hundred million dollars you can say that's not a lot  accumulate more debt and not achieve the of the ends that we think the budget should be striving for so we've got a common problem in front of us we've got problems like cost of entitlements that well into the future that only we working together can settle the difficulty of resolving them as such unless we sit on the table put everything on the table bring everything to the table will never work the problems out we can make  changes to medicare and i think you're doing here but we won't really resolve the problem until we work together unfortunately i don't see this budget submitted today as the kind of common ground we're seeking we're starting out a long way apart but we're still committed to working together with you to achieve the goal we all seek in war that is a balanced budget as soon as possible where we begin saving instead of just saving and we and making the investments in human capital we think are necessary as a complement to our other economic polic about the budget it's going to be going to be a healthy debate it's going to be about how we balance the budget i think both sides are going to agree the need to balance the budget then the question then comes down to how we balance the budget the administration's made a proposal to balance the budget without raising taxes by controlling spending that means this is going to be a big dialogue about taxes and i think it's important as we move forward in this dialogue so let's just look at what the tax cuts did what are the tax cuts where are we with respect to these tax cuts and i'm going to go through a few charge and talk about this when and how it relates to spending chart number one which you see here this simply shows you the difference in projections and that we're going to hear a lot about different jim projections between have under estimated the revenues that have come into the federal treasury will only know what happens in two thousand and seven if we go through two thousand and seven but the point is both of these estimating agencies have under scored what revenues actually in and go to chart to please now let's take a look at what these tax cuts actually achieve what what good are these tax cuts why are these tax cuts important when the tax cuts occurred we had high unemployment and when you take a look at the so called surpluses that the administration inherited when they came into power in two thousand and seven that remember that there were some actualize surpluses that actually came in what happened congress in the in the white house paid down six hundred billion dollars in debt gave people back bubble coming they do not perceive the recession that happened it did not foresee the enron scandals that happen that crashed our markets and reduced our revenues and so you had a economic perfect storm which was not projected and therefore those projected surpluses turned into actual deficits but when those tax cuts kicked in and when those tax cuts happen you can see the peak of unemployment at about six point three percent unemployment move down precipitously go to the next chart please when you take a look at the tax cuts before and after tax cuts look at job creation we were losing about one hundred thousand jobs a month before the tax cuts after the tax cuts we had record job growth to the point where we have now had seven point four million jobs created since those checks tax cuts next chart please take a look at business investment business investment in the prior eight quarters before the tax cuts parting quarter before the tax cuts shrunk an average five point nine percent a quarter business investment after the tax cuts grew on average six point nine percent a a joint tax at o m b a treasury are telling us you cut taxes it may help the economy it may produce jobs to get us out of the recession but it's going to drive us deeper into deficit it's going to cost us revenues as what all the estimators told us well let's take a look at what happened to federal revenues after we cut tax rates we cut tax rates on incomes across the board we doubled the child tax credit we got rid of the marriage penalty we repealed or put on a glide path to repeal the death tax we reduced capital gains taxes we reduced income taxes we increased expensing for small businesses for three years look what happened after all those tax rates were lowered tax revenues boomed tax revenues did not go down the deficit did not go up tax revenues went up look at the next chart what did it do to the economy what do these tax cuts do to g d p growth and in employment look at the g d p growth before the tax cuts look at all those quarters going from two thousand to two thousand and three g d p growth average one point one percent from the task cuts on g d p growth has averaged three point six percent and i want to conclude with this if you go to the next chart please as we've heard from nearly every witness who's come before this committee in the past few weeks our biggest budgetary challenges on the spending side are massive entitlement programs are simply growing too fast to be sustained take a look at this chart this chart shows you that if we keep the tax cuts permanent which is the black line the bottom line throughout our baseline period that's where revenues are to be as measured by cvo if we get rid of those tax cuts and allow those tax cuts to expire that's the red line a red line as  cvo not a lot of daylight in between the two of those but if we do nothing about spending if we do nothing about entitlements that's the green line so even if we get rid of all these tax cuts which produced all those excellent economic  seven point four million new jobs higher business investment better international competitors in the global marketplace if we get rid of all those tax cuts we still have this spending problem without reform by the year two thousand and fourteen when my kids will be exactly my age social security medicare and medicaid will consume twenty percent of our economy as equivalent to the cost of the entire federal government today in fact even if we raise taxes a balanced budget in the short term as you can see we will go right back into deficits so with the retirement of the baby boom generation the shift way should we just keep getting worse even if we raise all these taxes so the question is are we going to balance the budget at a higher level of spending and a higher level of taxes today which we know we will have much more spending in the future because of these entitlements or do we want to balance the budget at a lower level of spending rather than a higher level of taxes and spending so we can be better positioned going into the future the question comes down to this we have two fiscal challenges we've got this out of control spending with these entitlements that we have to on a bipartisan basis come together to figure out how to fix these problems how to fix these programs we also have globalization we also have incredible pressures incredible economic challenges unlike any we have seen before from countries like china from countries like india that we have to be prepared for we are no what we can no longer take for granted that we're the leading economic power in the world and so if we simply say we'll meet the challenge of these entitlements by just raising taxes we will lose our economic standing in the world and our children will not have the standards of living that we now enjoy let alone doing better than what we have right now so it all points to spending do we want to balance the budget by controlling spending or do we want to balance the budget by raising taxes because even if we balance the budget that way or the other way we're going to go right back into deficits if we don't fix these entitlement programs this is the context within which this debate will occur i want to welcome the treasury secretary for coming with us today and i hope that this perspective is add a little bit to this debate thank you the secure welcome again and let me say that your statement can be entered in the record you can summarize it as you please and you can go beyond the floor george we welcome your own record your testimony thank you very much mr chairman let me let me begin by saying i too remember position of strength our economy appears to be transitioning from a period of above trend growth to a more sustained level of about three percent growth and you know as congressman ryan mentioned more than seven point four million jobs have been created since august of two thousand and three our unemployment rate is low at four point six percent and as something that's very important to me over the last twelve months real wages have increased at one point seven percent so we're seeing these gains begin to translate themselves in through entire income for the average worker strong economic growth has also benefited the government's fiscal position in the first quarter fiscal two thousand and seven budget receipts total five hundred seventy four billion dollars an increase of eight percent over the same period in fiscal two thousand and six you know as a result of the revenue increase revenue over the last two years we've brought the federal budget deficit down to one point eight percent of g d p now the the the president's budget really really reflects key priorities economy which is going to let us take on entitlement reform as as congressman ryan ryan mentioned the the budget also emphasizes fiscal discipline i would like to say a word or two about the health care proposal the under the current law the tax subsidy of health insurance purchased through employers will average more than three hundred billion dollars a year for the next ten years that's the largest tax permanence that we have and for their huge expenditure we get a system in which rising costs are a burden to families and businesses and which millions of people have no insurance at all the president's proposal would make health care more affordable and more accessible and would give all taxpayers who buy health insurance whether on their own or through their employer and no matter what the cost of the plan the same standard deduction for health insurance this team thousand dollars for a family seventy five hundred dollars for an individual the president's proposal would help hold down health care costs by removing the current tax bias that discourages overspending cos become clearer giving patients more power to make informed choices about their health care spending the proposal would also help jumpstart the individual insurance market so consumers have more choices that are available today health care would become more consumer driven more affordable and more accessible for millions of america energy security is another concern of the american people and it is a priority that's addressed to the president's budget president bush has put forth an ambitious goal of reducing america's projected gasoline consumption by twenty percent over the next ten years we can achieve this goal by dramatically increasing the supply in the use of alternative fuels and improving fuel efficiency by reforming and increasing cafe the expanded fuel standard will provide entrepreneurs and investors a guaranteed demand for alternative fuels which will accelerate private investment and technological development reforming cafe will allow us to increase the fuel economy of our automobiles as fast as technology allows us with a more diverse fuel supply and a better fuel efficiency we can make our economy less vulnerable to supply disruptions and confront climate change through technologies that reduce carbon dioxide emissions now i will submit the rest of my statement for the record mr chairman just to respond to bits of what you said we can we can talk about the differences in revenue projections and i'd be perfectly happy to discuss that we put forward what i believe  five billion less in revenues the the biggest difference in those projections really have to do with the inflation rate when you look at the numbers that's that's most of you know we're still going to point no one's got a crystal ball both of these estimates are within the realm of reason and they're there they're both reasonable estimates think ours is a reasonable estimate but what they both show to me is the importance of keeping the economy growing and how dependent you know what a big driver of the budget resolution of the budget issue the  will you know what welcome to discussion of a m t i'm sure we'll get questions that you know it was interesting you know and i'm looking for ways to to bridge the gaps and you mentioned at the end we've got differences on the budget we've got the same goal and the same goal is is dealing with these longer term issues that are going to be staring us in the face very soon of entitlement reform and i  believe we wouldn't be too concerned about the the the fiscal deficit we have right today if it weren't for the the big problem staring us in the face  a deficit of one point eight percent g d p or you know i notice with all of your assumptions you said you took a look at the administration's proposals and you thought that there would be a deficit of  hundred forty five billion that would be tenths of a percent of g d p i think we can balance a budget it's important we work toward balancing the budget that's that's a very important goal for both parties and i think we can be successful in doing granted they were deaf not as they were seemingly small differences like two and three tenths of a saint's more the cumulatively over time the amount to a substantial impact on the on the bottom line of the budget that was our concern when you put them all together the impact as i said was one hundred fifty five billion dollars in the target year there vs a surplus of sixty one billion dollars to a deficit of ninety four billion dollars which is a big swing maybe small changes interest rates job growth inflation each of these in danger but nevertheless the net effect cumulatively over time is significant and that gives a slow to concern about the the bottom line number the administration's tagline yesterday which came across for people in the testimony and in the questions put to me portman is that we're balancing the budget without raising taxes force in effect after two thousand and seven the patch that we put in place would not be renewed and it would collect taxes to the tune of a trillion one hundred trillion forty one billion dollars more than would otherwise be collected under the regular tax code isn't that an increase in taxes moving you towards the goal of a balanced budget in twenty twelve and a big increase a trillion dollars let me address that but let me you know coming back just do with with differing assumptions as to how long the baby boomers will work and you know again our estimate is very comparable to many private sector estimates  but you know who knows no one's got a crystal ball i think the message here is to keep the economy growing i would say the the area that i just call your attention to was the rate in which the tax receipts are and we're going to work with on a bipartisan basis to solve this problem and i'm not saying it's easy it's a tough one and we've had other witnesses from your administration going back to three years who said that it can be done within the contact through the tax code in a revenue neutral manner and other words you can go to deductions and credits and preferences and what have you changed raise enough revenues to neutralize the will get to do that in the us and over the next two years as you probably noticed our priorities you know you can see in the budget which is in time at reform health care you know the incremental tax changes i think the the one with regarding health insurance is a very important a big incremental change so we don't have a fundamental with some people up here on that but when i take a look at the way this is our economy is growing right now and the way revenues are flowing in you know i want to keep this expansion growing i just see it working with the budget numbers just convince me how sensitive all these numbers are to what to growth of the economy and so i think continued  respect for your professionals over that i think they do good work and i'm glad we've got them this is just an impression we have but it seems to me we've got so we start off with our growth in revenues based upon the economic forecasting conditions that assumed and now we're adding another level to that higher growth in revenues based only the sort of our life expectation that things are good in new expect them to be even better than what you're projecting here in your years or dedicate those revenue it's an inexact science i don't think there was cherry picking it was very close to the blue chip consensus forecast but again it's hard to tell we don't know with certainty what's going to happen next quarter let alone or  five years or how so all we can do is make the best revenue projection we can and again what they illustrate to me when i looked at them is just the importance of how sensitive  these this go situation is to a growing economy where we've got revenues coming in at the rate they are that's that's that's key to the whole thing now i can't you know both as you said are within a realm of reasonable cause and again which which to me but it was not going to be this additional part of revenues over and above what you've already assumed how do you replace   a it's a tough issue and it's i've got no answer other than that it's one we've got to work on together and i think we can do it you know and but it would mean repealing trimming revising some would be hopeful that we could work together and achieve balanced budget in two thousand and twelve and i would say even your projections which we don't agree with you know the worst you know what would i look at is a tough structural issues well this is a common problem the a m t is one of many we've got it's a big one trillion two by your calculation over the next ten years and we've got to work together to resolve it we don't have a revocable on the head either but we look testimony the strong thank chairman we're going to have a long talk about revenues i think this this year first half of this year and projections first of all i think it's great that both the are basically showing us very low inflation in the future that's good that's that's good basic fundamentals a high class problem would we be so lucky yeah exactly i mean it's an illusion serious problem we have so you know that's a good thing couple of points and then i want to ask a question number one we're going to look at different parts of this tax package of the two thousand one two thousand three tax cuts and i think there are those who just believe that there is really no effect on the economy if we just raise taxes there's no effect on personal behavior decisionmaking or in capital markets if we just raise tax rates and that we will only get more revenues with no other adverse consequences that's the way that that's the lens we look at these things through just take a look at capital gains taxes according to the joint committee on taxation when we wrote this bill in two thousand and three they were telling us that over the following three years you know all three of four through six that we would lose five point four billion dollars instead of losing five point four billion dollars in capital gains taxes over that period we gained one hundred thirty three billion dollars over that period similarly the c b o t forecast a loss of revenue and we actually the revenues so when we go through this debate about just raising taxes on this program or raising taxes on this this class of assets are these these investors are these workers it's very important to note that reality and history has shown us over and over and over again that hacks rates do have consequences that we don't just bank the money and have no collateral damage in the economy and i think the underlying point that's being made here is the eye on the ball is to keep the economy growing when our constituents are working our constituents are paying taxes than not collecting unemployment and the fiscal situation is brighter switch respect to taxes i think one of the things we're going have a big debate about here is the so called tax gap and this is something that that all of us are interested in we're going to have some hearings and ways and means on this i think i know you probably testified on this yesterday and finance can you get into the challenge of closing the tax gap and you've basically defined the  who aren't really into this issue as well we obviously want americans to pay their taxes we want them to comply with the law we want everybody to pay their fair share in taxes we have very complex code some of it innocent on compliance because of confusion so people just cheating on their taxes how do we get that money how do we get at that and what is the administration's proposal to address that what is the score associated with that proposal and and what else would you have to do with respect to the s compliance and and and and what kind of things would you have to do to our constituents basically totally close this tax gap if you could discuss that i think it would be very enlightening because we're going to have a long talk about the tax gap as this year goes o define it is the difference between the taxes that are owed and the taxes that are that are paid because every now and then you get proposals to close the tax gap which are really just changes in the log in terms of increasing taxes the next thing i would say is that we don't the data we have is not as good as we would like the last research that was done on it really goes back to two thousand and one americans that pay their full share of taxes because those who don't pay their taxes create a burden in a greater burden for all those that do and so it's something that's that's really worth focusing on and it's something  those would raise roughly thirty billion dollars twenty nine a half billion dollars over but over a ten year period we also have a full our i r s budget with you know we're going to focus on continue to invest in audit ing and you know the commission has done a very good job of going after abusive factional teachers and and going after people who are under paying their taxes and we're going to continue to do that there's an i component there's and you know there's a a service component to it a research component and so on but the point that i've made which i think you're overlooking for me to get to is that when we've done the research  the research shows that the tax gap comes from from under reporting under payments and non filers but by far the biggest part of the tax cap just by far the biggest part is under reporting by individuals and we when you look at this it is under reporting business income and so to a large extent these are schedule c filers or small businesses farmers and as you said you don't know whether it's with malice of forethought or whether they just don't understand what they need to do but it's it's it's it's there's a big cash based  economy out there and so when you look at posing that you know the conventional wisdom when i came down here was you simplify it you simplify the tax code you'll close the tax gap that i think is the best way  you'll get a portion of that but actually what you need to do if you're going to go after this these big dollars would be something i wouldn't recommend by and large that is i think of the bad policy and i like any this would like it which would be to make it more complicated and would be  requirements for more information and so these to be the kinds of things like what well just to give you four or five examples one is just rip rip reporting ten ninety nights if you're paying your plumber you know another another example is just just mandate that we use electronic payments whether it's credit cards electronic payments and and get the electronic receipts and send that to the iris a big one which was tried when i research payments you could do with holding on everything and i think that was in or so only for a short time because members of congress got many postcards and nasty telephone calls and letters but that would so that's that's another way but but my  point is not to say this is not important and that we shouldn't go after it my point is that we shouldn't look at this as a pot of gold that we're going to use to tap into to find everything anyone going to come forward with our proposals which we have and we'd like to get those in acted and then the other thing i'd like to do is demystify all of this so that we're not looking at it as where we understand  that we could have policies to go after all of these things i think they would be bad policies in a number of cases and i wouldn't recommend them but at least we can have a discussion about about which kinds of policies make sense and how we would go after the  if we just keep tax cuts in place and grow revenues we'll still have revenue growth we'll still have more money coming in even under these only or cvo this is cvo which has underestimated revenue growth lately as as o will still have more money coming in the treasury if we let all the tax cuts go away if we get rid of them if we bring the marriage penalty back cut the kid credit in half bring the death tax back in full force raise taxes on capital gains raise taxes on dividends and raise income tax rates up across the board we do all of that and let the a m t hit everybody abetted that's the red line the green line is the spending line this is the cvo baseline and so the green line  shows that spending is the problem so even if we raise all the taxes that we have out there the expiring provisions and don't text a m t we've still got to deal with spending and so i simply i want to encourage you because it's a treasur secretary you know the tax code runs through you a lot of the entitlement programs run for you we need to have a better tax code that's going to you know better position us for the global marketplace the efficient in its collection of revenues but if we lifetime of public service to our country i respect that thank you for that my problem with this budget is well as it's been presented by you and bothered ministration officials listening to it being presented by my colleague mr rhyme is that in all due respect it sounds like more of the same the same failed promise we've heard each year for the last six years that we can have a major defense buildup we're trashed support fight a war on terrorism balance the budget in spite of having massive tax cuts the problem is those promises haven't proven to be true despite the best of intentions reality is just like the one nine hundred eighty s when we tried to fund massive tax cuts in the reagan administration we saw huge deficits in the same thing is happening twenty years later now i think the problem is this administration comes in with a budget every year as we're going to be able to balance  budget five years and then the administration puts proposed spending cuts in that budget proposal that don't have a chance of a snowball in hades of passing even under a republican led house so i hear hinterland and others in this room might have but they couldn't muster enough courage among republicans in the in the house to pay for their tax cuts by cutting spending so after all the deficit hawk speeches are finished and concluded we get a lot of deficit men and women who serve our country for twenty plus years many of them in combat and they are going to be asked to pay for example up to a thousand dollars more a year for their health care premiums even though the same budget  members of congress or members the president's cabinet to make that kind of sacrifice so once again we're seeing the false promise well intentioned but false promise at some point as you would have in business we have to judge and administration or a party in the house of representatives by their record not by their not by their well intentioned promises and all the theories of mr ryan that we can cut spending and balance a budget and pay for tax cuts and fight a war in iraq just have not proven to be true the result has been my nine and eleven year old sons are going to face a three trillion dollar higher national debt if they want to pay interest on to the day they die will general you just for not not right now so my question to you mr secretary is what would you say to republicans in the house that repeatedly vote for every single one of the administration's proposed tax cuts that they refuse to vote for the spending cuts such as the the cuts in military retiree health care the administration's proposing this year to pay for those tax cuts what would you say to those members of congress  responding to your to your overall point which is again i think we've all got the same goal which is fiscal discipline we got the the goal is you  you talk back then are just a second since the time is running short i know we have all the same goal the fiscal discipline to balance budgets a problem as if this congress the republican leadership of the last twelve years were accused of wanting to balance the budget in a court of law there wouldn't be enough evidence to convict them we've had the largest deficit in american history please press the let me say this because i will say i wasn't here two and three years ago but i remember reading about the debates and i remember reading where the president put forward a plan to cut the deficit in half and i think there's a lot of skepticism down here a lot of skepticism from democrats frankly i was in that closed up and i had skepticism and from where i was sitting and so i think one of the just take it one of the pleasant surprise was that we all have the what has ha congress and there has been some constraint not as much as we would like but with the constraint coupled with the revenues coming in there has been an improvement and a market improvement in our in our fiscal deficit and the deficit will be two hundred forty something they and dollars this year proposed in the largest deficit in american history part of this administration was two hundred ninety two billion but with time being up could you answer the question what would you say to republican alst members i would say that vote for the tax cuts but don't vote for the proposed growing growing and growing it's unfair to talk about deficits in absolute terms rather than as a percentage of the g d p just as someone who who makes one hundred thousand dollars can afford a bigger mortgage on a home than someone who makes twenty five or fifty thousand dollars and i think when you look at this deficit in the context of the size of this economy it is  i'd like it to be smaller and the reason i really want to be smaller is because of the big problem we see coming down the road member from texas just mentioned look i just want to make a point to clarify the case i made the charge that you just aren't theories their backs actual data that occurred in the last chart i used i guess you could call theory it was a projection into the future but it wasn't a republican project in the future it was this congressional budget office projection a future that he or zag your nominee produced for so you turn theories these are facts and data of information that actually occurred  is the case we have the three trillion dollar national debt of the last six years security of new jersey thank you and we often hear the phrase pay for tax cuts just remember the flip side of the who pays for tax increases and that is the working families so the groundwork always seems to be laid on the other side so far in the hearings that we have here that we need to pay for the tax cuts just remember that any time we talk about paying for tax increases it's going to be our constituents there are families in our districts who are going to be paying for that every dollar coming out of their paycheck and sent down here to washington that being said mr secretary thank you appreciate your coming here today and commendable that way that you in this administration the president has addressed the i'll say the revenue side of the fiscal picture in this budget you know many naysayers have been declaring for years that the tax cuts just as we've heard right now than two thousand in two thousand and one two thousand and three were unsustainable and the same people said that the only way to bring back the budget into balance would be to rescind them which is tax increase but i believe and i think you would agree with me to speculate that such an action would negatively impact upon the american economy and that this budget lays out a different in my way pinion a better approach than that i would like to just hurts american families i come from the fifth district in the state of new jersey northeast which is in a fluent state it's a donor state in my district and particularly because of high state and local taxes are counted as  against the normal tax code they are not counted as you know with regard to the a m t so in two thousand and four one out of every tax returns in my district were subject to the a m t raising taxes for these folks by over four thousand dollars so i'm just curious as to your thoughts again on a m t relief and specifically with the whole aspect of the state and tax deduction that's one first question and second question totally switching  to something else that probably hasn't come up here and so far and that is g s t and g s t reform this is an issue very important to me i want to compliment yourself and the administration for on a tougher tone have struck on pushing for a brighter or clear distinction that is being considered in the primary mortgage market activities and secondary mortgage market activities that being said on the positive note i'm disappointed in what appears to be a softening however on your position on portfolio limitations and what that may mean as far as risk overall to g ses and risk to the economy as well in addition to that i know you're a negotiation right now with the house leaders on the other side of the aisle attempting to find a compromise with regard to a housing fund in g ses this housing fund would drive the market at fannie mae and freddie mark freddie macas well we have seen this as being more than a tax on middle class america in the sense that they will pass these cost whether before taxes or after taxes to the people who use g s t and use fannie ma it was here the other day and made the point that what we need to do is keep our taxes low not raise any taxes and i commend the administration for doing that but in the discussed in the goetia is that if you're going on right now we may be seeing that in one critical portion of our economy the real state and housing market we may be seeing a tax increase looming if we have these negotiations go down that road so if you're going to dress those two points warming up with a m t and the also know people feel very strongly on both sides of this issue i've never witnessed anything quite like this it's a closest thing i seem to always war and all i can say to you is we won't satisfy people on both sides i don't want the perfect to be the enemy of the good and i think we can work something through were we get the things we need to protect against this you  know there is real systemic risk and and i think we can get the things i'm hopeful that we can get the things we need but i will just say to you there maybe some people th ink we should get more and they may just be disappointed hopefully i'm not disappointed but thank you very much i hope you won't be either but the asylum of mine begin my friend mr ryan who's left for a moment and i have a long running debate in these chambers and i have to respond to something he said and then to ask you a question of this ryan said that reality and history have shown us that tax rates do have consequences and i agree with that but i would point out that from one thousand nine hundred sixty that to the present there have only been five years when tax revenues to the federal government went down in  hundred eighty three two thousand and one two thousand and two two thousand and three those years being really the anomalies in the last you know forty five plus years and i guess the point i would make is that forty years of tax increases in tax reductions revenues almost always go up to the federal government that's what some very distinguished economist sitting in your chair here earlier this year said they said tax cuts can stimulate the economy at least in the short term they don't recover all the revenue that you lose but they also said spending can stimulate the economy and unfortunately what we've been doing in the last six years in my view is we've been doing both stimulation on steroids vast increases in spending and tax cuts larger than the economy could withstand my question is about health care you mentioned in your comments and and i wanted to come back to it particularly because it seems to me that from all the work i've done in health care and all the different people i've talked to about the cost strivers in the american system i think they would say the rapid growth of medical technology is a primary cost driver that the overuse of some drugs and procedures and tasks is another cost driver and that underlying it all is a very complex multiple insurance plans a system that is far more complex  of the developed countries in world but in your statement you seem to say well that's the tax code again that we're in cover encouraging over spending and therefore if we simply change the tax code we'll get a different result what i'm concerned about is this i'm not i think it seems to me that if you push people away from can from employer employer based health care plans despite all the problems we have with those plans into the individual market you're basically going to push older and sicker people or people who have some health care problems in the into the past into a situation where where they can't get health care or they can't get it enforceable right and in small states mine i don't believe the individual market could possibly provide enough choices with a very small risk pool to make any significant difference in cost and my question is how do you deal with health care they're going to be a number of intermediate incremental steps we're we're going to need to take so the way i look at the tax component as just as when i stated it's the biggest preference of the tax system and so you've got to begin by saying this we certainly can do better than this we can certainly do better with something that provides big benefits to those a employer coverage nothing to those who are uninsured or the seventeen million who are self insured and and so and it's something that has got biases and distortion system ok where the of the bias is toward the more expensive coverage which in essence is just prepaid health insurance for whatever everything from classes to cosmetic surgery or whatever on the high end so what this is is a step and it's a step in the right direction and it will not i just will say this we don't lot of work on this and the idea of saying that this is going to be it is this is going to lead to to any kind of significant weakening of the employer provided health insurance i think is wrong with the data shows is that that  most of the bigger companies two hundred or more employees provide health insurance ninety seven ninety eight percent or something and they need to that say that that's very important to their employees it's a way to differentiate themselves  research also shows that there's a trend among smaller companies which is which is you know to provide fewer of them providing insurance over time in two thousand and sixty nine percent of the employers provide health insurance two thousand and six it was up it was sixty percent so with this proposal does as i think first of all it removes removes biases and it will give you greater access there will be three to five million more people who have since as a result of this affordability portability but we need to look at it as part of a of  overall plan the secretary leavitt will talk with you about his affordable choices and some of the things he wants to do to help build pools and make insurance more of more available at the state level and when you talk to people at the state level the one thing they can't deal with you know they can do a lot of things but they can't deal with our tax code so again think about the tax code you know i welcome your ideas welcome there may be improvements suggestions but when you look at this proposal and you people can find questions imperfections again i said you know i'm talking about g s t let's not let the perfect be the enemy of the good what we currently have in terms of the way the tax preference corporate tax preference works let me tell you that's not close to perfect so we sure should be able to do better than that i my time is expired but i would appreciate it if you'd provide we with information on what kind of backstop there would be for those people who are forced into you can't get insurance in the individual market at a later time i might my time's expired but thank you very much thank you the central ing of texas thank you mr chairman first i'm sorry that my friend from texas who lectured us on courage his exited the room i think every witness who's appeared before this panel has told us that the number one fiscal challenge we face as a nation is runaway entitlement spending and at least several had said i believe that we may be the first generation in american history on the verge of leaving the next generation with a lower quality of life less freedom less opportunity i do not recall the gentleman from texas is embracing in title not reform spending any of his proposals nor do i recall receiving any support from the other side of the on a republican budget that did that so when the gentleman from texas will embrace entitlement spending reform all be happy to sit for his lectures on courage mr secretary you've heard a lot already about massive tax cuts which is a current theme in this committee if i could have sharpton number five ple when you hear the phrase massive tax cuts is i'm looking at this chart i'm kind of eyeballing it here tax revenues have gone from roughly zero i don't know one nine when president bush took office and currently there was decline for a couple of years you put in place the pro growth tax policies and they seem to skyrocket from their designer stand it revenues are up fourteen point six percent  five eleven point eight percent in a six eight point one percent for the first quarter of fiscal zero seven are those figures correct mr secretary as they are sir and i believe that your forecast which is in line with the blue chip forecast will have revenues over the five year budget window growing at approximately was it five point four percent five point four percent so i'm personally still looking for the masses tax cuts that i've heard about and instead what i think i see is massive revenue growth and nominal terms do we have the greatest amount of tax revenue than we've had in the history of the nation yes we do and we also hear about massive budget cuts and i do want to thank our chairman because ninety five percent of the time i hear somebody use the term cut what they really mean is that some budget function doesn't grow as fast as they want to grow now in the chairman's case i think he alluded to an education function being cut and i think you used the term in its correct sense i think it might have to however need to be put into a broader context if i've done my research properly you know i'm going to go and be numbers since president bush has been in office the education  hundred and seven percent from two thousand and one to two thousand and six and is i can eyeball all the different budget function categories i'm having a hard time seeing any other budget function increase as percipi reserve judgment until i see the final details i very much want to compliment the administration or your proposal to take the tax code bias out of the choice of health care i mean empowering people empowering taxpayers to choose the health care that is right for them and their families as opposed to having a third party employer pick it for them i think is a huge reform and we all know in this committee room that until you find the key to trying to reform health care cost ultimately you cannot you cannot solve the budget crisis that we face in future generations so a proposal will help health care become more affordable accessible in good fam not washing from your grasp of families the choice of their control is a very very important step forward and i thank you mr chairman and thank you boss and i appreciate the opportunity to follow up on some of the questions that were asked about the health care proposals the tax proposals i want to follow up on some of them and what i'm going to try and do since i only have five minutes and i hope you will as well as to ask questions somewhat briefly and if you will answer them somewhat briefly maybe we can get through a few a few type questions if i may be the health care proposals that the president has put out on the on the tax side the seems to be moving in the wrong direction and i think you acknowledge them to some extent and that is to really discourage or do you create fewer incentives for employers to cover insurance you said yourself that smaller companies are dropping coverage you almost anyway so we all acknowledge this maybe is your implication and help and just give individuals the opportunity to to purchase in the private marketplace this seems to me to do two things is to ignore the way insurance works which is that it is most affordable and most successful when you pool the risk with the largest group of people what you're doing instead is actually saying we're going to make americans be more on their own when it comes to purchasing health care is not the way the insurance market works so i want you to speak to what about what have you heard from the insurance industry or do you know about the insurance market that suggests that putting more people in the individual marketplace will in fact make it more affordable more accessible there's nothing that indicates in any of our history that that's going to ha me even before addressing that just tell you i could not disagree with you more strongly about your your first statement because there's nothing in this that discourages corporations from providing health care it still does actable to corporations what this proposal does was treats it's tries to put some fairness into the situation and that there's twenty percent of those who to get insurance from corporations are getting providing comprehensive coverage we want them to reduce the coverage and i think for many of my constituents they're already saying that they're seeing their co pays go up is seeing their deductibles go up we're not already hearing a shift dramatically to the individual employee but this would it there's no question this would encourage employers to reduce the benefits package they provide and potentially i'll get you know one hundred six million people employer right now and are we putting them at risk very interesting and a huge percentage of those eighty percent get a good coverage of below the level at which they will get the deduction so all this does is doesn't encourage employers to to to not provide coverage with this does is it treats people fairly now but your question which is has to do with the with the individual market and and  access and there is no doubt that there needs to be more needs to be done to help develop that market and a lot will be done at the state level that is where insurance are but i would say that the the conversations that some people have had i have not had these conversations directly but there have been conversations and there's going to be more work needs to be done on this with a number of the insurers who are providing and this insurance saying something like this would provide a big impetus and would help jumpstart the market just so i would say that there were just in terms of careful that time i think the notion of jumpstarting the market isn't is interesting but doesn't tell us what you mean by that when given what we certainly in the marketplace again in philadelphia i don't think it's that different except from all that given the rest of the country is that it's very hard and very expensive to buy insurance individually in the private marketplace there is not here to help make sure that the coverage that people can buy is meaningful but given the expense of think what you're suggesting is that it will somehow magically be more well worked out and we i want to make sure that article can afford it that there is some will ability the private marketplace otherwise we should be moving after the opposite direction which is helping to create broader pools and helping people be able to purchase health care and share the risk in broader ways rather than more one on one what i would say this is all about broader pools and that the that the a big part of this again this to me the what we're doing with with the at the employer level with this with this tax benefit is about fairness affordability access work has to be done and when secretary leavitt is up there he will tell you about the work that he's doing at the state level to create these pools and again and as you work to do that when you're talking about certain people that are that are sick or that are in certain categories that is that's an issue that we're going to all have to keep working on but and there's there's forty seven million people right now are uninsured there's a waitress there's a construction worker they get no chance they get no benefit at all from the tax and again i think there's a good feeling that i believe my time is up but let me just as one one of the question of the forty seven million the i understand that the estimates you have is the best this whole shift to the individual market would actually maybe benefit three million people out of the forty seven million is that correct no we did certainly did not say i don't know where you got that we have no and we have an estimate that says three to five which i believe is a conservative estimate we've got people working on and know how i or anyone defends a tax code which gives people who get insurance from the employers twenty percent are our weapon to be with the employers that provide the most gold plated service the other eighty percent with employers are not getting the same benefit you got forty seven million people uninsured seventeen million so insurance no benefit is that i think i have i agree there is a lot we are we did what we have been here and talked about on our debt nation that i mentioned the other day that we see all of them down the halls plaques that the blue dog members have of that show somewhere i think a little hundred thousand dollars instead of thirty thousand what is the death of a nation what is the destination for you you know you there are a number of ways you can look at it another big percentage of the forty four percent of the total that is in the social security the medicare trust funds and and that's where that's where a big portion of it  s so i guess it would be accurate to say we don't know who you know we it is in the over a trillion dollars ok when we see on the chart of growth of revenue to the treasury department and we also see that we have a debt increase of three trillion dollars during the bush administration it's been said here how does an increase of say a billion dollars in debt affect the growth of money  if we fuel the economy increase that tray jury income now that we have to assume that if we borrow a billion dollars and put that into the system that it has to increase in a positive way frasier income you know we would how do we know how much it affects i guess it is i think i see where you're going but  pay which i think germans numbers were two hundred eighty dollars a year and so that's part of part of the cost and there's there's no doubt that we would the reason we would like to have to be operating with a balanced budget is because we're concerned if the levels get to be too high i guess the way i would the way i would put it if you're looking at a family if you're looking at a business or if you're looking at a government there's there's there's an appropriate level where it's or it's a healthy appropriate level our outstanding public debt which is who which is one thing i look at which averaged forty six percent of g d p in the in the ninety's right now it's thirty seven percent and it's  out if we were just looking at that that would be something that with the economy of this size would would seem to be prudent but the reason i think there's so much anxious around the fiscal situation doesn't have to do with the you know the current fiscal situation that has to do with the growth of entitlement spending and the rate at which this  these the rate at which these benefits are growing and the debt will be piling up and we will be in a situation in a number of years where there are some very tough choices we'll have to make if we don't solve the problem and there will be either taxes that are a lot higher discretionary spending that's a lot lower or benefits that are much much lower and so that's that's what i think all the discussion is about thank referring to him raises an important matter and that is the tendency to look at the mass that's been created over the last six years to treat three trillion dollars of debt and the first issue that's always up is how can we cut medicare or social security deal with it i don't think it took courage and frankly i think it would been foolhardy for mr edwards or any other member on this side of the aisle to have embraced the republican plan privatized medicare and social security  the social security privatization plan is unfortunately still in this budget this president won't give up on privatizing social security and there are millions of seniors who i think remind police that neither mr  nor anyone else has embrace that and as long as that's on the table it is very difficult to sit down and discuss as we have said repeatedly to secretary paulson and others the notion of entitlement reform because this president is determined to make social security ever weaker with private accounts i want to address the second aspect of the mythology that mr han chilling and other members have raised to die and that is that we can solve all of our country's problems with no tax revenue increases because i know mr paulson from the proposals you're defending this morning you certainly don't agree with that position you have embraced a proposal under which president bush would raise taxes on thirty to thirty eight million americans maxes on thirty to thirty eight million people either you came in later i put you leap but but the because the point we made was that we we've proposed a one year patch really for one year i'm not talking about the a m t i'm talking about the affordable choice program that you endorse this morning that the president talked about what he was going to do to provide relief to folks but didn't bother telling them that he was going to raise taxes on thirty to thirty eight million don't i don't i don't see where we're going to be raising taxes well you're going to raise taxes on anyone who has comprehensive health insurance that's part of your proposal that's you provide in your budget  documents or significant increase in revenues in order to pay for your fordable choice program in fact one estimate i've seen is that the year after next you're going to raise taxes by a total of two hundred thirty six billion dollars on those people on their comprehensive health insurance program with the new bush health insurance tax with a challenge of that what i'd like the secretary to answer for i get on the program he said was so important i think could be very interesting i don't know anything about the new bush health proposal and you would have a much bigger hole in your budget than you do if you didn't rise revenue and you are raising revenue i understand if you just listen to the present state of the union address you never know that was part of the proposal but he's got a proposal to raise taxes on thirty to thirty eight million americans who have comprehensive health insurance he says that's going to encourage them it's going to going to redesign the marketplace but nevertheless if you're out there and you've got a good insurance program you're going to be paying higher taxes on the boy health insurance and that mostly so you're talking about the the the tax preference on health insurance and i'm talking about the two hundred thirty eight billion dollar increase in taxes the bush administration is proposing the year after next all people who have comprehensive health insurance that that tax i i'm going to tell you i don't know what you're talking about but if you look at your budget documents and i walk i'm a follow up and i'll ask secretary leavitt and i'll move on to something  increase it's the bush tax increase i let me say to you when with this does this health insurance is a standard deduction it gives the same standard deduction to everyone the matter with their health insurance plan s and in its streets well thank you mr secretary i don't think that's really responsive to my question but let me ask you about the other tax increase that the chairman asked you know about what you have it and what it would is what is it what is the tax increase you talking about i'm talking about the tax increase that the bush administration has proposed topic with comprehensive health insurance that you've included in your budget documents as an attempt to offset a portion of what you call your affordable choice program and it's a tax question about about the tax there are with this is a standard deduction that everyone who has health insurance gets whether they whether they get it through the employer whether they get it  or they get it themselves in the individual market what this does is there will be it fifty thousand dollars so those twenty percent of those in the employer provided health market twenty percent of those people who get a plan that's a gold plated plan where the were the premiums are greater than fifteen thousand will pay more taxes unless they restructure their to health insurance eighty percent will while will ends up better from a tax standpoint let me just say your own revenue estimates show this bush tax increase and if you're out there and you call  whited but it's a comprehensive plan to cover your child with disabilities if you're going to be paying more taxes this is and you said you can't institute this plan to cover the what i think most warts appropriate identified as the seven percent solution t additional coverage and thirty to thirty eight million people are going to pay higher bush insurance taxes as a result to make it revenue neutral between the people at the high end at the very this is this health care thing employers can deduct the cost of providing health care benefits to their employees now and they always will be able to under this plan that's not the issue and i know that's not what the gentleman from texas said so i don't want word here of going to bed the question then is to the individual on their taxes right now they get health care benefits from their employee her and it's not taxed it's given to them in a tax free way this proposal strange is this to not fit to make that taxable and it transfers that tax benefit from the employer benefit to the individual so that the individual whether it's an individual it with their own with us as a single person or a family they get the tax benefit on their income taxes if hundred thousand dollars family fans seventy five hundred dollars individual plan and the numbers that i have to call into question is one hundred million people get health insurance from their jobs and that's not that's the that's the plans it's mathematically impossible that thirty eight million people are going to have their taxes increased their estimate is that twenty percent twenty percent twenty percent of those plans cost more than fifteen grand that means eighty percent of those plans cost less than fifteen grand and these individuals will see their taxes go down what happens to the twenty percent above fifteen grand well the probably restructure maybe they'll get a tax cut i don't know we know that that's not thirty eight million people so i just want to clarify for our guys to this is not talking about taking away the tax expenditure on the business side it's transferring the tax expenditure on the individual side to the actual individual rather than attach are three to five million people they're going to have a tax increase and it is a very clear tax increase and the estimate of the lewin group is that it's hundreds of billions of dollars the year after next reclaiming and i appreciate having seen the study that i have a hard time buying we got to earlier today and there's no question that we have substantial deficit and debt but if we look back through the early part of two thousand as the recession was stories of have a major impact on our country we have two thousand and one we had nine eleven and billions of dollars in our economy that were impacted by the tax on our homeland and to new york and here in d c we also we had to rebuild a military that was graphically cut for a decade or eight to ten years our military was underfunded under bill to protect our homeland so as we talk about where we are today i think it's important to keep in history that a lot of this has to do with some things from a natural disaster to an attack on our homeland and we're doing  to visit one more time some of the successes of this proposal of reducing the impact on families and taxes and we look at nevada as an example currently we're building forty thousand new new rooms for visitors our unemployment rate so the lowest it's been in four decades we were growing seventy thousand people a month our room occupancy is around ninety seven ninety eight percent all those are a bellwether  for the economy and we've talking ways and means in this community about the attitudes of americans i'd like to cite never been added to the record new york times they did some research in march to ask people how they felt about the economy how they felt about the direction of the country and more than ever americans cherish the belief that it's possible become rich three quarters think this change chances of moving up to a higher class or the same or greater than the last thirty years compared with their social class and growing up with people so their current class was forty eight percent higher compared with thirty years ago and likelihood of moving up from one social class with others about forty percent greater and i enter this into the record because i think we also are hearing is how miserable people feel i think that the policies of proposal returning hard earned dollars to two americans is making a difference and that that needs to be taking the consideration that that people appreciate the fact that we're reducing their expenses on another issue very specific something has not brought been brought up and that  and i know there are those that think assad of sight out of mind but if you look at the history of yucca mountain in the vat a it's been a nine billion dollars hole even though its proponents should look closely at the waste the gross waste of dollars it's close to five six hundred million dollars a year hoping to reduce that in this budget to to something substantially less than that but i think as a committee as we're looking at ways to save money even the budget hawks that may support very of nuclear waste in  need to look at the fact it is a colossal waste of taxpayers dollars close to nine billion dollars and we need to find alternative so i guess it's not really a question the regarding the economy and regarding yucca mountain but could you address the impact that these things have had the growth of our economy from firm on nine eleven to our catastrophic natural disasters i just say one thing real briefly on mobility when people talk and i spend a lot of time looking at they were growing divergence of income period and those in the top quintile after them were not there ten years earlier and so there is there is great mobility and in terms of the tax cuts  know i saw it first hand in terms of what they did in terms of inspiring investor confidence and corporate confidence to invest in the economy changing behavior i think one way you know you we probably all can see it is when you look at small businesses and you know the top individual rate as is often a small business rate with a schedule c filers and you know you probably know a lot of small businessman who every extra penny they have a plow back into their business and there are a big driver of growth so i i would say you're right they have to change behavior and it's important part of this economic growth and so avery it may seem parochial freel mentioned the move out of experience but people will not travel do not enjoy tourism and travel and we would not be in a ninety some percent occupancy if the american people didn't feel comfortable and believe in the future of our country thank don't i just a general comment i find it somewhat optimistic on the part of the administration bringing us this budget predicated on a one percent limitation  the non security domestic spending something that my republican friends have been unable to achieve even once in the twelve years that they've been in power and somehow the administration thinks that the democrats in charge will do that for the next four years somewhat ironic the second irony is that the treasury department and the president do not attach a long term priority on a place to higher long term priority on extending the tax cuts than dealing with the alternative minimum tax which is rapidly morphing from a tax on lawyers and doctors  lobbyist it doesn't hit the hedge fund managers and the typical c e o but it does hit the lobbyists the lawyers the doctors the accountants but this is rapidly morphing into a tax on two income teacher firefighter plumber the plumber that you referenced that eighty nine percent of married families with children were paid the a t m by two thousand and ten under the priorities that have been advanced by the bush budget i find that ironic with the concern about tax reduction and prioritization and i think it is as it's a sadly missed managed set of priorities which i hope our budget committee will address mr secretary i was pleased to see that the global environmental facility jef received not only the eighty million that was pledged but it appears in this budget as i read it that there will be a commitment towards paying off  our past shortfalls i know you are a noted person who was concerned about the environment as part of your resume it was something that i was pleased to see and i really commend you and the administration for meeting this commitment and i hope we can continue to do so in the future my question to you deals with issues surrounding debt cancellation impoverished countries have benefited from requiring full debt cancellation i'm wondering what your thoughts might be about our being able to go forward under the confines of this budget or work that we could do even the budget committee or the ways  means committee where we visited yesterday be able to move in this direction as a way to help put the underpinnings under these these poor countries we appreciate what the president has done in this budget with hiv aids  personally hope that we're able to do a better job meeting our commitments for water and sanitation but i wonder if you had some observations for first why i think your further question and what i talk with gordon brown fairly often and agreement the poor developing countries it's a it's is a very important issue the and it's important when we we do it we do it in a way in which we think there's going to reasonable chance of being sustainable and we assume we we we come together as a group and one of the things we've been we spent a lot of time talking about is   we will continue to focus on and i think right there it's got to be part and parcel of a sound credible you know economic program and and i would also just put in a plug for for trade in for doha because if we don't get a dog grammont the some of the the poorest countries are going to be the ones that are going to be going to pay the biggest price for that i appreciate your comments i appreciate your courtesy mr chairman i would hope that as you move forward that there is a pretty you need some standards and for these countries themselves i hope there is some sensitivity particularly as we deal with their water answering mr edwards questions relative to the deficit and the debt you said speaking of congress the need to maintain the economic policies to stimulate the growth and so forth the spending restraint and you said  referring to congress there has been some restraint down here not as much restraint as would like to see given that in the six years that i think the president's been president this committee in congress has adopted the discretionary budget cap put forth in the in the president's budget proposals are three o two a cap is always reflected the president's three zero two cap on discretionary spending what's what additional spending restraint are you talking about what it was i was it was a general statement in the sense that i think we all recognize a need for greater discipline the president just talked to fareham are about earmark and so i think there's a number of things that we could who we could do better but i take the comment that the previous speaker which is we holding holding the security discretionary spending to one percent a year would be would be better than we've done in the past and it's not easy and i don't mean to imply us easy well what bothers me i guess is that i continue to hear the administration and the officials talk about spending restraint and we need to make sure that congress exercises spending restraint news member the procreation committee we've had some tough times trying to live out of the budget caps what we've done so and i get this feeling that the administration is trying to shift the blame to the congress for not being fiscally constrained enough to hold down we have done a good job and as far as mentioning earmarks right you know i was a event yesterday with president when he held up this big stack of earmarks and all this kind of stuff in the c r that we just passed the house you'll notice that we eliminated almost all the earmarks that there were some that were left in particularly from the senate side but most of the c r s were left with most of the air marshal left out of it guess how many dollars were saved zero because that money went into the agencies and guess what now we go to the agencies and ask them to fund the projects the only thing that changed with that was that was the discretion of which projects are going to be funded whether it's going to buy the administrative branch of government or whether members of congress are going to have some control of a very small portion of that budget earmark reform is not going to save a dollar should it be more transparent yes should we look over it better make sure the earmarks are justified yes  in terms of saving dollars in fiscal constraint all i want is the administration to knowledge that it is a joint problem between the administration and congress and certainly he's going to propose spending programs to be eliminated some of them we've done some of we disagree with the administration and that's the way it is he's going to propose as an example on the the public schools the county payments for those counties that have lost forest timber revenue he's going to propose as he did his budget the way to pay for that for the next five years is to sell public lands he proposes last year it's not going to happen so we're going to have to find another way to do it and we will work within that budget but the knowledge meant that we have actually had fiscal constraint fiscal spending discipline on the district discretionary part of this budget i think by the administration would be a good thing and what we really have to do in a bipartisan fashion is work on the work on the mandatory spending of social security really see that both congress and the administration deserves a lot of credit for the fiscal situation we have right now in the short term which is a stronger fiscal situation and so we have you know a strong economy revenues coming in and there has been restraint when you look at the you know all of this after the natural disasters hurricanes that nine eleven about saving social security to try to reform social security because the president have a vote for the care of that's put everything on the table i don't care what the proposals are let's sit and talk about it and have a bipartisan solution that may include private accounts it may not i don't know but let's work it out and quit the politics of blaming each other for and try to find a solution we don't have access to this kind of expertise very often and so i would like to i've been around here since ninety three most of the discussion i've ever heard about the economy or public policy or whatever certainly from your side of the now i would indicate that the only thing that matters is the tax r if you just cut taxes the economy just bubbles up out of the ground and if you raise them that horrible things happen now the best from our memory in that short period of  time we have raised taxes and had a successful economy and we've cut taxes incurred huge day so my first question is is anything the impacts economy of size taxes obviously many things we have a very diverse fervor a strong economy great entrepreneurial spirit many things impact the economy taxes have to be an important one i asked this question of director portman yesterday do you already are recognize the value to the economy that the american people get not now but at some future date i would love to see that information i would associate myself with the remarks of the gentleman from iowa how about earmarks i think we know more making chicken salad and chicken later and i don't think it's going to be an easy thing you do our reshape your willingness to come up here and and tell us how good things are going to be and and and how wonderful the world is going to run after me in spite of the fact that we have completely ignored if we if we came powered today and for pope just borrowing over the next two years a trillion dollars less just blow to caribbean dollar bond issue and less take it and divided up among the people according to how much money they make whoever gets most money gets most most who ever makes most money gets the most  stimulate the economy to it and you know i like to say i'm just a poor dark farmer from eastern arkansas so but i had to practice and i'm curious if it is am i right about then if you borrow money and gave it away to the people positioned to solve some of the problems we need to solve but frankly since coming to washington although i've been i've i've had a pleasant surprise on the short term and i frankly in january if you asked part in getting this economy back and up and going where we need to get it better you use the word huge earlier in connection with something we always use the word massive your use the word massive we do that i think in order to try to augment the strength of our argument as potions laying argument lie where it is numbers go up numbers go down and we ought to be able to stand so but in that vein another colleague from texas earlier augment and one of his positions by saying that he was offended or is challenging the th change in v a benefits the co pays whatever it is we may be asking in this budget to do and i certainly agree we ought to talk about those but you seem to want to augment that by saying that members of congress aren't sharing proportion and some sort of a burden so i'm not in the least embarrassed by how much i make or we make benefits i've defended all the time in my district i voted for the pay raise but if my good colleague from taxes is in fact wanting to augment his argument that congress and staff and secretary of treasury others auto share in this by taking pay cuts or reduction of benefits then let the bidding begin but it all begin on his side if he doesn't if you are not serious about  thirty seven pages to do what normally takes two to four pages to do and so there was member directed spending in the continuing resolution looking forward to more conversations like this i don't think they had other than just to say we've got  some tough decisions to make and whether to raise taxes in this economy goes in the tank or just spend more money or whatever we do continually impressed by the resiliency of this american people is american economy it's thrives in the face of things we do here in an attempt to make better and most times it doesn't it just continues to trudge along and overcomes immense challenges that we put in face of it in the in the in the flesh and that the deal whether it's a complicated tax co scheme that's criminal and it's on its face or other over regulations or other lawsuits all the kinds of things we've got out there that this economy can continue to thrive and and good hearted americans get out there and go to work every single day in spite of  what we do here in the chamber so thank you very much for your service you do have a tough job chicken litter i guess that's a phrase i'm not real i know what it is not just haven't heard the more genteel phrase but i look forward to working with you others is that there's no simple quick fix solutions to the mess that we're going to confronted with we're going to have to talk about intelligence reform but we're going to have to deal with issues of not only tax cuts but tax increases i think there's a lot of controversial issues down the road if we're honest we have to cover that we're going to deal with them i'm also a big concern however that we all talk about numbers and said let's forget that there are people behind those numbers and so when we talk about cuts in programs where we talk about we're not going to raise rates the amounts that are in some of these programs to deal with inflation and deal with increased participation that there are people that fall through the cracks and i think we need to keep that in mind costs you know we've spent over three hundred billion dollars already in iraq if i add all the numbers up and we do everything in your budget which is i think kind of low balling it when you look in some of these out years that will be over six hundred billion dollars  and almost all that is not paid for and i guess my my question is is the administration ever actually considered paying for the war in the form of a war tax or maybe a user f to make it more comfortable for so my friends on the other side of the aisle i asked the question for a couple reasons not just because of the budgetary impact and we're talking about several hundred billion dollars that's a lot of money and we have no idea how much you sel ones being forced to sacrifice here and i'm not sure the american people would object to stepping up to the plate and doing their part which is to make sure that this war is paid for and not put on the backs of our kids and our grandkids and a great grandkids i'd buy asked that question because i think it's the right thing to do i think we should be paying for this in all of us need to be sacrifice sacrificing and a little bit disconcerting that at a time of war you know we're giving people tax cuts and we can argue about why that was you know how it's doing with the economy go back and forth on that but i think at a minimum i think that it wouldn't be too much to ask that that all of us sacrifice and that we actually pay for this war a ll of us great to the men and women who are who are in iraq and it's i would say one thing that i know will be very important to them as when they come home they come home to a your response and again i go back i think it's the right thing to do and i think and i said it and i don't think it would be terribly controversial for the president to say look you know as part of the of our national sacrifice we're all going to pay for this  war and you know and you could every could you could read repeal the user fee of the war tax when the when the war is over with or you know have a sunset but it just seems to me i think to a lot of people and i've talked to a lot of soldiers who fight this war is a little bit disconcerting where when i think a lot of people on military think they're the fighting this war and it's all on their backs and we're not doing our part yep but i understand the feeling and i thank you chairman and thank you very much for being here mr secretary apologize for missing most your testimony as i was at another committee let me just be one to say that i share the concern and that you've expressed administration has expressed about that the record at least reflects this for this members views while the earmarks themselves may not be that large in terms of the dollars in the budget you deal with frankly there's a psychological impact of earmarks here which is if members get their earmarks in they're far less likely to vote against a bill that spends more money than they believe a lot of be spent and i think that is one of the dynamics that we refuse to admit around here  transparency only is a means to help us do what we need to do which is to get this budget under control so i hope you don't believe that all of us here disregard the  importance of earmarks as i understand your testimony in the testimony that we had from rob portman yesterday with the administration's budget and the projected budget for the next five years we will be at about eighteen point five percent of g d p for the tax revenues is that correct yes and that is slightly above the average for the last forty years including those years going back to the vietnam war through the present time correct yes correct so essentially we're asking the same sacrifice of the american people that we've asked for the last forty years and work time and he says that not correct  the other thing i would wonder is what are our overall tax rates on the american people in comparison to the tax rates that we see in germany france and japan they would be germany france and japan have much higher tax rates and as i understand it even with the deficits that we've been running the us federal debt as a share of g n p is falling and is  t thirty seven percent and that compares to germany at fifty two percent of the public debt outstanding at the right percent with germany in comparison fifty two percent france at forty three percent in japan at seventy nine percent does appear accurate to you that's i don't know those numbers off the top of my head but that's directionally right and the systems that have significantly higher tax rates than what we have are suffering under far greater public debt burden that's the case of those countries that's absolutely true you have an idea of what the unemployment rate's of those countries are  members have expressed here but i do remember a statement years ago and that was pete wilson when he was first running for statewide office in california said that the greatest social welfare program is a job in the extent we could establish economy that generated jobs primarily in the private sector we would be doing the best thing that we could for the average american do you have a recollection of what the the seventy's were not a have a great time for our economy we had stagflation and so it was so the reason i bring that up is that we like in this committee to compare what's happening now with what happened in the clinton years which i happen to think the clinton years in some ways benefited from the legacy of the reagan tax cuts which when they came into effect came into a the context of an economy that had a much higher sustained rate of unemployment economists saying that you couldn't have i will fall into full employment they were defining as no more than ninety four percent that is  and as we look at the difficulties and our difficulties i'm one of those who believe that we ought to be concerned about the debt but if we look at that we should also look at the alternatives of what we had before when we had higher tax rates which higher rates of inflation which higher rates of really a surplus by two thousand and twelve and here's why i'm correct are night in that every dollar of the projected social security surplus during this five year window is applied to the deficit is that correct that's  the way it works on the law and if we were to express the operating budget of the of the federal government net of social security my reading of the budget tells us that would be one hundred eighty seven billion dollars  in deficit in two thousand and twelve is that correct right from that number in addition to that there are some other costs which are not built into the five year plan one is the alternative minimum tax there is a plug but it doesn't extend to two thousand and twelve if congress as soon as congress takes action that would shelter thirty nine million people from paying you'll turn in minimum understand that and here's the calculation i've done if you take the net budget deficit net of social security one hundred eighty seven billion if you add in the a m t the cvo tells us that would cost us ninety three billion dollars if the war is costing us about what it's costing us today i hope it isn't but if it is that's eighty seven billion dollars and then if you add interest on further debt we would have accumulated in the first four years that's take this to a three hundred ninety three billion dollars deficit now we further compound the problem those numbers are built on the administration's revenue assumptions which i hope are correct that revenue will grow at the rate that you project if you use the c the o's revenue numbers though you'd have a fall off of one hundred fifty five billion dollars in revenue which means that the deficit would be five hundred forty eight billion dollars before you get into the so security surplus even applying the so security surplus you have a deficit after that now here's my concern david walker was here ten days ago and testified that if no policy changes by the middle of the next decade we will have a deficit that's five percent of g d p at the same because of the on rush of the baby boom retirees this budget really doesn't change policy it continues the existing policy  are you confident that this existing policy is going to avoid the problem i just talked that given the fact there's no war cost there's no a m t build in here that we're spending every dollar so scary surplus can you approach two thousand and seventeen know a deficit of a tenth of a percent of g d p we think we can balance the budget but the forest through the trees is the problem you've pointed out and i'd say of all the things that most frustrating to me coming down here has to be able to look at this bank structural issue we've had of us and it's like we're flying into the side of a mountain we've got time we we can avoid it but we can we need to come  you agree with that and i think we do now that being said let me just share because i believe budgets really are more documents as well as numbers thanks to many terms we get and when we talk about defense of this country we're cutting cops programs for now only five percent those are people who are only ground helping people first responders are being cut roughly sixty five percent in a variety of education programs about forty four are being eliminated we may best way to put it is being bald because there's like iran venezuela libya saudi arabia host of other people but they're being ball through european or caribbean banks does it bother you that a lot more about debt is being held of foreign countries in some cases those countries that we have china is a large purchase and the list is long there's a body that we're selling it on the market they're picking it up we're growing and not saving and there are these big global imbalances we need people to buy our treasuries and there's a great these are very liquid markets and there's great diversity let me just take china as an example the two biggest holders of our japanese own roughly six hundred fifty billion dollars the chinese about i think the last i saw was three hundred forty six billion dollars we have trade and people own our debt because they believe they've got confidence in this economy and they give them the best risk adjusted rate of return so again as i look at those numbers very carefully and there's a great diversity we're part of a global economy and so i that's not there's some other things i worry about that's not i'm not discounting it i'm just saying it's not it's not high up the list for me so have an impact on our g d p that we're having because we're infusion an awful lot of money that we aren't generating well i'd say this when you maybe your you know the current account deficit which is part of the reason we've got the holders overseas  we've really reached the infortunate point in time because right why for four quarters in the room our exports have been growing faster than our imports and so when you look at the latest g d p number we had one percentage point of growth in that german thank you in mississippi thanks for staying over appreciate a very very much i'll try to make my question somewhat pointed so that hopefully you can give me some direct answers as well as i mentioned yesterday when you were testifying before the ways and means committee the disconnect that i think occurs between an economy that you and others just said is moving in booming and the fact that americans are feeling very insecure about their future i think you have to do with the fact that today more and more we're seeing the disparity between between what we produce and who gets it more and more we see folks who are well the getting far more than those who are middle class and today the nothing more than the c e o salaries of some of our large corporations is testament to that when you see people making tens of millions of dollars in one year and you've got workers who are finding they have to fight to destructive to maintain their wages at the previous year's level and maybe get a small increase  as we talk about our choices in our priorities i look at the fact that we're spending all this the president's budget spends all of the so security surplus monies in the trust fund over the next five six years or nothing related to social security that than we've ever paid before some two hundred fifty billion dollars is spent by this government simply to pay the interest does it reduce the principle of what we owe it doesn't it's not money available in the future for us to reduce taxes or to provide more services it just goes to pay interest like somebody who's paying interest on their mortgage you never do anything for the mortgage in this case all we're doing is paying interest on the national debt and so when we think about that and our choices and priorities and we realize that today we have men men and women are sacrificing for this country especially in places like a raft iraq and afghanistan i have to ask you a secretary of treasury do you think it's appropriate for us for this government for the present to be proposing that we further cut taxes that will principally benefit the wealthiest in this country and some estimates show that if you play these tax cuts out that the individuals who are making about a million dollars or so a year will get about one hundred sixty two thousand dollars in tax cuts in two thousand and twelve dollars so if you perpetuity you're giving folks who are millionaires this massive tax cut and you have folks who are who are right now in iraq make small money for the price for the purpose of defending our country and its freedoms so the question is first  is it appropriate for the us because in taxes at a time of war when this country has never before this war and this president cut taxes when we were in a state of war i would i have said that i do believe that the facts policy and again i think what you're doing is you're you've mixed to two facts want of which is the greater divergence in income which is a trend that's been going on for some time related to a number of things technology has got to be a big part of it and the president's tax relief which you know a lot of that was at the low end but if we if we're not doing anything to reduce the debt burden today the child born while we're speaking the child will be born in this country that american child today has what i would consider a burst tax stamp right on his or her forehead that is about twenty nine thousand dollars today that that individual is born owing as part of the american family for that massive debt of over one trillion dollars and so maybe we have room for tax cuts maybe we have room for why spending programs wice services that we provide but at a time when we have servicemen and women who are sacrificing their lives should we be skewing tax cuts toward mostly folks who are making a massive amount of money while i would focus on the child is being born today and what's what's coming down the road and i just see a huge need a very important need to deal with this growth and the entitlement there i agree with you but let me get can i ask you ben and going around a time or quickly i want to get into these fees increases for veterans health care the shortchanging of the no child left behind education program the president passed by the fifteen billion dollars for two thousand and seven authorization levels but let me ask one last question the enforcement of the tax laws where we have so many people who are not paying your taxes when they owe it where you have many good hardworking americans who do how do you deal with that tax gap of some three hundred forty five billion dollars i r s estimates that we don't collect when your proposals that you provide in essence talk about collecting three billion dollars a year over the next five years of that three hundred forty five billion that people are stealing from the american taxpayer under their noses because when when you know collect tax that someone owes another american has increased taxes to miss i will sir he answered that in some went there earlier we'll get that from the record for you that's fine it was an estimate of two thousand and one was two hundred ninety billion and and we have proposals to deal with this three billion a year well i would say to you there are very serious proposals and i'd like to get like to get those in acted and i'd like to talk we also have a very you know robust audit function i would just say to you that because you care a lot about the secretary for remaining for the rest of us you have a very important job and in your testimony you paint a very rosy picture about the economy even indicating real wages have risen one point seven percent which isn't a whole lot but what you don't say is that it's disproportionately shared those in the top one percent have had a relative income increase of one hundred forty six thousand dollars a year while the average middle class family in our country actually has fallen behind thirteen hundred dollars a year since the beginning of the bush administration they're paying more for gas they're paying more for medicine they're paying more for health care job growth is sluggish during the clinton administration we had about two hundred twenty seven thousand jobs being created annually and by this administration excuse me months and by this administration sixty six thousand it's a quarter of what had happened before we have a negative savings rate in this country our trade deficit knocks off almost a full point or more off of our g d p with the with nearly a trillion dollars of trade deficit we have the highest vacancy rate in housing in over forty years i'm very worried about that all across the country in what's happening in the mortgage market so my question to you is very i have couple simple ones as the bush administration in its seven years of submissions to this congress ever submitted a balanced budget to this congress the bush administration i know you have been there for the full seven years but in any of the years if you ever budget where you have never submitted a balanced budget least be realistic about what you've done what is the amount of debt the accumulated debt that the bushes ministre it has added to this economy so much over the seven years three point nine trillion you know that number no a number all right supercedes you very much three point nine additional trillion dollars onto the nation's debt are you aware that interest payments on that debt has now grown to nine percent of our total budget totaling nearly three hundred billion dollars a year which is enough to fund half the federal agencies we have to fund in terms of discretionary funding are you aware of that nearly three hundred billion dollars a year in interest that we are paying i'm aware of their interests are you aware that ninety five percent of the new issues the new security issues for that debt are purchased by foreign interests ninety five percent are just what you were just rushed for holding alan greenspan told me a few years ago that when i tried to encourage him to sell the debt in small denominations like roosevelt did to the american people through postal saving stamps he told me we didn't need to do that because twenty bond houses on wall street handle all of our issues is that still true when you have twenty primer dealers ok twenty primary dealers can your office send you those dealers please the names of those dealers are and do they receive a fee for the service they provide can you also give me how much they make in those annual fees please do you have you also provide this to me in the form of for the record for earned income tax credit states like ohio are for going over two hundred fifty million dollars to our citizens who don't get those refunds in my congressional district probably twenty million dollars is foregone by the public that should be receiving working people should be receiving those dollars back could you step make a recommendation to us on how every single american who qualifies for the e i t c can get it and how you can simplify the procedures for that or just congress you have to do that for your office is a very high priority of mine and we're doing a good deal work on this right now all right finally thank you very high would appreciate the recommendations of your staff on how to simplify the filings for that we're working with the chairman rangle on  right finally are you aware of a deal that was signed during the reagan administration with u s treasury and i suppose the federal reserve with the saudis having to do with how petro dollars would be research related in our economy as a backup over a trillion dollars are you familiar with that agreement well i'm not i could you ascertain for me if it is still in effect the amount and who might have signed it and whether or not it has expired thank you very much i appreciate that ho market bubble so i think that part of the economy you were talking about and such glowing terms was a what was an alice in wonderland economy the stock market bubble burst we went into a recession there was a nine eleven attack i would you know respectfully suggest you're being a bit past i must think about this economy which as growing nicely the numbers i cited were for the average you know the average worker you know compensation being up in real terms one point seven percent is the secretary please you have to look at the distribution of that i hear which nothing i'm talking about i think about the average you know i'm very aware of the distributional effects the average worker has over the last year seen real see real real gains but i'll get back to you with iraq where as much of the information as i can get together in the most incredible statement i was ever made no end with this mr chairman when alan greenspan was head of the federal reserve in  thousand when we were finally beginning to balance our annual budgets and pay down our long term debt and it was coming down after severe effort by this congress by leon panetta by president clinton by many members of congress who lost their seats because they voted to try to balance that budget over series of years and i can remember alan greenspan saying publicly you know now that we're getting to the point where we might actually sell off all these debt securities and bounce our budget well you know we're in uncharted waters why would we might not want to do this so we we don't know what having no debt might mean for the future that statement has troubled me ever since he made it because i was so proud as an american that we were finally paying off our bills  we've got a live secretary go because he's due out here twelve thirty thank you for your forthright answers for you forbearance we're glad you are where you are and we look forward to working with you thank you very much