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71–107—PDF 2010

S. HRG. 111–1109 

ANALYSIS OF THE PRESIDENT’S 

FISCAL YEAR 2011 BUDGET WITH 

OMB DIRECTOR PETER ORSZAG 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

FEBRUARY 4, 2010 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 10 

WITNESS 

Orszag, Hon. Peter, Ph.D., Director, Office of Management and Budget, Washington, DC ............................................................................................................. 3 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 37 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 10 

Prepared statement .......................................................................................... 40 

Letter from Senator Grassley to OMB Director Peter Orszag, dated January 28, 2010 ................................................................................................... 42 

Letter from Senator Grassley to OMB Director Peter Orszag, dated February 3, 2010 ................................................................................................. 50 

Orszag, Hon. Peter, Ph.D.: 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 55 

Responses to questions from committee members ......................................... 65 

Rockefeller, Hon. John D., IV: 

Prepared statement .......................................................................................... 174 

COMMUNICATION

CFED ........................................................................................................................ 177 

(III) 

(1) 

ANALYSIS OF THE PRESIDENT’S 

FISCAL YEAR 2011 BUDGET WITH 

OMB DIRECTOR PETER ORSZAG 

THURSDAY, FEBRUARY 4, 2010 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:02 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Rockefeller, Bingaman, Wyden, Schumer, Nelson, Menendez, Carper, Grassley, Snowe, and Cornyn. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Thomas Reeder, Senior Benefits Counsel; 

Tom Klouda, Professional Staff Member, Social Security; Blaise 

Cote, Research Assistant; and Christopher Goble, Detailee. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The commmittee will come to order. 

In his March 1961 budget message, President John F. Kennedy 

said: ‘‘The Federal budget should, apart from any threat to national 

security, be in balance over the years of the business cycle, running 

a deficit in years of recession when revenues decline and the economy needs the stimulus of additional expenditures, and running a 

surplus in years of prosperity.’’ 

President Kennedy’s goal remains one that we should embrace 

today. Our Nation is addressing new and complex threats to our 

national security, and today our Nation is addressing a deep and 

painful period of recession. And as President Kennedy recognized, 

in a recession, tax revenues naturally decline as businesses make 

less. And in a recession, automatic economic stabilizers like unemployment insurance and Medicaid naturally fulfill their purpose, 

resulting in additional expenditures. 

Plainly, today, our top priority needs to be creating more jobs. 

Since this Great Recession began, more than 7 million Americans 

have lost their jobs. We need to help American businesses to hire 

more workers. 

The President’s budget allocates $100 billion for job creation. 

Thus far, the administration has announced a $33-billion Small 

Business Jobs and Wages Tax Cut. It is not clear what initiatives 

will be supported by the remaining $67 billion of the $100 billion 

2 

proposed for job creation measures, and I plan to ask our witness 

about that. 

The budget also includes $166 billion for other temporary economic recovery measures. The budget would increase investment 

by extending the bonus depreciation tax credit for businesses. It 

would also increase investment by small businesses by extending 

the credit in section 179 of the code. The additional investment 

arising from these two tax cuts should help create jobs. I support 

these jobs proposals. I look forward to working with my colleagues 

on both sides of the aisle to enact them into law. 

The temporary recovery package would also extend the number 

of weeks of additional unemployment benefits for 3 months, and for 

10 more months it would continue tax credits that cover 65 percent 

of the cost of COBRA benefits for workers who lose their jobs. 

Again, I look forward to working with my colleagues on both sides 

of the aisle to enact these proposals into law. 

So, as President Kennedy counseled, we are addressing the needs 

of the economy and American workers in times of recession. But we 

must also lift our sights, as President Kennedy counseled, to the 

longer-term balance over the years of the business cycle. 

The President has done so in his budget proposal. Over the next 10 years the President proposes $2 trillion in deficit reduction. 

Over the next 10 years the administration suggests that the government ought to shoot to keep annual deficits below 3 percent of 

the economy. The administration argues that such deficits keep 

debt held by the public at a constant share of the economy. 

But the deficits projected in the President’s budget for the next 

10 years do not yet hit the target. The budget proposes deficits of 

3.9 percent of GDP in fiscal year 2014 and 4.2 percent of GDP in 

fiscal year 2020. 

The budget suggests that the additional deficit reduction to reach 

the 3-percent goal will come from a bipartisan commission to be 

created by an executive order. I support the creation of this commission, and I support its mission to come up with proposals to further address our long-term deficits. And we must also lift our 

sights even further to balance over the long run. The budget’s projections warn that, without any policy changes, deficits and debt 

will explode in the long run. 

The primary reason for these long-run deficit projections is that 

health care costs are growing too rapidly. Health care costs per person are growing faster than the economy is growing per person, 

and Medicare and Medicaid costs are growing faster than the Gross 

Domestic Product. That means that, over the long run, Medicare 

and Medicaid costs will consume an increasingly greater share of 

the economy, and this rapid growth in spending drives up deficits 

and debt held by the public. The answer is to enact comprehensive 

health care reform with strong cost containment, and that is exactly what the Congress has been doing. 

According to the non-partisan Congressional Budget Office, the 

Senate-passed health bill would reduce the deficit by $132 billion 

during the next 10 years, and it would reduce the deficit by $650 

billion to $1.3 trillion in the subsequent 10 years. 

But the deficit reduction in our health care reform bill does not 

stop there. The bill contains new and innovative ideas for improvVerDate Nov 24 2008 21:01 Nov 28, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 R:\DOCS\71107.000 TIMD
3 

ing health care quality, while reducing the incentives for inefficient 

and wasteful spending. 

For example, our bill would bundle together payments to providers to encourage them to work together to find savings. Our bill 

would establish accountable care organizations that would give 

health care providers tangible incentives to cut costs, and our bill 

would create incentives to discourage costly hospital re-admissions. 

In his March 1961 budget message, President Kennedy also said: 

‘‘It is my determined purpose to be a prudent steward of the public 

funds—to obtain a dollar’s worth of results for every dollar we 

spend.’’ Once again, President Kennedy’s goal remains one that we 

should embrace today. 

And so, let us work together to address the needs of the economy 

and American workers in these times of recession. Let us be prudent stewards and ensure that we obtain a dollar’s worth of results 

for every dollar that we spend in health care and elsewhere in the 

budget. And let us roll up our sleeves and begin the hard work of 

restoring fiscal responsibility over the longer run. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. I will reserve time for Senator Grassley to speak 

later, when he arrives, but pending that, Dr. Orszag, I would like 

to introduce you. 

Thank you very much for coming. 

As Director of the Office of Management and Budget, as you 

know, our custom is to include your full statement in the record 

and have you speak for any appropriate time that you wish. Seeing 

that there are not a lot of Senators here, you have a little more 

time. 

STATEMENT OF HON. PETER ORSZAG, Ph.D., DIRECTOR, 

OFFICE OF MANAGEMENT AND BUDGET, WASHINGTON, DC 

Dr. ORSZAG. All right. Thank you very much Mr. Chairman, 

members of the committee. 

The President’s Fiscal Year 2011 budget is focused on three 

things: (1) jump-starting job creation today, (2) strengthening the 

middle class, and (3) beginning the difficult chore of putting the 

Nation back on a path to fiscal responsibility and sustainability. 

A little bit of background before turning to the budget proposals. 

We have just come through a year in which we averted a second 

Great Depression. At the end of 2008, real GDP was declining by 

more than 5 percent. At the end of 2009, it was increasing by more 

than 5 percent, in no small part because of the significant policy 

action that was taken to stabilize financial markets and to promote 

aggregate demand. 

Although the real economy is now expanding, the employment 

market remains much too weak: the unemployment rate is 10 percent and there has been a loss of 7 million jobs since December 

2007. It is in that context that the administration looks forward to 

working with you to further spur the employment market, for example, through a jobs and wages tax credit and through investments in education, clean energy, and innovation, which are contained in this budget. 

4 

The second piece of background: the pre-existing condition with 

regard to our fiscal trajectory as of early last year. At that time in 

early January 2009, the Congressional Budget Office issued an economic and budget outlook. It showed very clearly two salient 

things: (1) a substantial increase in spending as a share of the 

economy, and (2) very substantial out-year deficits over the subsequent decade. 

On the first point. That document showed an increase in spending as a share of the economy from 20.9 percent of GDP in fiscal 

year 2008 to 24.9 percent in 2009. And again, that was in early 

2009 before, for example, the administration took office. 

The reality turned out to be roughly in line with that projection. 

Spending in 2009 was 24.7 percent of the economy relative to those 

initial projections. Mandatory spending was somewhat lower, discretionary spending somewhat higher because of the Recovery Act 

and other measures, but, nonetheless, the total was in line with 

what was projected. In other words, it is wrong to attribute that 

increase in spending to actions that were taken by the administration. 

Second, with regard to the medium-term deficits, in early 2009, 

trillions of dollars in out-year deficits were already apparent, and 

they reflected two basic forces. The first was the passage of the 

2001 and 2003 tax cuts and the Medicare prescription drug benefit 

without offsetting them. Those deficit-financed tax cuts and the 

deficit-financed drug benefit added more than $5.5 trillion to our 

projected deficit over the next decade. 

Second, the impact of the economic downturn. During an economic downturn, revenues naturally decline and certain categories 

of spending, like unemployment insurance benefits and food 

stamps, naturally increase. The impact of those so-called automatic 

stabilizers—which by the way I would note are beneficial because 

they help to mitigate the economic downturn itself—but the fiscal 

impact of those automatic stabilizers amounts to more than $2 trillion over the coming decade. In other words, those large deficits 

that we see are the reflection of not abiding by pay-as-you-go in the 

past and the severity of the economic downturn that we are trying 

to combat. 

That is an explanation of the situation in which we find ourselves, but it does not provide the solution. So, what are we supposed to do about it? 

The first thing that we need to do is make sure we do not make 

the problem worse. The administration is pleased that the Senate 

has now joined the House in embracing statutory pay-as-you-go legislation which embodies that very simple principle: when you are 

facing a hole, do not make it worse. If we are going to have a new 

entitlement program or a new tax cut, we need to pay for it. If we 

had abided by this principle in the past, our out-year deficits would 

be 2 percent of the economy, and debt as a share of the economy 

would be declining. 

Second, economic recovery will help to reduce the deficit from 

about 10 percent of GDP today to about 5 percent of GDP by 2015, 

and that is because revenues will recover as the economy does, and 

those automatic stabilizer spending programs—food stamps, unemVerDate Nov 24 2008 21:01 Nov 28, 2011 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 R:\DOCS\71107.000 TIMD
5 

ployment insurance benefits, and so on and so forth—will naturally 

decline as economic recovery takes hold. 

That 5 percent of GDP deficit, however, is too high, so the administration has put forward $1.2 trillion in deficit reduction, even 

excluding the wind-down in the wars in Iraq and Afghanistan. Including that wind-down, as the chairman noted, deficit reduction is 

in excess of $2 trillion over the next decade. By either measure, it 

is more deficit reduction than has been contained in any administration’s budget proposal in more than a decade, also, sufficient 

deficit reduction to reduce the deficit by more than half as a share 

of the economy by the end of the President’s first term, bringing 

it down from 9.2 percent of the economy, which is what the deficit 

was projected to be on the day that he walked into office, to 4.2 

percent of the economy by 2013. 

How is this done? A variety of ways. A new financial services fee 

raising $90 billion over the coming decade, which will help to make 

sure that taxpayers are repaid in full for every cent that has been 

expended to support the financial services industry. 

Second, allowing the 2001 and 2003 tax cuts to expire as scheduled for those with incomes of $250,000 or more. That reduces the 

deficit by almost $700 billion over the coming decade. 

Third, moving the Nation towards a clean energy future by, for 

example, eliminating fossil fuel subsidies delivered through the tax 

code, reducing the deficit by roughly $40 billion. 

And then, finally, a 3-year freeze on non-security discretionary 

spending, which reduces the deficit by $250 billion over the coming 

decade. I would note that that freeze is not across the board. Some 

agencies are going up, some go down. We are investing significantly in education, innovation, and clean energy, while constraining spending in other areas. 

Even with that $1.2 trillion in deficit reduction, the deficit remains higher than we would like it to be, which is, as the chairman 

noted, why we are calling for the creation of a bipartisan fiscal 

commission to put forward recommendations by the end of this 

year to get us the rest of the way to a stable debt trajectory, which 

would involve overall deficits of roughly 3 percent of the economy 

by 2015. 

Finally, even if we succeed in doing that, we still face a very substantial long-term fiscal challenge, since everything I was speaking 

about only pertains to the next decade. As you go out over time, 

the key driver of our long-term deficit is the rate at which health 

care costs grow, and that is why we are eager to continue to work 

with the Congress to finally enact comprehensive health reform 

legislation that not only expands coverage and improves quality, 

but also helps to reduce the deficit not only over this decade, but 

equally importantly, if not more importantly, puts in place the infrastructure that will allow us to reduce the deficit by increasing 

amounts thereafter. 

Thank you very much, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Dr. Orszag. 

[The prepared statement of Dr. Orszag appears in the appendix.] 

The CHAIRMAN. I see Senator Grassley has arrived. Senator, if 

you want to—— 

6 

Senator GRASSLEY. Yes, I am not prepared to do that. I do not 

know whether I will, but I will be asking some questions. 

The CHAIRMAN. All right. 

Dr. Orszag, as I understand it, the administration is suggesting about $100 billion for allowance for overall jobs initiatives and 

about $33 billion that is used for the Small Business Jobs and 

Wages Tax Cut. I am just curious, what is the other $67 billion? 

Dr. ORSZAG. The President, during a speech late last year at 

Brookings, laid out some other areas that he thought would be useful to be part of a jobs package: additional investments in clean energy, additional investments in infrastructure, for example. But as 

of right now, we have a placeholder for the other $67 billion, because we want to work with you—and I know you all just had an 

announcement about some of your ideas—to complete the details of 

that package and make sure that it is consistent with spurring as 

much job creation as possible. 

The CHAIRMAN. So the thought is that you want to work with the 

Congress in determining what that $67 billion is going to be used 

for? 

Dr. ORSZAG. Yes. Yes, we had laid out some categories, and we 

want to work with you to fill them in. 

The CHAIRMAN. What is a category or two? 

Dr. ORSZAG. Again, infrastructure and clean energy being examples. 

The CHAIRMAN. All right. 

A couple of times the President has mentioned how we have to 

export more. In the State of the Union address, he made a pretty 

strong statement about exports. I have forgotten the period of time 

within which exports, he thought, would double, or at least increase by a certain amount. And then, when he spoke to a lot of 

us yesterday, that is a lot of Democratic Senators, he put some emphasis on exports. 

But I do not see a lot of funding for USTR. I do not see a lot 

of provisions in the budget that help determine a clear path how 

we are going to accomplish that objective. 

Could you give us some sense? 

Dr. ORSZAG. Sure. Let me mention a few things. First, the budget includes a new over $500-million national export initiative, which 

is intended to help promote exports in a variety of ways in the Department of Commerce. 

Second, perhaps most importantly of all, our exports are going to 

reflect productive and competitive industries, and we have more 

than $60 billion in research and development funding, which is up 

more than 6 percent from last year, in order to spur innovation. We 

have $6 billion in investments in clean energy so that we can become the world leader in that field. We have a $3-billion increase 

in elementary and secondary education, while also reforming those 

programs so that we can help our future work force be as productive as possible, all of which will help to spur exports. 

And I would also note, exports are growing rapidly now off of a 

low base, in part because the base is low and in part because foreign economies are starting to expand also. Beyond those measures, additional steps would be warranted. Ambassador Kirk is, as 

you know, leading the effort in helping to expand markets abroad; 

7 

in addition to the other steps that we are already taking, his efforts 

will be crucial. 

The CHAIRMAN. What about China pegging its currency? That 

would be factor, too, if that could be addressed. 

Dr. ORSZAG. Senator, I believe you had Secretary Geithner before 

this committee. I am going to abide by the traditional rule of deferring to the Secretary on all matters involving exchange rates. 

The CHAIRMAN. All right. 

Is there a job number attached to these administrative initiatives, the initiatives to increase exports? Any sense of a realistic assessment of how much of this will be passed, enacted in law, of the 

$500 million—— 

Dr. ORSZAG. Sure. There are rules of thumb, and I will be able 

to respond. I do not have it off the top of my head, but I will be 

able to get back to you with the specific estimate associated with 

that doubling of exports, in particular. 

The CHAIRMAN. Right. But in addition to doubling exports, what 

is the correlation of jobs? How many new jobs? 

Dr. ORSZAG. No, that is my point. We will be able to provide an 

analysis of what the doubling of exports does in terms of domestic 

employment to you. 

The CHAIRMAN. Or, how many jobs do you think will be associated with some of these measures that you have outlined? 

Dr. ORSZAG. Yes, we will be able to provide that. 

The CHAIRMAN. All right. Because I think it is very important. 

Driving to work this morning, I heard 1 of 60 businesses export, 

and I do not know if that is a low number or not, but it struck me 

as a bit of a low number. 

Dr. ORSZAG. Well, I think what is going on there is, do not forget, 

the vast majority of the number of businesses, as opposed to their 

share of total economic activity, are very small businesses, and 

they are domestically oriented. 

The CHAIRMAN. That is true. Although, I found that efforts in my 

State to encourage small businesses to export have worked with 

some success. I will not say it is outstanding or overwhelming, but, 

once I take business people overseas and show them opportunities 

and work with, say, the commercial sections of our embassies 

abroad, it makes a big, big difference when the word spreads. 

Dr. ORSZAG. It sure does. 

The CHAIRMAN. Well, my time has expired, so I will turn to 

whomever wants it. 

Senator GRASSLEY. Yes, I would like to have a couple of minutes. 

The CHAIRMAN. Senator Menendez? You are next. 

Senator GRASSLEY. Then, could I go after him? 

The CHAIRMAN. I think so. Yes. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Dr. Orszag, welcome. I know you are a student of economic history. I think you have a sense of where we have been, where we 

are now, and looking to the future. You have a sense of the proper 

level of debt management in the short-term relative to the need for 

government to step up and create jobs for the long term. And it 

would seem to me that history, in some respects, is probably our 

best teacher, and, like any good teacher, we should pay attention 

to the clear lessons that it has. 

8 

We learned in the 1990s how deficit reduction tools, such as paygo, led to record budget surpluses. In the last months, Democrats 

alone voted to bring back statutory pay-go in order to begin a process of restoring fiscal discipline. 

But critics of the government’s role have forgotten what the 

Great Depression taught us less than a century ago. They say that 

government actions are threatening growth, that government 

should not invest in job creation or economic recovery, that we 

should step aside and let the free market work in this present environment. 

But the obvious question is, is that not to some degree what got 

us to where we are today? And how do we get out of where we are 

today, but for the engagement, at this critical time, of government? 

Herbert Hoover, in 1929, said you had to leave government out of 

the recovery equation. He said that, ‘‘economic depression cannot 

be cured by a legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body, the producers and consumers themselves.’’ Well, we 

know what that brought us. 

So, my question is, would you agree that such thinking is shortsided and ignores the fact of the excesses of the free-fall economic 

policies that we have had, particularly over the last 8 years, and 

the very underpinnings of what at a different time brought us the 

Great Depression, and now it has brought us the Great Recession, 

on the verge of a depression? 

I think it is important, as we move this budget forward, to have 

a sense of a little bit of a recent history that people forgot. Is that 

context right, wrong? 

Dr. ORSZAG. Yes, I think it is right. In fact, I believe that history 

will judge the actions that were taken over the past year to avert 

falling into a second Great Depression with great favor: measures 

to stabilize financial markets. We provide, in the budget, a chart 

that shows a dramatic decline in credit market spreads from the 

hugely elevated levels that they had reached. 

A dramatic shift from, again, the economy declining by more 

than 5 percent at the end of 2008, to growing by more than 5 percent at the end of 2009. Job losses, even though they are still too 

high, are dramatically lower. Do not forget, at the beginning of 

2009, in January 2009 and thereabouts, job losses were 700,000 a 

month. So, even though they remain higher than we would like 

now, it is a lot better than 700,000 a month, in no small part because of the significant action that the Congress, working with the 

administration, took. 

Every outside analysis that I have seen, for example, of the Recovery Act suggests that it played a key role in spurring economic 

activity in the second quarter, in the third quarter, in the fourth 

quarter, and that there would be, by our estimates and by outside 

estimates, roughly 1.5 million to 2 million more people unemployed 

today without the Recovery Act. So, that is the first point. 

The second point is, the other lesson of history, as you well know, 

is to avoid the mistake that was made in 1937, which was, right 

when the economy was starting to pick up a bit again, slamming 

on the fiscal brakes too tightly. So, we face a very big challenge, 

9 

which is, we have significant out-year deficits, and, if we do not get 

them down over time, ultimately, they will create a problem. 

But we also have an emerging recovery here that cannot be stifled just as it is taking steam. And finding that balance is what we 

try to accomplish in this budget, a smooth landing, bringing the 

deficits down from about 10 percent of the economy gradually over 

time to a level that is significantly lower. And, if we act too quickly, we face a significant risk of unnecessary job loss. 

Senator MENENDEZ. So clearly we need, in the short term—particularly as we look at the jobs package that hopefully we will 

unveil in the next day or so—some opportunity for the government 

to move in the short term as we restrain in the longer term. Otherwise, we are not going to see the job growth that we would like to 

see. 

Dr. ORSZAG. That is correct. And, if I could just comment very 

briefly. 

Senator MENENDEZ. Before my time runs out, then you can answer all you want. 

Let me ask you: we had two tax cuts before, unpaid for. Is that 

correct? 

Dr. ORSZAG. Yes. 

Senator MENENDEZ. We have two wars that are unpaid for up to 

now. Is that correct? 

Dr. ORSZAG. Yes. 

Senator MENENDEZ. We had an entitlement program under Medicare Part D unpaid for. Is that correct? 

Dr. ORSZAG. Yes. 

Senator MENENDEZ. So, as this budget calls for obviously some 

of that, you cannot have all of that spending totally unpaid for and 

look at your long-term debt consequences. Is that fair? 

Dr. ORSZAG. Yes. 

Can I just very briefly comment? 

The CHAIRMAN. All right. 

Dr. ORSZAG. One of the challenges that we face is, the Recovery 

Act has been very helpful in restoring economic activity, but, as 

normally happens during a recovery, job growth lags behind. So 

one way of sharpening the focus on a jobs bill is to try to accelerate, get rid of the lags, or shorten the lags between—what normally happens is GDP starts growing. The first stage is very rapid 

productivity growth, and that is, indeed—with the new report out 

this morning, too—exactly what we have been seeing in the past 

few quarters: very rapid productivity growth. 

The next stage is an increase in temporary hiring and hours 

worked among existing employees. And only, finally, then do you 

get an expansion in actual employment. One of the goals of, for example, the new jobs and wages tax credit, is to try to collapse that 

cycle, or those lags, so that you can more tightly link GDP growth 

to job growth and shorten the lags involved. 

The CHAIRMAN. Senator Grassley? 

Senator GRASSLEY. Yes. I want to take advantage of making my 

statement at this point before I ask questions. 

The CHAIRMAN. Go ahead. Fine. 

10 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you. Because I think it fits in very 

well with what we just had for discussion right now. So, I thank 

the chairman for having this hearing. 

The President and others in his administration insist that massive deficits projected under the budget are not really their fault, 

and I think the recent exchange we have had adds credence to my 

statement there. 

I think they want the American public to believe that they inherited these deficits from President Bush and just Republicans in the 

Congress. They insist that the 2001 and 2003 tax cuts, and the 

2003 Medicare prescription drug bill, are primarily responsible for 

the deficits we are now faced with, but this re-interpretation of history overlooks actual events of the past. 

When President Bush took office in 2001, Federal revenues were 

at their highest levels since World War II. There was broad agreement on the need for tax relief. The 2001 tax cuts passed with bipartisan support. Most of the Democrats who opposed these tax 

cuts, however, voted for their own alternative, which reduced revenue by nearly about the same amount. In 2003, tax cuts passed, 

by bipartisan support, to help our economy recover from recession, 

following the dot-com bust and the terrorist attacks of 9/11. Again, 

most of the Democrats who opposed these tax cuts offered an alternative which cost just as much. The only difference was, they had 

more spending and fewer tax cuts. 

Finally, the Medicare drug benefit was brought up. It also passed 

with bipartisan support, and, ironically, most of the people of the 

other party who were opposed to what actually went to the President said that we did not spend enough money. They wanted a 

drug bill that cost even more. But, ultimately, both Republicans 

and Democrats agreed it was time to modernize Medicare programs 

and cover prescription drugs. 

So, I think—I am not going to go through everything of past history—but there has to be a certain time within a new President 

taking over that there is some responsibility for what is going on 

in the way of deficit spending, particularly when you are having a 

massive increase in a deficit way beyond a 40-year average of about 

35 percent to 40 percent, maybe 42 percent of Gross National Product, and an annual deficit of, I think, 2.3 percent, 2.4 percent of 

Gross National Product, now at 9 percent. And over the long haul, 

it is my understanding that this budget makes it actually about 2 

or 3 percent, or I should say 6 percent, 2 or 3 times that historical 

average. 

So, let us go to what we can talk about now. First of all, let me 

thank you for spending time in my office yesterday to go over some 

issues that I have had and that you wanted to talk to me about, 

and I thank you for even asking for that meeting. 

So now my 5 minutes should start. 

Director Orszag? 

The CHAIRMAN. Your 5 minutes is now starting. [Laughter.] 

Senator GRASSLEY. In December, OMB issued new guidelines 

and guidance as to how the Recovery Act recipients should report 

the number of jobs created or saved by the stimulus. Under the 

11 

new math, job counts, regardless of whether they were actually created or saved, counts merely jobs being funded with the Recovery 

Act, whether it is new or otherwise. 

Did the administration not push the Recovery Act so that it 

would create jobs? Now it seems willing to admit that it is using 

taxpayers’ money to merely fund jobs that have existed anyway. If 

the economy continues to lose jobs, is the administration going to 

continue to move the goalpost and claim success, no matter what? 

Now you might say I am misreading what the President said or 

the administration said a year ago. I do not think I am, but, if they 

actually want to change policy, I think it is a good thing to say so. 

It might even be a good thing to say, well, what we said last year 

was not really very realistic. So, I have asked you the two questions, and I will give you an opportunity to respond. 

Dr. ORSZAG. Thank you, Senator. I, too, appreciated the meeting 

yesterday. 

Two points. First, let me clarify the change in job reporting, 

which was actually done in response not only to concerns that the 

recipients themselves had expressed, and not only concerns that 

the Government Accountability Office had expressed, but also in response to a letter that we got from a bipartisan group of Senators, 

including Senator Snowe, suggesting confusion, and that potential 

changes would be beneficial. So let me just be very precise about 

what has occurred. 

Recipients were having difficulty figuring out whether a job 

would or would not have existed but for the Recovery Act. For 

many business managers, that is just kind of a foreign concept. A 

much simpler approach, which GAO and others had suggested, is, 

if a dollar of the Recovery Act goes to pay for a dollar of wages, 

count that, and that is exactly what we have done. 

Now, some people said, well that is going to inflate the numbers 

somehow or bias the numbers. It turns out, if you look at the most 

recent reporting under this new system, which again was done to 

try to simplify things, there does not seem to be a significant shift 

in the numbers involved, and I think that may be because, even 

under the old system, that is what people were doing anyway, despite what the guidance had suggested. 

Now, with regard to overall job figures, again, the recipient reporting only applies to a subset of the overall Recovery Act activities. It does not, for example, measure the impact of tax cuts. There 

are a variety of analyses out there, including from CBO, and our 

own Council of Economic Advisors, and others. The figures I used 

earlier reflect the CEA numbers, but they are in line with outside 

estimates, too, that there are 1.5 to 2 million people today who 

would be unemployed without the Recovery Act. 

Senator GRASSLEY. Now I am going to ask you a question that 

came out of our meeting yesterday. And, if it is inappropriate because we had a private meeting, you do not have to answer it, but 

I want to ask it anyway. 

Dr. ORSZAG. All right. 

Senator GRASSLEY. Thank you. 

During our conversation, you mentioned the Vice President takes 

an active role in overseeing the Recovery Act program. I was surprised to hear that he personally calls Governors, mayors, and othVerDate Nov 24 2008 21:01 Nov 28, 2011 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 R:\DOCS\71107.000 TIMD
12 

ers when specific problems arise in their locality. Could you elaborate on Vice President Biden’s role in the administration’s stimulus 

efforts? For instance, you might be able to tell us what type of people he calls, and how often he calls, and that sort of thing. 

Dr. ORSZAG. Sure. And again, he chairs a variety of interagency 

cabinet-level meetings to ensure that the Recovery Act is working 

as smoothly as possible. He has spoken—I do not feel like we are 

violating anything that was said in private—publicly that he is focused on making sure the Recovery Act dollars go to their intended 

purposes and that, when there is a misuse of the funds, he will call 

up the Governor or the mayor or what have you and insist that 

that be changed, or frankly, embarrass the Governor or mayor if 

necessary into changing it. So we can get you his public statements 

on the matter, too, but yes, he has been very active. 

Frankly, I think one of the reasons that the Recovery Act—although nothing is ever perfect in this world—has been working relatively well is the attention that it has gotten at very high levels. 

Senator GRASSLEY. All right. 

Mr. Chairman, my time is up. I would like to ask a request. I 

am going to go down to Judiciary now and participate down there, 

and, if you are going to adjourn, if you would give me a 5-minute 

notice. If I can come back, I would like to come back. 

The CHAIRMAN. Sure. Absolutely. 

Senator GRASSLEY. Thank you, Dr. Orszag. 

The CHAIRMAN. Senator Carper? 

Senator CARPER. Thanks Mr. Chairman. 

Dr. Orszag? To your left. Welcome. It is nice to see you again. 

Dr. ORSZAG. Yes. 

Senator CARPER. I would just say that I do not think the American people are interested in trying to assign the blame to the previous administration for this hole that we are in, and this financial 

hole we are in, and this economic hole that we are in, or this administration. 

However, I think, what did Harry Truman used to say? ‘‘The only 

thing that is new in the world is history we have forgotten and 

never learned.’’ I do think it is helpful, before I ask you a question 

or two, to go back in history. 

Between 1993 and 2000, as I recall, we were in a period of time 

when we not only saw a lot of jobs created—I want to say about 

roughly 20 million new jobs were created. Does that sound about 

right? 

Dr. ORSZAG. Yes, sir. 

Senator CARPER. All right. 

And we ended up in an 8-year period where we started off each 

year with annual deficits of $200 billion a year and more. We 

ended up that 8-year period in 2000 and 2001 with budget surpluses, about $200 billion in budget surpluses as far as the eye 

could see. Does that sound right? 

Dr. ORSZAG. Yes. And as you remember, at the time the concern 

was that we would—— 

Senator CARPER. Pay off the debt. 

Dr. ORSZAG. Pay off the entire debt too soon. 

Senator CARPER. Pay off the debt too soon. It seems almost comical in retrospect. 

13 

Dr. ORSZAG. The world has changed, has it not? 

Senator CARPER. So, 20 million new jobs between 1993 and 2001. 

Between 2001 and 2008, I do not recall how many jobs were created. I know it was a lot less than that. Do you have any recollection? 

Dr. ORSZAG. We can get you the exact figures, but yes, it was 

much smaller. 

Senator CARPER. It was less than 10 million, maybe 5 million. All 

right. Five million. All right. 

Prior to 2001, do you have any idea, roughly, what our Nation’s 

debt was, prior to 2001? 

Dr. ORSZAG. Yes. I can give you the exact figure, actually, which 

was that at the end of fiscal year 2000, which is the beginning of 

2001—it will just take me a second to get there. I am sorry. If you 

want to continue, I will look this up very briefly. 

Senator CARPER. What I am getting at is, I would like to know 

whether our Nation’s history—how much debt did we create in the 

first, roughly, 210 years of our Nation? How much new debt did we 

create in the years 2001 to 2008? That is what I am looking for. 

And I think we will find that the numbers are actually pretty close. 

Dr. ORSZAG. All right. It will just take me a second. 

Senator CARPER. All right. Someone is handing you a note. 

Dr. ORSZAG. That is all right. I have it. So, at the end of fiscal year 2001, publicly held debt was $3.3 

trillion. 

Senator CARPER. All right. 

New debt accumulated between, say, 2001 and, say, 2008? 

Dr. ORSZAG. Well, let us go through the end of fiscal year 2009. The additional debt created was $4.2 trillion. 

Senator CARPER. All right. 

So it is fair to say that we created as much new debt in that 8- 

year period of time as we did in pretty much the first 208 years 

of our Nation’s history. Does that sound about right? 

Dr. ORSZAG. That would be factually correct, yes. 

Senator CARPER. All right. Thank you. 

Let us go back to a year ago in terms of, not debt, but job creation. Every month we chart how many new jobs were created. In 

the Clinton administration, we were charting like a million new 

jobs created in a year and more. Take us back to about a year ago, 

January of 2009. 

Dr. ORSZAG. Job losses were in excess of 700,000. 

Senator CARPER. All right. Seven hundred thousand. So we went 

from—— 

Dr. ORSZAG. We are about to get a new employment report tomorrow. We will see what it shows, but private sector forecasts are 

dramatically lower than that. In fact, many private sector forecasters are in the range of zero. 

Senator CARPER. Yes. So we are right about there. We have gone 

from 20 million new jobs during an 8-year period of time, something maybe a third of that during the next 8-year period of time, 

more new debt in 2001 to 2008 than in the entire history of our 

Nation, and a turnover of an economy that was shedding 600,000– 

700,000 jobs a month, and a budget that was proposed left, by the 

outgoing President, for a deficit that was roughly $1 trillion. That 

14 

is pretty much what the handoff was. A year later, where are we? 

Net job loss is pretty much zero. 

Dr. ORSZAG. Maybe a small job loss, but much smaller. 

Senator CARPER. And GDP growth is up from the beginning of 

the year to, actually, what was it? Down about 5 percent or 6 percent? 

Dr. ORSZAG. Down more than 5 percent at the end of the fourth 

quarter of 2008, up 5.7 percent in the fourth quarter of 2009. 

Senator CARPER. All right. 

Now, having said that, my colleagues and I—I cannot speak for 

all of my colleagues. I am very uneasy, very uncomfortable with the 

size of the deficits going forward. Very uneasy. I appreciate very 

much what you have proposed in terms of, I call it a smart freeze, 

on discretionary spending starting actually this October 1. I would 

urge you from now on not to say 2011. Rather, I would urge you 

to say this October 1 instead of saying 2011. I just suggest that you 

say that. 

Dr. ORSZAG. All right. 

Senator CARPER. Smart freeze kicks in this October 1 for 3 years. 

The Commission will be reporting back to us by the end of this 

year. I hope, on the Commission, we find a number of people who 

have served in government before, maybe have chaired budget committees, maybe have served in the House and Senate, both Democrats and Republicans who enjoy a lot of respect and have a lot of 

time on their hands and a lot of smarts. 

I appreciate very much the budget that you have sent us. However, you address defense spending, weapons systems, major weapons systems cost overruns. I think there are $45 billion, colleagues. 

There are $45 billion in weapons systems cost overruns in 2011, 

and last year, $295 billion. The administration has proposed a 

whole series of plans to pull the plug on weapons systems that we 

do not need anymore, and I think we have an obligation to support 

that. 

I would urge the President to consider using his veto threat. The 

only way we killed the F–22 was the President said, you send that 

to me in a Defense bill, I will veto that bill. That is really the kind 

of leadership that is going to be needed to make these other proposals stick. 

The CHAIRMAN. Senator Rockefeller? 

Senator CARPER. Thank you. And somewhere later, maybe I 

could ask you a question. Thank you. 

Senator ROCKEFELLER. But not now. 

Senator CARPER. That was all prologue. 

Senator ROCKEFELLER. Good morning, Dr. Orszag. 

Dr. ORSZAG. Good morning. 

Senator ROCKEFELLER. I am going to go at a question which I 

focus on a lot, because I have to, and I want to. 

Would you agree that, if everything possible in the next 5 to 10 

years was done on solar, wind power, biomass, nuclear, all the rest 

of it, that it would not come anywhere close to providing one half 

of the Nation’s electric needs? 

Dr. ORSZAG. Senator, I think what you are getting at is coal is 

going to remain a key part of our energy base for the foreseeable 

future. 

15 

Senator ROCKEFELLER. Well, I am going to dispute that in a moment, but I want you to answer the question. 

Dr. ORSZAG. We need to move aggressively to new forms of energy, but it is going to take time. 

Senator ROCKEFELLER. I want you to answer the question. In 

other words, in the next 5 to 10 years, if we do everything we can, 

and I am all for all of them. 

Dr. ORSZAG. Sure. 

Senator ROCKEFELLER. Solar, bio, the whole deal, wind power. 

We are trying to set those up. 

Dr. ORSZAG. I do not think those sources will amount to half of 

our energy needs now. 

Senator ROCKEFELLER. Anywhere near? 

Dr. ORSZAG. Probably not anywhere near. 

Senator ROCKEFELLER. Yes. 

So then, we are going to have to have coal. Now, there are two 

definitions of coal. There is coal as it is today, as it is in some 

places today, which is not clean, and then there is something called 

‘‘clean coal,’’ which is what we are striving for and what there is 

remarkable progress on. 

Just to give you two examples, which I have before, I am thinking of one company which is causing coal that goes into power 

plants’ emissions to have been cut 90 percent out of carbon; another one, where 95 percent of emissions are cut out of carbon. I 

mean that the carbon is reduced by that amount. That is cleaner 

than nuclear. 

Now, the question I really have in looking at the budget, listening to the President, listening to Lisa Jackson is, are you really on 

a path to do coal? And, of course, it is in the interest of the States 

of West Virginia and Montana, and others, but I am doubtful. 

And this is the reason. One is, there has not been a new power 

plant built in West Virginia, even if it could be for clean coal, since 

1993. Nobody is investing anything in anything new in coal. You 

have taken four tax credits in your budget and eliminated them 

just at the time that the coal industry—and I am doing my best 

on this, because I think there is going to have to be legislation on 

climate change. I separate myself from some of my colleagues from 

coal States in this respect, and even from some of my own constituents, but I think the only way to save coal is to have an energy 

bill that will price carbon and, thus, allow coal to take advantage 

of a lot of money from Wall Street and perhaps from bills out of 

Congress. 

On the other hand, in the budget, when you cut out the tax credits, what you are going to do is you are going to reduce coal production. You just are. It is going to be partly psychological. People are 

going to reduce their production because they feel, uh-oh, here 

comes the Obama administration, and they are going to cut out 

coal. 

And then you look at Lisa Jackson, and there are two parts of 

Lisa: one is mountaintop removal, but the other is the power she 

is given by the Supreme Court to reduce carbon, sort of at her discretion. 

I tell my coal miners in West Virginia that the only way that we 

can save coal is to have legislation which produces large amounts 

16 

of money for carbon capture and storage and can do it at the 90– 

95 percent level. But it takes time. It takes time to do it, to deploy 

it, for Wall Street to have confidence in it and, therefore, to fund 

it, which it will, extravagantly, if time is given. The President has 

a little bit of money in for CCS, but not much. So I am looking—— 

Dr. ORSZAG. Five hundred and thirty million, if I am correct. 

Senator ROCKEFELLER. I know. What that is equal to is one 

power plant in West Virginia—it happens to be the largest one in 

the country—cutting out 17 percent of its emissions, reducing the 

carbon down to 10 percent. So it really is, like, not anything at all. 

So what are my signals that I am meant to read? Where am I 

meant to, other than his words? 

We met with him yesterday and he said, oh, I am for clean coal. 

Then he says it in speeches, but he does not say it in here, he does 

not say it in the actions of Lisa Jackson, and he does not say it 

in the minds of my own people, and he is beginning to be not believable to me. So I want you to put me at rest or put me away. 

Dr. ORSZAG. A few comments, Senator. Thank you for the question. 

As you know, also, in addition to any discussion you had with 

him yesterday, he also formed yesterday a cabinet-level task force 

precisely on CCS to explore the best path forward and named the 

Secretary of Energy and others, and I am on that task force, too. 

Senator ROCKEFELLER. I was thrilled by that, Dr. Orszag. 

Dr. ORSZAG. All right. Good. 

Senator ROCKEFELLER. All right. Go ahead. 

Dr. ORSZAG. That is one thing. 

The second thing is, while I appreciate your concern that the 

funding level is not as high as you would like, there is more than 

a half billion dollars in the budget for CCS and clean coal research 

and development. And then, finally, one of the reasons we join you 

in believing that we should address climate change through comprehensive legislation is not only to avoid the regulatory approach, 

which would involve higher costs, but also because, as you correctly 

note, comprehensive legislation creates resources that can be devoted to particular activities, including expanded research into 

clean coal. 

The CHAIRMAN. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. 

Director Orszag, welcome. It is good to have you here. 

As you know, our country has been grappling for many years 

with how to fund infrastructure, and particularly how to generate 

new revenue in order to go forward with the road improvements, 

the infrastructure improvements that are so critical to drive economic growth in our country. 

And it looks like—as you know, I have spent a lot of years on 

this; I am very appreciative of Chairman Baucus’s support on it— 

that we have hit on something that the markets have reacted very 

well to, and that is Build America Bonds. 

We projected last year, as part of the 2-year effort, that perhaps, 

since they were starting late, we might see $5 billion worth of them 

issued in the first year. By the time the numbers were in at the 

end of the year, it was more than $63 billion, and it is projected 

to go to $130 billion by the end of this year. 

17 

The administration, to its credit, has now proposed making them 

permanent, which strikes me as really an extraordinary vote of 

confidence in an approach like this, to have the administration look 

at the numbers a year in and say the market is reacting well, we 

want to see it expanded. Is that the message we ought to take 

away from this? 

Dr. ORSZAG. Yes. As you know, we propose making Build America Bonds permanent. Some changes to them also, but, yes, they 

are a promising approach, which is why we want to extend them. 

Senator WYDEN. Well, I am appreciative of it. I am anxious to 

work with you on the details, as you and I have talked about, but 

I am very appreciative. I am also exceptionally appreciative to 

Chairman Baucus, because he and I talked about it often, and he 

was willing to give this a shot, and I am very appreciative, Mr. 

Chairman. 

The CHAIRMAN. You bet. You bet. 

Senator WYDEN. A question about health care cost, if I might, Director Orszag. Here, too, it seems to me you are onto what is the 

heart of health reform, and that is reigning in these costs. You 

have gone on to say that you really cannot get on top of the Federal 

budget until you reign in health care costs. And my view is that 

the best way to do it is to promote more choice and competition and 

to try to find some creative ways to do it. 

The chairman has worked with me on an approach—and, again, 

I thank him for his support—that would in effect say that folks 

who spend over 8 percent of their income on health, but cannot get 

subsidies, they could get vouchers. In effect, they could go out and 

fire their insurance company. If their insurance company is not 

treating them well, they can go somewhere else, and they can go 

into the market. 

Are there, in your view, other ideas for increasing choice and 

competition within the framework that will allow us to get support 

here that would allow us to contain these costs using the choice 

and competition that the President is talking about? 

Dr. ORSZAG. Well, Senator, as you know, actually at the very 

heart of even creating an exchange in the first place is the thought 

that allowing individuals to enter, to purchase health insurance 

through an exchange, a choice of different providers, those providers competing for their business, will provide an improvement 

over, for example, the individual market today, where competition 

is often not as rigorous as we would like. 

Senator WYDEN. And what is your sense about the size of the exchanges in order to make them as robust as possible? This has 

been a topic we have talked a lot about here in the committee, because, obviously, to the extent that you can get the size up, you 

spread cost and risk through a bigger group. I think we are on the 

right track in terms of discouraging adverse selection, but we know 

insurance companies are going to be clever marketers, and trying 

to get the pools as big as possible to expand the bargaining power 

of people strikes me as important. What is your thought about the 

size that is going to be necessary to make these robust? 

Dr. ORSZAG. It is crucially important to have a substantial size 

in order to obtain the efficiencies that you discussed. There is always a bit of a trade-off in that you get those benefits, but then 

18 

allowing a variety of exchanges could introduce competition in the 

design of the exchange itself. I think on net, the suggestion that 

you want to be moving towards larger exchanges wins out. 

Senator WYDEN. I appreciate that, and I think you are right. We 

have talked a lot about this in this committee, about how to strike 

the balance. You want them large, but you want them also to be 

creative in the sense that you can try a variety of different approaches. And something that works, for example, in the western 

States might not necessarily work on the eastern seaboard. 

But my concern has been that, if the exchanges are limited to 10 

percent of population years and years in, we will have missed some 

opportunities to grow them. I hope that we can continue to work 

on that. I know the chairman has worked hard on the exchange 

issue, and I am looking forward to working with him on that as 

well. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Snowe, you are next. 

Senator SNOWE. Thank you, Mr. Chairman. 

Welcome Director Orszag. 

One of the issues that I have already raised with you in the letter that I submitted in early December and one we have had a discussion on—and I would just like to explore it further—is considering many of the job creation proposals in terms of how we pay 

for them. Now some suggest using TARP funds. I do not see that 

as appropriate, because TARP was meant to be repaid. They are 

loans. That would only add to the deficit. 

That is why I have recommended using and redirecting unused, 

unallocated stimulus funding. After all, stimulus, when we passed 

it back in February, was supposed to be timely, targeted, and temporary. Now, if there are funds that have not been used—and we 

have only been expending $269 billion—would it not be preferable 

to advance some of that funding, redirect it to other initiatives that 

could be far more effective in jump-starting this economy and doing 

it now, especially with all of the proposals that are going to be at 

the forefront of the jobs creation agenda? I mean, we really have 

to maximize the punch on this economy now, so, rather than adding to the deficit, why not just redirect some of this stimulus funding? 

Dr. ORSZAG. Senator, a few responses. First, in the letter that I 

sent to Senator Grassley, which I believe has been made available 

to other members of the committee, various agencies are redirecting or repurposing Recovery Act funds away from projects 

that seem to be behind schedule or not progressing towards more 

promising alternatives, and we can get you a full list of that. 

Second, with regard to the aggregate activity, aggregate spendout rates, they are on track with what was initially projected. As 

you know, CBO came out with an analysis in January of the Recovery Act. I think it was in Appendix A of their Economic and Budget 

Outlook. By the end of this fiscal year, $600 billion will have gone 

out the door, and that is in line with the spend-out rates that were 

initially projected. So, there is some repurposing that can be done, 

and the spend-out rates are on track with what was initially projected for the Recovery Act. 

19 

Senator SNOWE. I would certainly like to have that list, since I 

did some of this on December 11. So I would like to have a list of 

the unspent or whatever funding, because I really think this is critical. It was not in line with the projected timelines in the legislation that was passed last February. I do not think it is really a rationale for now. I mean, obviously, we had a 10-percent unemployment rate, much higher if you consider those who have given up 

looking for a job. 

So, perhaps some of those projects are not worthwhile. If they do 

not meet the definition of timely and targeted, then we should redirect them in the most effective manner and not add to the deficits. 

I think that that would be prudent, worthwhile, and, frankly, practical, given the situation we are facing with deficits. 

Dr. ORSZAG. Can I just clarify one thing? 

Senator SNOWE. Yes. 

Dr. ORSZAG. Because obviously, I always want to be responsive 

to incoming inquiries. You had asked about, in your December letter, categories of spending, what had spent out, and what had not. 

All of that information is available on recovery.gov, as I believe I 

may have mentioned at some point, so that is publicly available information. 

Senator Grassley had asked a separate question, which is, within 

a given department, the Department of Veterans Affairs, are they 

taking any money, regardless of how quickly it is spending out, and 

moving it from one place to another in order to make it more effective? And the answer to that is, yes, there are some examples of 

that, and we could provide that to you in detail also. 

Senator SNOWE. Well, the bottom line is, do you know how much 

money could be redirected? I mean, that is the issue. It is a very 

practical question. I mean, if the stimulus is not working, then 

maybe we should move it right now—I mean, I think that is the 

point—and fund it. 

Dr. ORSZAG. I understand. We may have a different perspective 

on whether the Recovery Act is working or not. 

Senator SNOWE. Well, when you say the level of unemployment 

is severe, I mean, there is no question—— 

Dr. ORSZAG. There is no doubt about that. 

Senator SNOWE. And I just think we have to do everything we 

can to maximize the punch in this economy. 

Dr. ORSZAG. We agree with you. 

Senator SNOWE. And stimulus has always been defined as timely 

and targeted and temporary, and it is not clearly meeting two out 

of the three right now, given where we are in the state of the economy. I am just saying that is something. We ought to be flexible, 

we ought to respond to the moment in time and just do what we 

need to do, but I do not think using TARP is an option. I mean, 

because after all, it is adding to the deficit. It is a loan, not meant 

to be re-spent on something else, but paid back to the Treasury so 

we do not add to the deficits. So, I just think we ought to draw that 

line. 

And I hope that you would consider it, because I really do think 

it is important. I understand those long-term investments. I was an 

advocate for some things down the road. But it has been a year out 

20 

with this stimulus plan, and it has not materialized in terms of the 

job creation, so we have to pivot. 

Second, on these tax credit initiatives and payroll tax holidays 

for job creation, new hires, increased wages, how do we know what 

would work and not work? What have we learned from the lessons 

in the 1970s? Do you have any economic models, so that we are not 

just sort of shooting at a dartboard here, that we are getting it 

right, and being fine-tuned and precise and targeted in terms of the 

most effective means so that we do not have a plethora of ideas, 

but none of which work? What do we know will work to help this 

economy? 

Dr. ORSZAG. The evidence from the jobs tax credit during the 

1970s—the literature is a little bit split. There is one strand of the 

research by John Bishop, if I remember correctly, suggesting it was 

quite effective. Another strand of the literature was saying it did 

not work very well, and that analysis generally suggests the problem was, it was way too complicated. So, one of the key things is 

to keep this as simple as possible. We have tried to do that in our 

proposal. That is one lesson. 

The second lesson is, do not just focus on creating new jobs, but, 

also, include an incentive to expand hours or increase wages for existing employees, and we have tried to do that, too. 

Senator SNOWE. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator Cornyn? 

Senator CORNYN. Thank you, Mr. Chairman. 

The CHAIRMAN. Welcome. 

Senator CORNYN. It is good to see you, Dr. Orszag. 

Dr. ORSZAG. It is good to see you. 

Senator CORNYN. We are shuttling back and forth between different committee meetings, but thank you for being here. 

I want to ask you, first of all, about the shared responsibility fee. 

That is the fee that will be imposed on a number of financial institutions, the President said, because we want our money back. Yet, 

would it not hit a number of institutions that have repaid TARP 

funds and on which the Federal Government has actually made a 

profit? 

Dr. ORSZAG. The short answer is yes, but we think that the benefit that even those institutions received from the overall assistance provided to the financial services sector is larger than just the 

direct cash injected into their own entities. The point is, there has 

been, as again you can see from credit market spreads and what 

have you, a general recovery in financial markets, with a few exceptions, small business lending being a key exception, and those 

large institutions benefitted from the overall assistance, in addition 

to the direct assistance that they received. 

Senator CORNYN. I understand your answer. But in what sense 

is that getting your money back from institutions that have repaid 

the TARP with a profit to the taxpayer and the Federal Government? 

Dr. ORSZAG. I guess one perspective would be, just for example, 

to flip that on its head and say, the damage that was imposed on 

the economy from these institutions and from the financial market 

meltdown was far in excess of the repayments that they have made 

21 

in exchange for the TARP assistance that they provided, so to ask 

them to go beyond that and then fill in the rest of the hole in TARP 

seems justified, given that, again, the downturn that we have experienced comes from a financial market meltdown, which was a reflection of the activities of many of these institutions. 

Senator CORNYN. Do you think all of the institutions that will be 

subject to this fee or tax were complicit? 

Dr. ORSZAG. Well, I am not going to get into assigning liability 

to individual firms, but the financial services industry as a whole, 

including our largest institutions and the ones that were the most 

leveraged, I think, were are at the heart of the problems that we 

face. 

Senator CORNYN. Well, if you are not going to assign individual 

blame, then would you not agree with me that the tax or the fee 

is indiscriminate in the sense that it would apply to institutions 

that may have been responsible, but it would also, or could also 

apply to those that were not responsible for the financial crisis? 

Dr. ORSZAG. Again, our perspective is, we are trying to discourage leverage and we are trying to repay the taxpayer in full for 

TARP and not get into—I do not think it is possible to go firm by 

firm and say, you were responsible for this piece of the financial 

meltdown, you were responsible for that piece of the financial meltdown. I do not even know that, analytically, that would be possible 

to do. 

Senator CORNYN. Well, that is what struck me as so odd about 

the President’s comment that this was designed to get our money 

back, suggesting that the affected firms would have been ones that, 

number one, received TARP money, and number two, did not pay 

it back, and that it would somehow be just and fair to impose this 

fee on them because they were complicit in causing the financial 

crisis. But you are saying that is not the rationale? 

Dr. ORSZAG. No, no, I think it is. The industry as a whole was 

complicit in causing the financial crisis. The industry as a whole 

has benefitted from the assistance that was provided. That is 

why—and by industry here I am talking about big banks—we are 

imposing a fee on the industry as a whole to repay the assistance. 

Senator CORNYN. Well, do you agree with me that, when you impose taxes on any business during a recession, that will make it 

harder on those businesses to retain employees or hire new employees? 

Dr. ORSZAG. Senator, I want to try to avoid being inflammatory 

here, but with all due respect to the institutions, given the size of 

bonuses that are being paid out, I do not think they are having 

trouble attracting employees. 

Senator CORNYN. So, you do not agree that imposing taxes on a 

business during a recession makes it harder for those businesses 

to retain or hire new employees? 

Dr. ORSZAG. We are talking about a 15 basis-point charge on 

their liabilities, and I think they are not having any difficulty, especially given the size of the bonuses that they are paying, attracting employees. 

Senator CORNYN. Ninety billion dollars. Is that what it comes out 

to? 

Dr. ORSZAG. Over 10 years, yes. 

22 

Senator CORNYN. Over 10 years. It will not have any impact on 

their ability to hire or retain people? 

Dr. ORSZAG. What I am saying is, they do not seem to be suffering from the lack of compensation for their employees. 

Senator CORNYN. Do you believe that taxes imposed on a business ultimately get passed down to the consumer in higher costs? 

Dr. ORSZAG. It depends on the structure of the industry, and the 

degree of pass-through will vary depending on the context. 

Senator CORNYN. And do you agree that, by imposing higher fees 

on financial institutions, it makes it less likely, rather than more 

likely, that they will not be able to lend to the extent they would 

have if the fees had not been imposed? 

Dr. ORSZAG. I think, in this particular case, because it is applied 

to large banks and not to smaller banks, there is sufficient competition in the lending business to mitigate any such effect. 

Senator CORNYN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Bingaman? 

Senator BINGAMAN. Thank you very much. 

Peter, thank you for coming and speaking to us. Thank you for 

all of your work. 

One issue that we have spent hundreds of hours talking about 

in this committee, and particularly the chairman has tried to provide leadership on, is the issue of the growth in national health expenditures. 

When you look at the budget deficit projections going forward, 

the deficit remains very large for the next 10 years. It would seem 

to me that the only way to further improve our fiscal circumstance 

during that 10-year period, particularly in the out-years, would be 

to do a better job of reigning in the growth in national health expenditures. We struggled mightily to get some things included in 

the health reform legislation that we passed through the Senate 

that would move in that direction, but frankly, they were not adequate. 

Would you have any suggestions on additional steps that the administration or the Congress could be taking to reign in this 

growth in health care cost? 

Dr. ORSZAG. You mean, outside of comprehensive health legislation? 

Senator BINGAMAN. Yes. 

Dr. ORSZAG. Well, as an example, we are in the process of implementing health information technology, which is expanding and 

has the potential, working with other components of investments 

in the health sector, to, over time, improve quality and reduce 

costs, not sufficient by itself, but working in concert with other 

steps. 

The budget includes an expansion in community health centers, 

which have been shown to be a cost-effective way of delivering 

quality care. But frankly, comprehensive health legislation is necessary because the key underpinnings of what is necessary to happen to contain costs over time can only be done through legislation 

and through an approach like the one the Senate has passed. 

Senator BINGAMAN. And in your view, the budget that you submitted to the Congress here contemplates the enactment of the cost 

23 

containment provisions that are contained in that health care reform? 

Dr. ORSZAG. Given that there was at the time we were locking 

down the budget, some question about exactly what form the legislation would take, we took the simple average of the House- and 

Senate-passed bills and reflected that in the budget. 

Senator BINGAMAN. The average as calculated by OMB? 

Dr. ORSZAG. By the Congressional Budget Office. 

Senator BINGAMAN. By the Congressional Budget Ofice. 

That is the main issue that I wanted to question you about. 

Thank you very much. 

Dr. ORSZAG. Thank you very much, Senator. You may be the de 

facto chair. 

Senator BINGAMAN. Are there other questions? Senator Carper, 

did you have questions. 

Senator CARPER. Thank you. Thanks very much. 

I want to go back and revisit the point raised by Senator Cornyn 

on the 15 basis-point charge against, what is it, banks with assets 

over $50 billion? 

Dr. ORSZAG. It applies to banks with assets of more than $50 billion, yes. 

Senator CARPER. Yes. And you said it would generate maybe $90 

billion over 10 years? 

Dr. ORSZAG. Correct. 

Senator CARPER. All right. 

Yesterday, as you may know, the President was good enough to 

come in and visit our caucus retreat, much as he did the House Republican retreat a week or so ago, and we were asked in the later 

part of the program to kind of think through our core values and 

our principles, really, as a party. 

One of the core values and principles we talked about was basic 

fairness. We actually talked about the Golden Rule: treat other 

people the way we want to be treated. And I just want to try to 

apply that, and in this case I know you say that all banks, large 

and small, benefitted by the rescue activities, including the TARP. 

I tried to put myself in the shoes of a bank with assets of over 

$50 billion, and basically, I did nothing wrong; I ran my business, 

I did a good job, I provided credit, and provided employment for 

folks. I was offered TARP infusion. I declined it. A capital infusion. 

I declined it from TARP. 

The second category might be those who accepted capital infusion 

from TARP, did not want it, and sort of took it under duress. As 

you know, some banks were encouraged to do that so that there 

would not be a stigma attached to those which accepted it. 

And, maybe a third category of banks who needed the capital infusion, very much needed it, to continue to function and accepted 

it, some of whom have repaid it. 

Now, I do not know that it strikes me as fair to treat them all 

the same, even if we want to raise $90 billion over 10 years from 

these sources. I would just ask the administration to think through 

the Golden Rule of treating other people the way you want to be 

treated. I do not know if it argues for not doing this at all. I guess 

there may be an argument for a tiered approach rather than just 

24 

in way of a progressive tax code. Maybe something like that might 

make more sense here. 

Any initial thoughts in response to that? 

Dr. ORSZAG. Well, Senator, the other thing I would say is the objective is not just sort of a justice or a repayment one, but also you 

are imposing a fee on leverage and on size. If one of the things that 

we want to do is, at the margin, discourage leverage in particular, 

the fee is also, again at the margin, accomplishing that to some degree. 

Senator CARPER. All right. 

I would just go back to say, in terms of the bank that declined 

accepting the capital infusion from TARP, that maybe their behavior with respect to leverage was appropriate. That is just another 

thought, as well. All right. Put that in the back of your mind with 

everything else. 

Dr. ORSZAG. Thank you, Senator. 

Senator CARPER. The second thing I want to come back and revisit is the point that Senator Snowe was drilling down on. I think 

it was the question: is it appropriate to take monies as they are 

repaid to TARP, take those monies in to use that to extend, I think 

you said, as much as $30 billion in assistance to smaller banks to 

encourage them to extend liquidity to small businesses. 

And I see a couple of different ways to do that. One, as the TARP 

monies are repaid, to use that money. Another is to say, as the capital investments that we have made, the capital infusion that we 

have made under TARP, as we earn interest from that, I think, 

what do we do? Buy preferred stock, in many cases, and we are 

getting interest off of preferred stock. I think that is the way it 

works. I think we also have some warrants that could be exercised 

somewhere along the way. 

A second alternative might be, rather than just use the TARP repayments, how about the monies repaid to TARP for the investments that we made and the capital that was infused, or maybe 

even as we exercise our warrants, some of that money could be 

used for the $30 billion? 

Do you have any reactions to that? I am trying to come up with 

a variety of choices here so that we might find some common 

ground. 

Dr. ORSZAG. Sure. Just a few comments. One, remember the motivation behind this proposal, which is that small businesses do 

continue—it is probably the one remaining part of our financial 

market system that still has significant problems. Small businesses 

are suffering from a lack of access to credit. It is one reason why 

we have $17.5 billion in loan guarantees. 

Senator CARPER. Which I think is a good idea, I am positive. 

Dr. ORSZAG. Right. The Small Businesses Administration—— 

Senator CARPER. And I hope our Republican colleagues, including 

Senator Cornyn who is still here, can support that kind of approach. 

Dr. ORSZAG. Second, Secretary Geithner, even in the document 

that he produced for testimony before a committee in December, 

signaled, when he said that he could reduce the amount of available resources necessary under TARP, that he intended at that 

25 

point to have $30 billion or so go to promote small business lending. 

Now, many banks, small, local banks, are concerned about the 

various restrictions and obligations associated with TARP and, 

frankly, the stigma associated with receiving TARP funds, which is 

why, at their request, they suggested it would be more effective to 

move that component out of TARP, create a separate program, and 

that they would be more likely to participate then. 

But, again, the underlying goal here which I think we need to 

keep our eye on is to get credits flowing to small businesses again, 

and we are open to other ideas about how to do that. 

Senator CARPER. Good. Well, I think most of us on this committee—I hope most of us in the Senate—believe that part of the 

solution to keeping the recovery going, this Nation’s recovery going, 

is to extend more credit, more liquidity to small businesses, and 

one way is to take it out of the TARP. It could be out of repayments, it could be out of interest that we earned, it could be out 

of dividends that we earned from our capital infusion, it could be 

out of some money that we realized by exercising our warrants. 

And the other approach might be that which has been suggested 

by Senator Snowe, and that is, as we know, not all the money is 

being used in the stimulus. Actually, that is not an altogether bad 

thing. We have seen any number of infrastructure projects in my 

State where we are spending less money than we anticipated, simply because the bids—they are being competitively bid, and the 

bids are coming in 10 percent, 20 percent, 30 percent under what 

was expected, so we have extra money that can be used on, for example, road/highway projects, transit projects. 

As long as those stimulus funds are being used in ways that actually do create jobs and meet good public policy, I am not all that 

convinced that we should draw entirely from that surplus, if it is 

being spent appropriately, to fund the $30 billion for helping our 

smaller banks to lend more money. But that is an option. 

Maybe there is some combination of that, but at the end of the 

day, you have to find some consensus so that we can go forward 

and do what you want to do, and what the administration wants 

to do, and that is extend liquidity to small businesses. 

Can I ask a question, Mr. Chairman? I do not want to—— 

Senator BINGAMAN. I noticed Senator Cornyn probably has additional questions. 

Senator CARPER. I do not want to—— 

Senator BINGAMAN. Should we do another round and allow him 

to ask some questions and then come back to you? 

Senator CARPER. That would be great. Thanks. 

Senator BINGAMAN. Senator Cornyn? 

Senator CARPER. I may have to slip out, but thank you very 

much for your permission. 

Senator CORNYN. Well, Mr. Chairman, I would be glad to defer 

to the Senator for one more question. 

Senator CARPER. Maybe one more. 

Senator BINGAMAN. Go right ahead. 

Senator CARPER. Thank you. Thank you very much. I want to drill down just a little bit on the $5,000 tax credit. I 

think something along these lines is being proposed by Senator 

26 

Hatch, by Senator Schumer. I hear concerns about, businesses may 

be hiring people anyway, they are just going to take the $5,000 and 

pocket it. If I think about it, right now we have businesses that 

are, like, extending the work week. That is a good thing. They are 

hiring temporary employees. That is a good thing. It is encouraging. 

And the question is, maybe if we offer this tax credit, maybe 

some of those temporary employees will become permanent employees with jobs and benefits. I was trying to think through and do 

the numbers real quick here. A $5,000 tax credit per employee 

hired this year. If 2 million people are hired, that would be $10 billion. Does that sound about right? 

Dr. ORSZAG. Yes. 

Senator CARPER. Which is a lot of money, but creating 2 million 

jobs, that is a lot of jobs. 

Is there some way that we can work together? Is the administration proposing a way to kind of ensure that we are not being duped 

or taken advantage of by some folks who hire people? 

Dr. ORSZAG. Yes. And there are a variety of protections already 

built into the proposal that we have, but we look forward to working with you to strengthen them further to avoid gaming; for example, moving people from part-time, full-time, back and forth, to try 

to trigger a tax credit where it was not warranted. We can provide 

that full information to you, and we would look to work with you 

to add in additional protections. 

Senator CARPER. Good. Thank you. 

And I would just say to my colleague, Senator Cornyn, and to our 

chairman, a number of us who worked for years, especially the 

chairman, Republicans as well as Democratic colleagues, on the tax 

gap, because we were interested in reducing the budget deficit 

without raising taxes, to make sure we are doing a better job on 

collecting the taxes that are owed, I think the administration has 

proposed a number of steps to help us do a better job on tax collecting. I think we have an obligation to engage on those, and to 

support them where we can, and provide other options where we 

cannot. 

Improper payments. I want to thank you for the work that is 

going on in improper payments—$98 billion, monies improperly 

paid last year. That does not include the Department of Defense, 

that does not include some of the Homeland Security, and I do not 

think it includes the prescription drug program. I do not think so. 

So there is a fair amount that is still excluded. But I am glad we 

are requiring agencies to identify it, to report it. The key, as you 

know, is to then, after we have done that, to go out and recover 

the money. We are anxious to be your partner in doing that. 

I would just say as I close out here, I would just say to my Republican colleagues, our Republican colleagues on this committee 

and in the Senate, we are trying to get some folks confirmed. Today 

we are trying to get, I think, the GSA Administrator, who has a 

huge job, confirmed. 

And I know when I served in my old job, I used to say to the 

Delaware State Senate, when I was nominating people to serve on 

the administration, give me my team. The voters have voted. They 

said they wanted me to, fortunately, be their leader for 4 years or 

27 

8 years, and at least give me the opportunity to surround myself 

with the team that I need. For the most part, they were very good 

about doing that. 

Whether the President happens to be a Democrat or Republican, 

we need to do more of that. We have way too many vacancies in 

this administration. We had too many in the Bush administration, 

but it is even worse here. We are a year into the administration. 

We need to get these positions filled, and then we need to hold 

folks responsible and accountable. I am not picking on my friend 

John, he knows that. But that said, I guess I needed to get that 

off my chest. 

Thank you. 

The CHAIRMAN. Thank you, Senator. 

Dr. Orszag, do you have any estimates, any benchmarks and 

timelines, by which you want to ‘‘close this tax gap?’’ 

Dr. ORSZAG. Senator, as you know, the budget includes a whole 

variety of proposals trying to close the tax gap. I know you have 

been a leader in trying to move the ball forward there, including 

additional information reporting, which is included in our budget 

proposals, including additional IRS enforcement resources which 

will be important, too, and a whole variety of other steps. I do not 

have a quantitative goal for you. I will check with my Treasury colleagues. As you know, they are very focused on reducing the tax 

gap and working with you. 

The CHAIRMAN. I urge you to have some kind of quantifiable goal 

that makes it more likely we are going to achieve the objective. To 

be honest, in the previous administration, I spent quite a bit of 

time with Secretary Paulson, trying to encourage him to move 

more quickly to closing the gap. I must say, it was difficult, it was 

very difficult. 

And maybe in part because it is politically a little bit difficult in 

the sense that a lot of the revenue loss is from businesses that are 

operating on a cash basis, maybe small businesses, independent 

contractors, and so forth. There is a lot of other lost revenue, too. 

I mean, some overseas revenue and so forth. But I would just encourage you to work on that very directly and assign some numbers, some goals to see how well we are accomplishing our objective. 

Turning to another subject, I just want to read you a quote here 

which I found a little alarming, the fact that the President referred 

to this article in the New York Times last Sunday. He referred to 

it when we met with him yesterday. It is regarding China’s race 

to manufacture alternative energy equipment. I am sure you read 

the article. 

Dr. ORSZAG. Yes. 

The CHAIRMAN. Let me just read the one paragraph: ‘‘China has 

leapfrogged the West in the last 2 years to emerge as the world’s 

largest manufacturer of solar panels. These efforts to dominate renewable energy technologies raised the prospect that the West may 

some day trade its dependence on oil from the Mideast for reliance 

on solar panels, wind turbines, and other gear, manufactured in 

China.’’ 

28 

All of us have always suspected that China is working very aggressively. That is fine for them to grow. But we do not want to 

be lagging behind in the development of our technologies. 

It reminds me a little bit of a conversation that you had with 

Senator Rockefeller. Even with clean technologies, conventional energy will probably be very dominant for the foreseeable future. In 

fact, as I recall, in that same article, if China is quite successful 

in its efforts, still only about 8 percent of China’s energy production 

will be in solar and all of these new clean technologies. The rest 

will be coal and some hydro power and so forth. 

I know we have this section, this 48(c) credit. How efficient is 

that, and what else needs to be done to move us along here? 

Dr. ORSZAG. Well, Mr. Chairman, as you know, in addition to 

that, a little bit north of $2 billion that was provided in section 

48(c) was vastly over-subscribed, and there was a lot of demand for 

that credit. We are proposing a $5-billion expansion/extension of 

that particular credit. 

In addition to that, there are significant expansions in the socalled section 1703 and 1705 Loan Guarantee Programs through 

the Department of Energy for new energy sources. And, in addition 

to that, we have a whole variety of more than $6 billion in clean 

energy research and development efforts to try to spur the next 

generation of technology, precisely to get at the issue that you are 

correctly identifying, which is that the world is moving in this direction. We need to be the world’s leader in clean energy. 

The CHAIRMAN. What more, if anything, is needed? A lot of us 

in Congress are considering more efforts with tax incentives, for example, more than exist currently in the code. 

Dr. ORSZAG. Well, I guess that my response would be, we have 

put forward what we think is a very aggressive effort to move in 

this direction. So, I guess I would first urge you to enact what we 

have put forward, and that would be a very substantial shift. I 

mean, for example, since you had mentioned section 48(c), $5 billion there would be a very substantial investment. 

The CHAIRMAN. Sometimes I hear the complaint that, gee, all of 

these programs, say the loan guarantees, just take a long time to 

get processed. Are you aware of that? 

Dr. ORSZAG. Yes. In fact, I have personally spent a significant 

amount of time with Secretary Chu to make sure that we have our 

systems in place to process these as quickly as possible. One of the 

issues that has arisen in particular with the nuclear loan guarantees is, these are very complex projects and the program was new, 

and so there was a little bit of startup issues that needed to be addressed. But I believe we are now in sync, working well, and they 

will be moving more smoothly in the future. 

The CHAIRMAN. Have you given any thought to the long range— 

with these deficits as high as they are, public debt as high as it 

is? The world is changing so much, with war costs in Afghanistan 

and Iraq, and we are sort of joined at the hip with China when it 

comes to currency. I, frankly, have a hard time seeing how the 

United States can continue to ‘‘go it alone’’ the way we have. 

By that I mean, how can the United States of America continue 

to have such a high defense budget and pay for all that we are 

spending money on? And it is not just Afghanistan and Iraq and 

29 

that part of the world, but we are the world policeman in other 

parts of the world as well, and it is expensive. I do not know that 

we could ‘‘win’’ in Afghanistan the way we are approaching it. I do 

not know that the dollars are going to be well-spent. 

What I am getting at is the need for some kind of a regional solution, where a lot of the burden and effort is shared with other countries, because we are going to drain us if we keep spending Defense 

dollars in an effort that probably will not work anyway. If it is only 

an American effort, it is probably not going to work, in my judgment. 

I was just wondering, how much effort is put in by this administration in order to think about how we get some of these—I am 

talking about the Defense budget—costs under control or get it 

more shared? Now there are trade-offs, clearly. It is not easy by 

any stretch of the imagination. 

Dr. ORSZAG. Sure. 

The CHAIRMAN. But, again, like China, too, we have to get some 

agreement, something, somehow, so we are not stuck with huge 

deficits by borrowing so much. 

Dr. ORSZAG. Let me answer that briefly in two ways. The first 

is that, as I mentioned earlier, within the procurement part of the 

budget, which has to do with weapons systems, Secretary Gates is 

very focused on trying to cut back on the things we do not need, 

additional purchases of C–17s, alternative engine for the F–35, the 

Navy CG(X) cruiser, and so on down the list. 

The CHAIRMAN. Right. 

Dr. ORSZAG. The second part of your question, though, frankly, 

I think one of the things the administration is so focused on is 

changing our relationship with the rest of the world. Secretary 

Gates is focused on that, Secretary Clinton is focused on that. And, 

the issue that you are raising is just one dimension of that broader 

effort, which I can assure you is very much their focus. 

The CHAIRMAN. Good. All right. 

Dr. ORSZAG. Could I just very briefly, since Senator Grassley had 

asked, I have been passed some information and told that, in addition to the regular internal meetings that the Vice President holds 

with cabinet-level officials focused on Recovery Act implementation, 

he has talked with all 50 Governors, 101 mayors, and 34 county 

officials about effective implementation. So, he is very much focused on that topic. 

The CHAIRMAN. He is a busy man. 

Dr. ORSZAG. He is a busy man. 

The CHAIRMAN. Senator Cornyn? 

Senator CORNYN. Thank you, Mr. Chairman. 

Dr. Orszag, I would like to talk to you a little about some of the 

tax provisions in the President’s budget relative to the domestic oil 

and gas industry. 

Dr. ORSZAG. All right. 

Senator CORNYN. The President, in his State of the Union, said 

that we should pass a comprehensive energy and climate bill with 

incentives that will finally make clean energy the profitable kind 

of energy in America. Is it the policy of the administration to raise 

energy costs on fossil fuels needed by Americans today in order to 

make alternative energy sources the profitable kind of energy? 

30 

Dr. ORSZAG. I think it is the policy of the administration to move 

as aggressively as we can towards a clean energy future, not only 

by investing in R&D into those clean energy sources, but also in 

cutting back on the subsidies that we currently provide, in a way 

that we do not provide to other sectors, to fossil fuels. 

Senator CORNYN. Well, do you believe it should be the policy of 

the U.S. Government to raise the cost of producing fossil fuels domestically? 

Dr. ORSZAG. Again, we have subsidies that are provided through 

the tax code to fossil fuels that are not provided to other sectors, 

and we think it obviously is reflected in our proposal. We think 

that those should end. 

Senator CORNYN. But I am not asking you that. I am asking you 

whether it is the policy of the administration to raise the cost of 

producing domestic oil and gas so as to make alternative energy 

sources more commercially competitive? 

Dr. ORSZAG. I do not think that is the intention. Again, the goal 

here is to move towards alternative sources of energy as rapidly as 

possible. 

Senator CORNYN. As you know, there has been a revolution in 

the technology for oil and natural gas production in this country, 

primarily through shale formation which is present in a number of 

parts of the country. Actually, I think Senator Landrieu and Senator Chambliss have created a natural gas caucus here to try to explore the role of natural gas and cleaner energy sources. 

Does the administration believe that natural gas has an important role to play in terms of America’s energy future? 

Dr. ORSZAG. It clearly has an important role to play, yes. 

Senator CORNYN. The impact of raising the cost on natural gas 

producers—what do you think the impact of that will be in terms 

of encouraging the production of more American natural gas as 

part of that energy future? 

Dr. ORSZAG. Well, the answer to that depends on the context. I 

mean, for example, if we do enact comprehensive climate change 

legislation, that will tend to encourage natural gas as a source of 

energy relative to other sources of energy that are currently disproportionately in use. So, you have to sort of take an all-in approach. With climate change legislation, you would be encouraging 

natural gas as a source of energy because, as you know, it has 

lower greenhouse gas emissions than other sources. 

Senator CORNYN. Well, I would submit that, by raising the costs 

on domestic oil and gas producers, it does nothing but increase our 

dependency on imported oil and gas from other parts of the world. 

Would you agree or disagree with that statement? 

Dr. ORSZAG. I guess the way I look at it is that we need to be 

moving aggressively to become the world leader in green energy, 

and that is, again, what we are trying to do. 

Senator CORNYN. And what do we do about the 78 percent of our 

energy resources that it is projected to be in 2035, the 78 percent 

of our total energy needs that will come from fossil fuels? Is that 

insignificant? 

Dr. ORSZAG. Well, again, what we are trying to do is move to a 

future in which that projection is not realized because we have developed renewable energy. We have invested in nuclear energy 

31 

more aggressively than in the past. We have expanded alternate 

forms of energy, which I think most experts believe is the way we 

need to go. 

Senator CORNYN. Let me switch topics on you, quickly. 

Dr. ORSZAG. Sure. 

Senator CORNYN. The Center for Medicare and Medicaid Services 

just came out with a new report, as you know, on health care expenditures, pointing out that national health care expenditures are 

at 17.3 percent of our GDP. 

Is it not true that the CMS Actuary said that the Senate Health 

Bill would actually increase national spending by $234 billion over 

10 years? 

Dr. ORSZAG. It is true that there would be a temporary increase 

in national health expenditures as you cover more people. I would 

note, however, that the Congressional Budget Office has indicated 

that the legislation would reduce the Federal deficit not only over 

the first decade, but in the decades thereafter. 

Senator CORNYN. Is it not true that the CBO said that the Senate bill would increase the Federal budgetary commitment to 

health care by about $200 billion over 10 years? 

Dr. ORSZAG. While reducing the deficit by more than $100 billion. 

Senator CORNYN. Well, are you double-counting? 

Dr. ORSZAG. No. 

Senator CORNYN. Well, some would disagree with you. 

Thank you very much. 

The CHAIRMAN. Senator Nelson? Thank you. 

Senator? 

Senator NELSON. Thank you, Mr. Chairman. 

Dr. ORSZAG. Senator. 

Senator NELSON. Dr. Orszag, you are proposing $100 billion for 

new, temporary job initiatives, and a new jobs tax credit proposed 

by the President is $33 billion. What are the other proposals for 

the remaining $67 billion? 

Dr. ORSZAG. The President indicated late last year that he was 

hoping that infrastructure spending and additional clean energy investments would be part of the package. But the reason we have 

a placeholder for the remaining amount is so that we can work 

with you to fill in the details. 

Senator NELSON. You also include $166 billion to temporarily extend provisions from the Stimulus Bill. 

Dr. ORSZAG. Correct. 

Senator NELSON. Tax credits, FMAP, unemployment benefits. 

Now, if the economic recovery follows the path that you are projecting in the Budget, do you anticipate that next year’s budget is 

going to seek another extension of those provisions? 

Dr. ORSZAG. No. What we laid out in the budget was what we 

thought was necessary, given the economic assumptions that are 

built into our budget, which are, again, consistent with most 

private-sector forecasts. 

Senator NELSON. Why do you not take the opportunity to just 

settle down the markets by telling us and the folks who buy our 

debt how they are going to continue to buy that debt into the future? 

32 

Dr. ORSZAG. Well, again, one of the reasons that the 10-year 

bond rate is below 4 percent now is that private borrowing has collapsed and Treasury securities remain the safest investment in the 

world. That having been said, one of the reasons we are so focused 

on reducing our deficit as we go out over time is, ultimately, private borrowing will pick up again, and interest rates on our Treasury securities, as a result, will increase. We need to bring our deficits down to a more sustainable level in order to avoid a spike in 

interest rates at that point. 

Senator NELSON. And so you are not anticipating that there will 

be that spike? 

Dr. ORSZAG. If we act, there will not be. If we do not, ultimately 

there will be. We absolutely need to act in order to bring down our 

out-year deficits, and, if we do not, ultimately we will face a major 

problem in our credit markets. But with your assistance, we can 

get ahead of that problem and avoid that risk. 

Senator NELSON. And, even under those projections, which I certainly hope are correct, we go from $253 billion in fiscal year 2011 

just for interest, all the way up to in excess of $600 billion in 2020. 

What gives? Why do we get that high, and what can we do about 

it? 

Dr. ORSZAG. Well, again, the reason we get that high is that we 

have a very deep fiscal hole that we are trying to work our way 

out of. The Budget, as you know, includes more than $1 trillion in 

deficit reduction, but more is necessary. That hole is so deep that, 

as you go out over time, the additional debt that is involved in the 

size of that hole adds interest costs to the Federal budget. We need 

to get that problem under control, in part to reduce those interest 

payments and in part to avoid other credit market problems that 

would arise. 

Senator NELSON. And when does that total interest tab start 

coming down in that decade of the 2020s? 

Dr. ORSZAG. It depends on what we do between now and then. 

I would hope that well before 2020 we act aggressively to reduce 

those deficits and start bringing down debt as a share of the economy, and the interest payments as a share of the budget. 

Senator NELSON. I was quite disappointed that we did not get 

the votes for a statutory budget commission that the President supported. 

Dr. ORSZAG. Yes. 

Senator NELSON. How, with your executive powers, is the President going to be able to crack the whip and make this a successful 

budgetary commission since it is not going to be etched in statute? 

Dr. ORSZAG. Well, look, the success or failure of any commission 

depends on (A) a recognition of the problem, and (B) a willingness 

of both parties to come together to address it. That is what happened under the Greenspan Commission, which was an executive 

order commission; it is what has to happen now. So it is unfortunate that the statutory version failed, but it does not mean that we 

must fail to act or that we will fail to act to address our fiscal problems. What has to happen is a common recognition that we face a 

very deep fiscal hole, and the only way we are going to address it 

is if we address it together. With that recognition, and that willingVerDate Nov 24 2008 21:01 Nov 28, 2011 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\71107.000 TIMD
33 

ness to work together, an executive order commission can work just 

fine, and that is what we need to do. 

Senator NELSON. And that is assuming—you mentioned the commission back in 1983. It was successful because a Republican President, Reagan, and a Democratic Speaker, O’Neill, worked together. 

Dr. ORSZAG. Worked together. 

Senator NELSON. It has been suggested to me that the Republican leader in the Senate is not going to cooperate. What do you 

know? 

Dr. ORSZAG. I guess that is a question better directed to Mr. 

McConnell, but let me just go back and say the reason that we 

need to act is that we are on an unsustainable fiscal course, and 

the only way we are going to get our fiscal house in order is if we 

do it together. So, we remain hopeful that there will be broad recognition of that basic fact, and we will be able to move forward in 

a bipartisan manner. 

Senator NELSON. Would you indulge me a couple more questions? 

The CHAIRMAN. Fine. You bet. Go ahead. 

Senator NELSON. Thank you, Mr. Chairman. 

In your budget, why do we want to shift more of the tax burden 

away from corporate taxpayers to individuals? I note that you do 

this in the years from 2011 to 2012; individual income tax receipts 

grow by 60 percent, whereas corporate receipts grow by 30 percent. 

Why would we want that shift? 

Dr. ORSZAG. I think that is primarily from the course of individual income and corporate income as opposed to policy changes. 

The only policy changes are ones that are designed to promote job 

growth today, for example, the bonus depreciation provision that 

was already discussed. But most of the change in revenue that you 

see is a result of economic recovery and the course of individual income versus corporate income. 

Senator NELSON. I have shared with you—I cannot remember if 

it had been privately. It may have been in the Budget Committee 

the other day—— 

Dr. ORSZAG. I would also, just for whatever it is worth, just on 

that point, I would also note, the increase in corporate income 

taxes as a share of GDP is roughly in line with the increase in individual income taxes between 2010 and 2011, but we could follow 

up more afterwards, if you would like. 

Senator NELSON. All right. If you would. 

I shared with you the other day, very briefly, in the Budget Committee, but I have shared with a number of your colleagues in the 

White House privately—you all have made a major shift in the Nation’s space program in your budget recommendations. 

Some of those suggestions are quite good and are necessary, but 

the suggestions have been received with a perception that you are 

killing the manned space program. Now, you have to turn that 

around, because I know the President, and I know that he is a vigorous supporter, and indeed I will say further, an aficionado of the 

space program, both manned and unmanned. But I can tell you, in 

Florida, the perception is that you are gutting the manned space 

program, and I know that is not what he wants to do. What he is 

trying to do is to get us vigorously going. 

Dr. ORSZAG. Yes. 

34 

Senator NELSON. There are two suggestions that I would make 

to you, and I have made them privately to some of your colleagues 

on the White House staff. 

The President is the only person who can lead the space program. Congress cannot do it, the Administrator of NASA cannot do 

it, only the President, because the President has to set the vision. 

Look what President Kennedy did, and the Nation followed. Look 

what President Bush did. He set a goal. Now, he never gave the 

money for it, and that is the hole that you find yourselves in in 

NASA, because NASA was starved over those years after he set the 

goal of going to the moon. 

We all know what the goal is, and the goal is to send humans 

to Mars. I think that you all ought to consider having the President 

set that goal. You have to design architectures and way stations to 

get there, because that is in the future. But you could give a vision, 

if the President would articulate it, which will counter this perception that he has gutted the manned space program. 

And I would make one other recommendation to you. And you 

ask, Mr. Chairman, why am I saying this to the Budget Director? 

Because in my judgment, unfortunately, OMB has been running 

the space program for too long. And I am not picking on you. I am 

talking about, in previous administrations, OMB has been doing 

the space policy instead of the President. 

My recommendation to you is that you have a lot of good technology in building toward that heavy-lift vehicle which you all support, which is to get us out and explore the heavens, which would 

be a necessary step to going to Mars. You support that. That is in 

your budget. But you have abandoned using the technology and 

building on it that you have done very successfully in the development of the Ares I. I am not talking about the Ares I rocket to do 

what President Bush said it was going to do; I am talking about 

using Ares I as a test vehicle to develop your technologies to later 

on build that heavy-lift vehicle. 

I wish you would consider that and bring that back to your folks. 

I will be talking directly to the President’s staff in the White 

House. I think that is a reasonable approach, and you need to correct the misperception that is out there right now. 

Dr. ORSZAG. Thank you, Senator. 

The CHAIRMAN. Thank you, Senator. 

I have just one question. You may have seen this chart, Dr. 

Orszag. Basically, it is called the ‘‘Ring of Fire.’’ What it does is, 

it groups countries. One axis is their deficits as a percentage of 

GDP, and the other is their publicly held debt as a percentage of 

GDP. I only have one copy, but I will give it to you. 

Dr. ORSZAG. All right. My eyes are not quite good enough. 

The CHAIRMAN. Fine. I guess a couple of observations, based on 

that so-called chart, ‘‘Ring of Fire.’’ One is that Greece is pretty far 

out there in terms of this debt and deficit as a percentage GDP, 

and Japan is way out there in terms of publicly held debt. But it 

just seems to me that to some degree the European Union is going 

to have to solve the Greece problem somehow, maybe other countries will, too. Then, of course, there is Japan, which has 100 percent or whatever it is. Its publicly held debt as a percentage of 

GDP is like 100 and some percent. The question is, as we work to 

35 

solve our fiscal problem, to what degree do we have to keep an eye 

on some of these problems that other countries have, too? 

Dr. ORSZAG. Well, it is inevitable, in an interconnected world, in 

a global financial market, that things that happen abroad will affect what we do, and vice versa. So, as you know, we are carefully 

monitoring all of the activities, including in Greece. One of the motivations that we have for bringing our deficits down over time, as 

you know, is to avoid any potential problems out in the future that 

would arise if we failed to do so. 

The CHAIRMAN. Is it not true that Greece will probably lose some 

control over its internal decisions as their creditor comes to the aid, 

whomever the creditor is, whether it is EU or whomever? 

Dr. ORSZAG. Let me put it this way: there is no good outcome 

that comes from having a fiscal crisis, period. One of the reasons 

that we are so focused on getting that trillion dollars in deficit reduction enacted and moving beyond that is to make sure that we 

are never put in that position. 

The CHAIRMAN. Right. But the more we are in that position, the 

less control we have over our own destiny. 

Dr. ORSZAG. That is absolutely the case. 

The CHAIRMAN. Thank you. I appreciate your taking the time. 

The hearing is adjourned. 

Dr. ORSZAG. Thank you, Mr. Chairman. 

[Whereupon, at 11:52 a.m., the hearing was concluded.] 

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A P P E N D I X 

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