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66–486—PDF 2010

S. HRG. 111–990 

ANALYSIS OF THE PRESIDENT’S 

FISCAL YEAR 2011 BUDGET WITH 

TREASURY SECRETARY TIMOTHY GEITHNER 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

FEBRUARY 2, 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 ................................................. 3 

ADMINISTRATION WITNESS 

Geithner, Hon. Timothy F., Secretary, Department of the Treasury, Washington, DC ............................................................................................................. 6 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 47 

Enzi, Hon. Michael B.: 

Prepared statement .......................................................................................... 50 

Geithner, Hon. Timothy F.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 53 

Responses to questions from committee members ......................................... 63 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 155 

Letter from the Congressional Budget Office to Hon. Paul Ryan, dated 

February 11, 2009 ......................................................................................... 159 

(III) 

(1) 

ANALYSIS OF THE PRESIDENT’S 

FISCAL YEAR 2011 BUDGET WITH 

TREASURY SECRETARY TIMOTHY GEITHNER 

TUESDAY, FEBRUARY 2, 2010 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

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

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

(chairman of the committee) presiding. 

Present: Senators Rockefeller, Kerry, Lincoln, Wyden, Stabenow, 

Cantwell, Nelson, Menendez, Carper, Grassley, Hatch, Snowe, Kyl, 

Bunning, Crapo, Enzi, and Cornyn. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Russ Sullivan, Staff Director; Kathy 

Koch, Chief Tax Counsel; Tom Klouda, Professional Staff Member, 

Social Security; Hun Quach, International Trade Analyst; Tiffany 

Smith, Tax Counsel; Holly Porter, Tax Counsel; Kelcy Poulson, Tax 

Research Analyst; and Mary Baker, Detailee. Republican Staff: 

Kolan Davis; Staff Director and Chief Counsel; Mark Prater, Deputy Chief of Staff and Chief Tax Counsel; Emilia DiSanto, Special 

Counsel and Chief Investigative Counsel; Jim Lyons, Tax Counsel; 

and Nick Wyatt, Tax and Nomination Professional Staff Member. 

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

In 1958, former President Harry Truman said, ‘‘It’s a recession 

when your neighbor loses his job, but it’s a depression when you 

lose yours.’’ For more than 7 million Americans, this great recession has been a great depression. The American economy has lost 

more than 7 million jobs since the Great Recession began. The nonpartisan Congressional Budget Office tells us that the Recovery Act 

that we enacted last year added between 600,000 and 1.6 million 

jobs. 

The Congressional Budget Office says that the Recovery Act lowered the unemployment rate by between 0.3 and 0.9 percentage 

points from where it would have been. Plainly, there is more work 

to do. Plainly, creating jobs must be our top priority. We need to 

work on legislation that will create jobs, and we need to work 

across the aisle so that legislation on which we work can become 

law. 

2 

Yesterday, the President released his budget. Appropriately, the 

budget focuses on job creation. The President calls for a job creation tax credit for small businesses. This credit would encourage 

businesses to hire. I note that two members of this committee, Senators Schumer and Hatch, have advanced a similar proposal. 

The budget proposes to increase incentives for investment by 

small businesses in plants and equipment. These investments 

would also help to create jobs. The President recommends extending the provisions for enhanced section 179 expensing and bonus 

depreciation. 

And the budget would also encourage investment by excluding 

from income all capital gains from certain small business stock 

held for more than 5 years. I note that two members of this committee, Senators Kerry and Snowe, have advanced a similar proposal. 

To help family businesses, ranchers, and farmers to avoid laying 

off their workers, the President’s budget would provide certainty 

under the estate tax. I note that several members of this committee, notably Senators Lincoln, Cantwell, and Kyl, have been 

working hard on their proposals in this area as well. 

I support the President’s tax cut proposals for job creation. I look 

forward to working with my colleagues on both sides of the aisle 

on these measures. 

In addition to these administration proposals to create jobs, I 

have a proposal to create jobs by increasing small business lending 

through the Community Development Financial Institutions network. These nonprofit lenders serve communities by providing access to capital to small businesses to help create jobs. 

As we seek to find sources of sustained economic growth, I note 

that we must also push to open new markets to U.S. exports. The 

President’s budget also calls for $265 billion to accelerate economic 

recovery and help families, businesses, and State governments to 

get through this recession. 

The budget also focuses on the economic security of middleincome Americans. The budget makes permanent many of the tax 

cuts enacted in 2001 and 2003. These include lower individual income tax rates, family tax incentives like the child tax credit, and 

education incentives like the student loan interest deduction. In addition, the President’s budget would expand the Child Dependent 

Care Credit, almost doubling it for middle-income families. 

The President’s budget also provides for permanent Alternative 

Minimum Tax relief. Without the relief proposed by the President, 

more and more middle-income taxpayers will be paying this tax 

every year. I support these tax cuts proposed by the administration 

as well and look forward to working with my colleagues on both 

sides of the aisle on these measures. 

Of course, another role for the budget is to measure the fiscal 

state of the country. Many budget experts believe that, when the 

economy is at full employment, annual deficits should not cause 

debt held by the public to rise as a share of the economy. Using 

this yardstick means keeping annual deficits at or below 3 percent 

of Gross Domestic Product. 

Currently, we are far from full employment, but let us look at 

fiscal years 2014 to 2020. If no policies change, the budget deficit 

3 

will be 5.1 percent of GDP in fiscal year 2014 and grow to 5.6 percent of GDP by fiscal year 2020. These deficits would cause debt 

held by the public to rise as a share of GDP. The President’s budget proposes a number of policies that would significantly reduce the 

size of these future deficits. 

The President proposes to freeze the total funding for annually 

appropriated non-security programs for 3 years, and the President 

proposes a fee on large financial institutions to recoup projected 

taxpayer losses from the TARP program. 

When you add up all the budgetary pluses and minuses from the President’s policy proposals, you get about $2 trillion of net deficit 

reduction over the 10-year period of fiscal year 2011 to fiscal year 

2020. This leads to a deficit of 3.9 percent of GDP in fiscal year 

2014 and 4.2 percent of GDP in 2020. These deficits are an improvement from doing nothing, but these deficits remain unacceptably high. 

I note the Obama administration has decided to issue an executive order to create a bipartisan commission to recommend how to 

reduce Federal deficits. I hope that the commission can recommend 

proposals that achieve significant fiscal savings, and that many of 

these proposals can be enacted into law. 

We face a daunting problem for our fiscal policy over the long 

run, not just the next 10 years. Budget analysts make clear that 

a primary cause of this explosion is that health care costs are growing faster than the economy. The solution to this problem is to 

enact comprehensive health care reform that includes serious cost 

containment, and that is exactly what we are trying to do. 

According to the nonpartisan Congressional Budget Office, the Senate-passed health care bill would reduce deficits by $132 billion 

during the next 10 years, and it would cut deficits by $650 billion 

to $1.3 trillion during the second 10 years. I look forward to working with my colleagues in both the House and the Senate to enact 

comprehensive health care reform. There is much work to do. 

So let us continue to work on legislation to create jobs, let us, 

as much as possible, work across the aisle so that the legislation 

on which we work can become law, and let us get to work now. 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Chairman Baucus. Welcome, Mr. 

Secretary. 

Today we focus on the revenue side of the budget. The budget illustrates the fiscal perils the country faces. The President and Congress face a very tough set of tasks to get us to fiscal discipline. 

Ignoring that path only makes the ultimate reckoning more difficult. 

We need to ask three questions: where are we; how did we get 

here; and, finally, where are we going? The President is right, that 

he did inherit large deficits and debt. I have one chart that shows 

the inherited deficit and another chart that shows that debt. Republicans recognize the inheritance. 

To have an intellectually honest discussion, members on both 

sides need to own up to the fact that the deficits and debt were beVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
4 

queathed on a bipartisan basis. The congressional Democratic leadership wrote the budgets and passed the spending bills for 2 years 

prior to President Obama coming on the scene. An outgoing President, a Republican, signed these bills. These are the facts: a Democratic Congress and a Republican President left deficits and debt. 

Over the past year, with the levers of power all concentrated in 

the hands of those on the other side, we have seen the fiscal path 

worsen. Deficits, as you see, are up and debt is up. That, Mr. Secretary, is where we are. How did we get here? How did the bipartisan fiscal problems arise? Both sides disagree. Many on the other 

side look at the last 2 decades of fiscal history and reduce it to two 

points. All of the ‘‘good’’ fiscal history of the 1990s is attributable 

to the 1993 tax increase bill, and all of the ‘‘bad’’ fiscal history of 

this decade is attributable to the bipartisan tax relief plans of 2001 

and 2003. 

Last year during the budget debate, I showed that this revisionist fiscal history does not stand up to scrutiny. The data was 

drawn from the Clinton administration’s Office of Management and 

Budget and the Congressional Budget Office. What we do know is 

that a growing U.S. economy is the basic tonic to the fiscal ailments. Fiscal history in the past 2 decades shows that revenues 

grow strongly when the economy recovers. That history shows that 

with bipartisan tax relief in effect, revenues grew faster than after 

the partisan tax increases. You can see that in the chart here as 

well. 

The two sides disagree, though, on this relationship. It is like the 

saying about the tail wagging the dog. From our view, a healthy 

economy is the dog and the revenue is the tail. Too often, the other 

side viewed tax increases as a necessary imperative to a healthy 

economy. 

Now, I believe that fiscal history shows it to be precisely the opposite. The division between the two sides on their views on how 

we got here informs the two sides’ views of where we go from here. 

The President, in his State of the Union address, indicated that we 

need to look forward. I agree. In this town, too often the tendency 

is to grow spending, raise taxes. Seldom do folks look at restraining 

the growth in spending. Unfortunately, looking at the path ahead, 

the President’s budget proves that point. Appropriations are up 25 

percent over the last 2 years. 

How many families have had the luxury of growing their budgets 

by 25 percent over the last 2 years? How many businesses, large 

and small, have had the luxury? The answer is, American families 

and businesses have done just the opposite over the last 2 years. 

The President talked about a freeze in that spending and got pushback from his own congressional leadership. 

So, look at the budget and you will find a big fiscal hole. That 

chart is up here now. Democrats and Republicans know the hole 

is there, the President knows the hole is there; everyone agrees 

that the hole exists. Those on the other side, consistent with their 

view of fiscal history, view the tax side of the ledger as undersubscribed. The President’s budget is consistent with that view. 

Let us take a look at a few examples of the tax increase bias. 

Both sides agree small business is the key to a goal both sides 

agree on: job creation. Yet, the President’s budget raises the marVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
5 

ginal rate on small businesses by over 15 percent. The congressional Democratic leadership will go further. 

The House health care reform bill would have gone yet further, 

raising the marginal rate about 33 percent. The Senate’s health 

care reform bill would have raised the marginal rate by 20 percent. 

Once enacted, either of those bills would take the marginal tax 

rates well above the highest rates during the Clinton era. 

More dramatic marginal rate increases would fall on investment. 

For instance, if the House health care reform bill were enacted, it 

would push the marginal rate on capital income up by almost 70 

percent. The response from some on the other side is that, because 

these heavy tax increases are aimed at taxpayers over a certain income level, somehow they would cause no economic harm. 

That position is very politically popular, but ignores the fact that 

taxes affect behavior. Economic growth occurs from positive behavior of families, businesses, and investors. It is often said that tax 

cuts are not free, but on the other side of the coin, from the viewpoint of those paying higher taxes, tax increases certainly are not 

free either. 

Some of the group targeted for the tax increase may absorb it, 

but others will react by changing behavior. Small businesses will 

be affected. That means workers, suppliers, and others will be affected. Likewise, if investors shift their money into tax-favored activities, the supply and cost of capital for garden-variety business 

activities is adversely affected. 

What is more, contrary to the rhetoric of many, it is not just the 

top 5 percent of the earners who are singled out for tax increases 

in the budget. The revenues from the cap-and-trade program will 

adversely affect many families earning below $250,000 a year income, and the Democratic congressional leadership’s health care 

bills both contain tax increases that adversely affect millions of 

middle-class families. 

I would like to have you take another look at a chart, look at the 

fiscal hole in the fiscal path ahead. What I would ask my friends 

to do is look not just at the tax side of the Federal ledger, look at 

the spending side. Think about that every time a new politically 

popular entitlement program is proposed. Every new entitlement, 

every expanded entitlement, every double-digit increase in new appropriation spending is popular with the group targeted to get that 

benefit. 

To those who oppose these initiatives, it seems like they are always on the defense. Somebody has to pay for the spending, and 

that somebody is usually the portion of Americans not targeted for 

the benefit. In a budget with rising deficits, it means those Americans not targeted for benefits can expect future tax increases. 

Looking forward then, we need to examine tax policy initiatives 

in this budget in three phases: short-term, mid-term, and longterm. In the short term, the President, Democrats, and Republicans 

agree on a basic objective: jobs, jobs, jobs. Everyone agrees, these 

jobs will come from the expansion of small business. 

What are small business folks saying? They are worried about 

the business environment. There are higher taxes in that environment. There are many new mandates in that new environment. 

6 

There are new regulations in that environment. There is a tight 

credit market in that environment. 

Since this hearing is about tax initiatives in the budget, I would 

like to focus on that. Some higher taxes are known, such as the 

marginal rate increases in the budget before us. Some are possible, 

and to some degree not known. Will the taxes directed at small 

business in the House and Senate health care bills materialize? My 

advice—and this is to the President and everyone on down—listen 

to what small business is saying: back off the marginal rate tax 

hikes. Do not bury recovering small businesses with new taxes and 

penalties. Be cognizant of the tax burden that you are raising on 

capital. Remember, cash is the lifeblood of small business. Be sensitive to the credit markets that small business is struggling with. 

In the mid-term, the first 5 years of the budget, take a look at 

how all the fiscal policies, especially the new spending, affect current and future hidden tax burdens. 

In the long-term, years 6 through 10 of the budget, realize that 

spending on its current path is unsustainable. It is the explosion 

of spending, not taxes at or above historical averages, driving those 

frightening deficit numbers. 

Thank you, Mr. Chairman. 

Senator BUNNING. Mr. Chairman? 

The CHAIRMAN. Senator Bunning? 

Senator BUNNING. I would like a personal inquiry. 

The CHAIRMAN. The Senator will state it. 

Senator BUNNING. Senator Roth used to swear in—sometimes, 

not all the time—our witnesses on a given occasion. I would make 

a request that our witness be sworn in today. 

The CHAIRMAN. A member of our committee, Senator Bunning, 

has asked that I require Secretary Geithner to testify under oath. 

I will respectfully decline to do so. If the Senator wishes, I will explain why. 

Senator BUNNING. I think I understand why, because anyone 

who does not tell the truth to the Congress is under the same regulations. 

The CHAIRMAN. There are many reasons. One is, there is no Senate rule or committee rule on this subject. 

Senator BUNNING. No, there is not. 

The CHAIRMAN. In practice, most committees, and this committee, rarely require witnesses to testify under oath at legislative 

hearings. There are a couple of instances when this committee 

does, and that is when we have an investigative hearing or a confirmation hearing. In all other hearings, we do not ask witnesses 

to take an oath. 

Senator BUNNING. Thank you. 

The CHAIRMAN. Secretary Geithner, as Treasury Secretary representing the Obama administration, we will now turn to you. 

Please proceed. 

STATEMENT OF HON. TIMOTHY F. GEITHNER, SECRETARY, 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Secretary GEITHNER. Chairman Baucus, Ranking Member Grassley, members of the committee, it is a pleasure to be back before 

you today. 

7 

I just want to start by welcoming the very constructive tone in 

both your opening statements. I think that if you listen carefully, 

there are at least five things I think most Americans would agree 

on now in what you both said: one is that deficits matter; another 

is tax cuts are not free; another is we should be paying for programs that are new that we commit to; fourth, we face great fiscal 

perils as a country; and finally, our priority now, though, has to be 

to make sure this economy is growing and getting people back to 

work. 

Now, a year ago when the President took office, our Nation was 

in a deep recession; the economy was contracting at an annual rate 

of about 6 percent. The financial system was on the verge of collapse, credit was frozen, the housing market was in freefall. Millions of Americans had lost their jobs, and we were losing about 

three-quarters of a million jobs a month. We also faced a deficit of $1.3 trillion and projected deficits before we took a single act that, according to CBO, would more than 

double our Nation’s debt over the next decade. 

Now, this recession has caused tremendous damage, and millions 

of Americans today are still living with the consequences of that 

damage. We all know that the road to jobs, to greater economic security, to fiscal sustainability start with economic growth. Today, 

in large part due to the policies Congress enacted and we put in 

place to put out the financial fire, our economy is growing again. 

Last quarter, it grew at an annual rate of about 6 percent, more 

rapidly than at any time in the last 6 years. 

Now, this is progress. It is not enough, though. That is why we 

need to renew our focus on job creation, on investment, and on innovation. 

Now, when you talk to, as I know you do, small businesses across 

the country today, they tell a similar story. They talk about uncertainty about demand for their products. They say that their ability 

to expand and hire depends on better access to credit. 

I was in Minneapolis last week, and I visited a small familyowned business called Standard Heating and Air Conditioning, and 

with financing from their community bank, a bank that is also a 

community-owned finance institution, they were able to build a 

new warehouse for their growing business and add 80 jobs. I met 

with their banker, who said that without access to capital from the 

TARP, such a loan would not have been possible. 

I met with a bakery owner with plans under way to build a second plant that would create 150 jobs, if they can raise the credit 

necessary to finance that expansion. Small banks, as you know, are 

a very important source of credit for small businesses. That is why, 

when the President took office, the only incremental money that we 

put into banks was not to the largest banks in the country, but to 

small community banks, regional banks. 

That is why, today in New Hampshire, the President will announce that he will support new legislation to transfer $30 billion 

of TARP funds, funds that we took back from our investments in 

the major institutions, to help create a new small business lending 

fund. This new fund will offer capital to community banks, that 

have historically been at the center of lending to small businesses 

and that we need now to be able to grow and expand. 

8 

That is also why he is going to propose, today, legislation to sup- port $17.5 billion in SBA loan guarantees. We want to increase the 

loan size, the maximum loan size, under the SBA’s most heavily 

used program, and to extend the Recovery Act provisions that 

waive fees and raise guarantees, further improving access of small 

businesses to credit. 

Now, in addition to these steps on credit, we are also proposing 

to extend Recovery Act tax relief for small businesses, and we are 

proposing a new $33-billion small business jobs and wage tax credit. This credit would provide a $5,000 credit to every new employee 

hired in 2010 and will reimburse employers for their payroll taxes 

on salary increases above inflation. 

We are also proposing to extend additional tax cuts for investment through the expensing, bonus depreciation measures, R&D 

tax credits that the chairman referred to, and, as you know, we 

proposed a permanent exemption from the capital gains tax for 

small businesses. 

Now, we are going to continue to work very hard to help stabilize 

the housing market, to make sure that we help more homeowners 

keep and stay in their homes. We understand and we know that 

government has to be smarter in doing things only governments 

can do. In the President’s budget, we have laid out a comprehensive agenda to invest in innovation and strengthen our economic 

foundation. 

This budget is designed to help make sure that Washington is 

creating the conditions that allow the private sector to grow and 

expand, to allow businesses, small and large, to create jobs and 

make investments. To do this, we need financial reform, because 

families and businesses both need a financial system that supports 

not just innovation and choice and provides better protection for 

consumers, but is taking the savings and investments of Americans 

and channeling them to innovation and investment, not financing 

real estate and financial booms. 

We need to encourage innovation. Last year, with the investments Congress approved, we supported the largest investments in 

basic research funding in the history of this country, and we want 

to build on that with new incentives for R&D and for investments 

in new clean technologies that will help improve economic productivity. 

The CHAIRMAN. Mr. Secretary, you can disregard that blinking 

light there. You just take whatever time you want to take. 

Secretary GEITHNER. Thank you, Mr. Chairman. 

The CHAIRMAN. However, I will apply a time limit to all the rest 

of us. 

Secretary GEITHNER. We need to increase exports. The more 

products American businesses sell to other countries, the more jobs 

it will support in America. We need to invest in education. Businesses need an education system that does a better job of teaching 

and creating a skilled and productive workforce, and that is why 

this budget supports reforms to raise the quality of achievement 

produced by our schools, but also makes a college education more 

affordable. 

And, of course, we need health care reform so we can help provide greater economic security for the tens of millions of middleVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
9 

class families and businesses and help reduce their health care 

costs. 

Now, these are reforms that the government has to make. When 

government fails at these basic challenges, Americans suffer and 

businesses suffer. The market cannot solve these challenges on its 

own. The government needs to address these challenges in order to 

provide the foundations for a stronger, more dynamic private sector. That is why the budget proposes a series of important investments in these areas. 

Now, part of laying a foundation for future economic growth and 

prosperity is returning to living within our means. When we have 

strong growth in place, we need to begin the process of bringing 

down these deficits. These deficits are too high, and the American 

people and investors around the world need to have confidence in 

our will and our ability as a country to bring them down over time. 

Now, the President’s budget proposes some important steps towards that objective. First, he proposes, starting in 2011, that we 

cap non-security discretionary government funding for 3 years. Second, we are proposing some important changes to make our tax 

system more fair and help begin the process of bringing down our 

deficits. We propose to allow the tax cuts for the most fortunate 

few Americans, the highest earning 2 or 3 percent of Americans, 

to expire. 

We propose closing what is called the carried interest loophole by 

taxing the income of hedge funds and private equity managers in 

the same way we tax the income of teachers and firefighters. We 

want to eliminate unnecessary tax subsidies. But as we take these 

modest steps, we are also proposing to extend, just for 1 year, the 

Making Work Pay Tax Credit, which goes to 95 percent of working 

Americans. We proposed, as you know, a series of additional tax incentives to help retirement security, make college education more 

affordable, and help increase the dependent care tax credit. 

Now, we are looking to close down TARP at zero cost to taxpayers. Last year at this time the independent budget scorekeepers 

expected that the cost of fixing this financial crisis could exceed 

$500 billion; today those estimates are now down in the range of 

$100 billion. We have proposed a fee on the largest financial institutions in the country, those institutions that benefitted most from 

our efforts to repair the financial system, that will help ensure that 

American taxpayers are not exposed to a penny of losses under 

TARP. 

Third, we must restore the basic disciplines of budgeting that all 

American families live with by reinstating pay-as-you-go. Any new 

initiative on the tax or the expenditure side should be paid for 

without adding to the deficit. In the 1990s, that basic set of disciplines helped play an important role in moving us from a deficit 

that was 4.5 percent of GDP in 1991 to a significant surplus in 

2000. 

Now, the budget outlines a path to bring our deficits down, as 

a share of GDP, to just below 4 percent of GDP. While government 

support for the economy is critical now, we cannot let our future 

deficits and debt continue to grow faster than our economy without 

hurting future investments in growth. This is going to be a difficult 

task. 

10 

It is going to require very tough choices, politically unpopular 

choices, and it is going to require Democrats and Republicans to 

come together on things that will make a serious difference in 

bringing down the long-term deficits. That is why the President 

has supported the creation of a bipartisan fiscal commission, which 

will be charged with identifying responsible policies that can bring 

these deficits down and win support on both sides of the aisle. 

Now, the fiscal commission’s first task, of course, is going to be 

recommending changes that will bring the operating budget— 

meaning the budget times expenditures for interest—to balance 

over the next 5 years. It is also going to be asked to find and identify solutions to our longer-term fiscal problems. 

I just want to conclude by saying that America is in a much 

stronger position today than it was a year ago, but our challenges 

are not just to repair the wreckage caused by the recession. We are 

in a very tough, competitive race, with companies and with governments around the world. That race will determine who leads the 

future, which economy will be stronger, more creative, better at attracting talent and investment, and better at sharing the gains of 

growth more broadly across all our citizens. 

Now, we have in many ways dominated our competition for decades, and we are going to do so in the future, but our lead in some 

ways is eroding, and it is eroding because for too long our government has not been able to make the kind of policy changes and reforms, the kind of investments, that are essential to broad-based 

economic growth. That is why the investments and reforms we propose in the budget are so important. 

I look forward to working very closely with the committee, and 

I look forward to answering your questions. 

[The prepared statement of Secretary Geithner appears in the 

appendix.] 

The CHAIRMAN. Thank you, Mr. Secretary. 

First, I very much appreciate the emphasis on jobs, especially 

small business. You mentioned several areas, the $30-billion TARP, 

$17-billion small business loan guaranty, $33 billion in small business employment tax credits, et cetera. 

The President’s announcement today on $30 billion of TARP: 

would you be a little more explicit in how that will work? You 

might pay some attention to some of the concerns that, if some of 

that money gets loaned or gets made available to banks, sometimes 

they do not lend as much as we want them to. 

Secretary GEITHNER. Exactly right. The most important things 

we can do for small businesses now are to give them tax incentives 

to invest, as we do for a range of things you highlighted and Senator Grassley highlighted in your opening statements, to add this 

new tax credit to encourage hiring, which, building on suggestions 

made by many members of Congress, including as you said, Senator Schumer and Senator Hatch, to expand what the SBA can do. 

SBA programs can be very powerful, and by expanding the size of 

loan guarantees, reducing the fees, we think that helps. But a critical role has to be to try to make sure that banks and Community 

Development Financial Institutions have access to the capital that 

allows them to lend. 

11 

Now, a dollar of capital for a banker or CDFI is probably one of 

the most effective uses of taxpayer resources, because, for every 

dollar you give for capital, it can support up to $8 to $12 in additional lending. Banks that need additional capital can use capital 

under this program to support additional lending, and they are 

going to be less likely to have to reduce lending if they were unlucky, or unwise, or unfortunate and made some bad decisions during the boom. 

But to do that, we need to make sure that they are going to take 

this capital and use it to actually expand lending, so we have suggested a variety of ways to do that. We think we have some good 

ideas to do that, but we want to work with Congress, to work with 

members of this committee, work with members of the Banking 

Committee to find the best way possible to do that. But small businesses rely on banks for really all the credit they generate, and to 

help them you need to make sure that the banks they rely on have 

the financial ability to help them. 

The CHAIRMAN. How are you going to guarantee that the banks 

actually lend? Because that has been a concern in the past, that 

sometimes banks make other investments to fatten their bottom 

line, and they have not used all the capital that has been available 

to them to actually lend. 

Secretary GEITHNER. Well, actually, I think the available evidence shows that banks that actually took capital expanded lending. You saw more lending by banks that took capital from the government than by those that did not. So, I think it is actually a pretty good story on this side. But you are right, our objective has to 

be to make sure we design these things to substantially improve 

the odds that you see lending grow, not shrink. 

Now, a lot of banks took on too much risk in this crisis. That was 

true of community banks, too. A lot of them have been forced to 

retrench and pull back, and that has hurt a lot of their traditional 

customers, small businesses. So, I think it is a very legitimate objective for us to work together to find some ways to mitigate that 

pressure, to work against that pressure. 

The CHAIRMAN. Can I ask, how do you balance spending for job 

creation and address the recession on the one hand, and cut back 

to address the fiscal problems on the other? What are some of the 

parameters, what are some of the benchmarks in making that decision here? Basically, I think the deficit increases in the short term, 

and under the budget proposal, decreases in the longer term. How 

do you decide where to draw that line? 

Secretary GEITHNER. I think you have it exactly right. Many people think these objectives are in conflict, but they are not, for the 

following reason: if we do not succeed in repairing the damage 

caused by this crisis, we do not succeed in getting growth back on 

track, having a growing economy again, with businesses confident, 

we will not be helping our long-term deficits—they will be worse. 

The fiscally responsible thing to do right now, given the scale of 

the damage caused by the recession and the importance of the recovery, is to make sure we are doing sensible things, effective, targeted things, to help reinforce recovery, improve business confidence, get Americans back to work. 

12 

Now, we cannot do that effectively unless people also believe 

that, once growth is established, that we are going to bring down 

those long-term deficits. So, unless we convince people that we can 

restore gravity to our long-term fiscal position, then we are going 

to have limited ability to meet these immediate challenges that we 

all share. 

The CHAIRMAN. I guess my question is, how did you decide to 

draw the line where you did? That is, why not more, a percent 

more in short-term stimulus? Why did you draw the line where you 

did? 

Secretary GEITHNER. There are two critical aspects of the issue 

right now. One is, how much more now can we afford, because 

there are limits to what the government can do now. Our deficits, 

as everybody says, are alarmingly high. They are too high. They 

are going to have to come down. We do not have unlimited resources available that we can go borrow from the rest of the world 

and put into even well-designed programs. So, there are limits on 

that. 

What the President has proposed in the budget is to set aside $100 billion on top of some of the extension of measures in the Recovery Act already approved, like the extension of Unemployment 

Insurance. I believe the country can afford that. If we design the 

use of that package sensibly, that will be a good thing, not just for 

growth but for our long-term fiscal position. 

The second question was timing. How quickly do we move to restraint? In the President’s budget we propose, in fiscal year 2011— 

it begins in the fourth quarter of this calendar year—which we believe will be more than a year after we have had positive growth 

restored, to begin to bring those deficits down. 

Now, we proposed to reduce them by 2 percentage points of GDP 

next fiscal year. Some people may think that is too much. I think 

the economy may be a little fragile, still short of growth then, and 

it is possible that will be right. Many people say we should cut 

more deeply than that. I would suggest that we begin the process 

of restraint when we are more confident the recovery will be wellestablished. 

The CHAIRMAN. My time has expired. I just would point out the 

obvious, namely, that we cannot afford the luxury of making mistakes. We have to get this right. That means burrowing down a little bit, digging down a bit deeper, drilling down a little bit more, 

asking tougher questions and getting the data to get this as right 

as we possibly can. By ‘‘right’’ I mean the balance between the two 

objectives here. We just cannot afford, again, the luxury of just 

being cavalier, being easy about this. This is serious stuff. 

Secretary GEITHNER. I agree. We have to make sure that every 

additional dollar that we support is going to have a high return. 

The CHAIRMAN. Right. Right. All right. 

Senator Grassley? 

Senator GRASSLEY. Mr. Secretary, on February 11th last year, 

the Congressional Budget Office wrote a disturbing letter outlining 

the effects of making the provisions contained in the stimulus bill 

permanent, and I would ask the chairman to insert that letter in 

the record at this point. 

The CHAIRMAN. Without objection. 

13 

[The letter appears in the appendix on p. 159.] 

Senator GRASSLEY. The stimulus bill was sold as a temporary 

measure to get the Nation through tough times; however, to the 

surprise of very few, Congress is already being asked to extend the 

temporary tax and spending provisions in the stimulus bill. 

We have a chart here outlining the contents of that letter from 

the CBO. The stimulus bill, as originally passed by the House, was 

estimated to cost $820 billion. As large as that number is, it is only 

about a quarter of the whole cost of making the tax and spending 

provisions of that bill permanent. CBO estimated that the whole 

cost of permanence, including debt service, would total $3.3 trillion; 

the actual price tag of the stimulus bill, as signed into law, was a 

little different. But the point of this chart is to show the true cost 

of making the temporary stimulus permanent. I think, even in Washington, that $3.3 trillion is a whole lot of 

money. It is kind of like we thought that we maybe bought a pet 

gecko, and we ended up with a Godzilla. Well, what we want from 

you is assurance that this will not be let loose on the American 

people. We of my party are often criticized for not offering tax increases to facilitate debt reduction. The same criticism could be 

made of people on the other side of the aisle for enacting so-called 

temporary spending that is likely to have a larger-than-anticipated 

fiscal impact once the temporary provisions are extended. 

So, trying to get back to what we originally thought we were 

doing, would you be able to tell us that you are going to be able 

to contain the hidden fiscal liability of extending the stimulus bill? 

Could you promise to ensure that the cost of the stimulus bill is 

limited to the original estimate? 

If you agree that we should limit the fiscal impact of the stimulus bill to a temporary nature, would you be willing to carry this 

out by either working to support the original expiration dates contained in the stimulus bill or by offsetting any extensions with 

spending reductions in other programs? 

Secretary GEITHNER. Senator, I think it is very important that 

we all commit to the objective of making sure that the temporary 

things we did to pull the economy out of crisis are temporary and 

do not build in long-term expectations of higher expenditures in the 

future. I completely agree with that. Part of getting our deficits 

down over the medium term is going to be making sure we let 

those emergency actions or temporary actions expire and do not get 

built into expectations of future spending. 

We do believe there is a very strong economic case now for extending certain provisions of the Recovery Act that we think have 

a powerful impact on investment and job creation. As the chairman 

said, we need to be careful those things meet that test. We are not 

going to propose to extend everything. We propose some limited extension of those provisions. 

We think there is a good economic case for that because we want 

to reinforce recovery and growth, but I agree with you, we cannot 

let that add to expectations about long-term commitments on the 

expenditure side, or it is going to make it harder for us to bring 

those deficits down over time. 

Our basic test should be: what is going to add jobs, what is going 

to add spark to investments, what is going to provide good leverage 

14 

for the taxpayers’ money? We need to make sure we are doing that 

in a way that is fiscally responsible over the medium term. 

Senator GRASSLEY. Mr. Chairman, I would like to reserve 44 seconds for next round so I can ask a longer question. 

The CHAIRMAN. You may even have more than 44 seconds next 

round. 

Senator GRASSLEY. All right. 

The CHAIRMAN. Senator Rockefeller? 

Senator ROCKEFELLER. Senator Grassley, you have actually just 

31 seconds. 

The CHAIRMAN. He is a good man; we will give him 44 seconds. 

Senator ROCKEFELLER. Yes, that is true. That is true. 

Secretary Geithner, I want to go right to coal, in the energy part 

of the budget. Let me just say this. I come from a State, West Virginia, which has a very hostile attitude towards any changes in 

current practices in coal and which is against cap-and-trade, which 

is against any kind of change really at all. Not in all cases. I am 

trying to change that. This budget is going to make it really hard 

for me. Let me explain. 

The way I see it is that the renewables give this country about 

6.7 percent of its electricity, and that coal gives it about 85 percent. 

But you have put all kinds of tax credit eliminations in about coal, 

which come out of the meeting in Pittsburgh of the G–20. I understand that. I also do not really believe that China and India are 

ever going to be a part of that. 

So on top of that you shift, in a relatively small thing, but a very 

nettlesome thing, the cost of OSM onto the coal industry, the Office 

of Surface Mining. You shift that onto the industry, and you call 

it a fee. You make the States do it. States have to put down a fee. 

So coal is caught in a very difficult place because it is not certain 

that we are going to get a climate bill this year. It would be good 

if we did. 

I talk to the people I represent about the fact that cap and trade 

was, in fact, the exact mechanism we used some 30 years ago to 

do acid rain. There is no difference. At that time it came in at only 

20 percent of the cost of what people had predicted, the experts had 

predicted. I am trying to be helpful in this. I talk to coal miners, 

I talk about cap and trade, I talk to industry; some are reluctant, 

some are not. 

Now, in your budget—and the way I see it, the way out is technology, Carbon Capture and Storage being the major part of that— 

you have a total of $545 million for the country in the budget for 

research and development, i.e., CCS. Just to put that into perspective, that amount has already been about spent on just doing 17 

percent of the emissions of one power plant, the largest power 

plant in North America, American Electric Power in West Virginia, 

just 17 percent of their emissions, they have reduced that by 90 

percent. Others can reduce it and take 95 percent of the carbon 

out, 90 percent, 95 percent. When you get to 95 percent, that is 

cleaner than nuclear power. 

Now, my question to you is, what is there in here which is hopeful for coal? Because what you are doing is, you are going to cut 

down the production of coal this year when we may or may not 

have a climate change bill. John Kerry’s bill and other bills may 

15 

very well talk about substantial amounts of money for clean coal, 

making coal clean, which I am strongly for. 

In the meantime, you are sort of saying to West Virginia, forget 

it; $545 million is what we think of CCS, and in the meantime we 

are going to take away your tax credits so production of coal is 

going down, and that is what you got from our budget, which sort 

of makes me think, thank heavens that it is the President’s budget 

and its staying power may be a week or two. We write the legislation. 

I want to do it in a way which makes coal clean, which puts a 

discipline on the coal industry and the coal miner and on myself 

to do the right thing for the country and not continuing giving 54 

cents a gallon to methanol, which I understand is a political move 

and it always has been, and I will not get into that. 

But I want you to know, there really is not anything in this 

budget which I can take home or talk about in favorable terms 

with respect to coal, when I want to. The President talked in the 

State of the Union about being for research and development, CCS, 

et cetera, but the budget does not reflect it. 

I have run out of time for a question, so I would just make that 

as kind of an enunciata. 

Secretary GEITHNER. Mr. Chairman, can I make a very quick response? 

The CHAIRMAN. Yes. 

Secretary GEITHNER. We are very supportive, like you are, in trying to make sure we are providing significantly larger incentives 

and subsidies to encourage clean energy technologies, including 

clean coal. There are a range of provisions in the budget that I 

would be happy to go through with you that do substantially increase what the government is doing to help facilitate that transition. 

Again, we want to make sure we are doing things that are going 

to work, but we want to support the same objective. We believe, as 

you do, that the answer is in technology, and we would be happy 

to work with you to make sure that we have the best ideas for how 

to do that in the budget. 

Senator ROCKEFELLER. All right. But they are not in there yet, 

you do agree? 

Secretary GEITHNER. Well, I think if you look at the tax credit 

for renewable energies and you look at the broad range of support 

for R&D, there is more support in there for that objective than the 

specific provision for CCS that you refer to. But again, we are 

happy to work with you. I think we have the same basic objective. 

We understand the tension between the reality today that coal has 

a major role, and will continue to play a major role, in our energy 

future, and we want to use coal more efficiently and make sure 

that we adopt a kind of clean technology. 

The CHAIRMAN. Senator Hatch? Thank you. Oh. Senator Hatch 

is not here. 

Senator Lincoln? There she is, over there. 

Senator LINCOLN. Thank you, Mr. Chairman. I appreciate you 

and the ranking member for holding the hearing, and certainly 

Secretary Geithner for being here. 

16 

Mr. Secretary, we all know that a budget is nothing more than 

a blueprint that outlines a list of priorities and it is not binding 

legislation, but it does indicate your values. It indicates how you 

plan to lead this Nation in the year ahead. And just in talking 

about, all of the ideas that people have for years beyond 2010 are 

grand and glorious, but Americans are hurting right now, and we 

need to have a real plan for 2010 and 2011. 

So I want to begin my comments—and then I will move to any 

questions I might have—just to say that in the budget that the administration has proposed, I think there still is a great deal of 

nervousness among Americans, and I hope that you will work with 

us to try to alleviate some of that. 

In the wake of the difficult economic times for so many Americans, I see in the budget that is before us today that we put in 

place a new cap-and-trade system, just as Senator Rockefeller was 

mentioning, and its long-term goals, perhaps, have changed the 

longstanding tax policies that encouraged domestic oil and gas production. I think this would undoubtedly result in an immediate increase in energy prices for consumers and for businesses at a time 

when they cannot afford it. So, although we all want to have longterm goals, we have to understand what the immediate presents. 

I see the imposition of new taxes on our businesses that are trying to compete around the world, without any substantive policies 

to reward them for keeping jobs here at home, which is critical, not 

only that we do the research and development, but that we encourage those industries to ensure that that research and development 

stays here in this country, in American jobs. I see additional tax 

and regulatory burdens being placed on small businesses and the 

self-employed. 

I see a financial regulatory reform proposal that seeks to recreate 

the wheel. We do not need to recreate the wheel, putting the vast 

majority of Main Street banks that have played by the rules all 

along into a whole new regulatory structure, when the focus should 

be on improving oversight of the bad actors, many of those obviously in New York, or on either coast, but the majority of them not 

being in middle America where jobs need to be created. 

I see a budget that puts a bull’s eye on many policies that rural 

America relies on. I come from rural America. I grew up in a farming community, in a farm family. This government has provided for 

many of these policies that rural America relies on, and it has been 

in government policy that has been provided for in the farm bill 

just 2 years ago. But to cut them off or to leave them hanging at 

the uncertainty of whether or not that contract that we made with 

rural communities and agricultural providers across this country, 

to cut that contract short in an economic time when they do not 

know what to expect—— 

I go through all of this to say that I guess I do not understand, 

and I think most Arkansans do not understand, the vision of the 

administration when it comes to putting in place economic policy 

that works for our Nation in today’s economy and the economic climate today, to create the jobs that Arkansans need now in our 

economy. It is critical that we focus on the here and the now. 

Mr. Secretary, I do not know how many people you talked to, 

folks out there in the real world. I know you mentioned your visit 

17 

to Ohio. I do not know how many farms you visited or farm country 

you visited, so I do want to help pass along that message, that the 

budget and the administration’s economic policies as of late provide 

more questions oftentimes than they do answers. Americans, individuals and businesses, they are desperately trying to regain their 

footing. They are trying desperately to pull themselves back from 

the brink of this economic crisis. 

Now is the time to provide stability and certainty. You mentioned certainty in almost the first four or five words out of your 

mouth. I hope you mean that. I cannot begin to impress upon you 

how critical that is in these economic times: confidence in economic 

policies that they have seen and understand and have bet their 

businesses on, in many instances. My concern is, I think our budget can do more. I think it can do more than that. 

Building on that point, one of the first things that we as a government can do to help provide some economic stability is to focus 

on legislative issues that should have been addressed last year. I 

pledge that to myself and to my colleagues here, that we have to 

do as much, but many of those have been put aside from the effects 

of the long debate that we have had on health care. 

I just hope that you will take an opportunity to look at many of 

those things: 40 Empowerment Zones, 40 Renewal Communities 

across the Nation; somewhere between 500,000 and 700,000 jobs either directly or indirectly that benefit from those EZ/RC incentives. 

There are so many other incentives out there. You look at venture 

capital and the biodiesel tax credits that expired at the end of 

2009. There is no certainty for venture capital now. They do not 

invest in our renewable energies because they do not know what 

to expect; the 10,000 to 15,000 jobs in the timber industry directly 

impacted by the Tree Act provisions, which did expire last May and 

were not renewed. We need you to help us focus on those issues. 

There is somewhere between 2.5 million and 6.7 million taxpayers—— 

The CHAIRMAN. Mr. Secretary, I want to let you respond very, 

very briefly. Actually, the Senator’s time is—— 

Senator LINCOLN. Well, I am just going to hit briefly on small 

business and then I will end, and you can answer however you 

would like. 

The CHAIRMAN. Mr. Secretary, briefly, if you wish to respond. 

Secretary GEITHNER. Well, Senator, I was just going to say, I 

agree with you. While I am testifying today on the President’s fiscal year 2011 budget, 2011 feels like a long way away to many people. It begins October 1. Our focus right now—and we want to work 

with Congress right now—is on a set of additional measures to help 

reinforce this recovery and get more people back to work, and that 

is why the President said in the State of the Union that our immediate priority is to focus on the things that matter right now. 

Now, there are limits to what we can do, and we want to make 

sure we are doing things that go directly to small business, job creation, to incentives for adoption of clean technologies, support for 

infrastructure, help for State and local governments. Those, we 

think, matter a lot and make a lot of difference, and we cannot 

wait to do those things, I completely agree with you. But we also 

18 

need to make sure that we are looking ahead a little bit. We need 

to make some choices now about the longer term. 

I completely agree with what you said about certainty. Their recoveries depend on confidence. They depend on the confidence of 

businesses, they depend on the confidences of American families 

that we are going to make things better, repair the damage done. 

That is critical, and everything we do should be guided by that 

basic recognition. 

We need to give people a little bit more clarity than we have 

been able to do as a country over the last many years about what 

are going to be the rules of the game, what tax policies, what regulatory policies are going to be out there. I completely agree with 

you on that, and that is why it is important that we swing to earth 

a bunch of the things that we are still working on up here, like in 

financial reform, health care reform, so people can plan for a more 

certain future. 

The CHAIRMAN. Senator Snowe? 

Senator SNOWE. Thank you, Mr. Chairman. 

Mr. Secretary, you mentioned certainty and confidence. Without 

question, those are the two key elements that are the essential ingredients in making an economic recovery a strong one, a sustainable one. I held some small business forums just a couple of weeks 

ago in the State of Maine, and what I heard from small businesses 

on the ground—because I think there is a disconnect between 

Washington and the rest of the country, Main Street, between reality and fiscal fantasyland here in Washington about the practicalities of the policies that are coming out of Washington. 

Whether they are speculative or they are real is immaterial. If 

the perception is that we are going to have more policies coming 

out of Washington that are going to increase the cost of doing business, they are simply not going to do business. I heard that time 

and time again, that uncertainty is impossible for them to predict 

or to calculate the cost. 

If I heard it once, I heard it a number of times. People say, how 

do I calculate the cost of doing business when I am hearing in 

Washington they are going to increase the tax rates? Frankly, 

when we talk about $250,000, we are talking about small businesses, because 93 percent of all small businesses have flowthrough income. They are small businesses, and they pay 82 percent of those taxes. So, that is going to have a profound impact. 

Furthermore, as we continue to discuss a potential tax increase, 

they are going to freeze. They are going to stand still. That is the 

point. That is what is going to hamper our ability. Then you talk 

about all of the tax increases in the proposed health care bill, the 

62-percent increase in the Medicare payroll tax. They are looking 

at that. That disproportionately affects small businesses. 

I think that there is not only a disconnect, but there has been 

this huge lag time to respond to the needs of small business in a 

practical fashion. There is no way they are going to move forward 

to job creation. Then who would take the risk? Depending on what 

they are hearing coming out of Washington these days, would you 

take the risk? Would you put your money on the line? I mean, that 

is the issue. I heard that over and over again, and rightfully so. 

19 

So, until we get certainty on taxes, on regulation, on the issue 

of health care and how that is boomeranging off the walls here between the House and the Senate, we are not going to experience 

job creation. So I would like to hear from you, what certainty is 

there when we are talking about these tax increases. I mean, that 

is going to represent a 9- to 15-percent increase in taxes. 

Furthermore, on paying things, you say we should pay for things, 

pay for everything. But using TARP is not a means of paying for 

it. That is a loan that was meant to be paid back, not to be spent, 

ultimately. I think that we ought to use unused stimulus funds for 

that purpose, and so I hope you would consider that. I am asking 

for a list from the OMB director for all unused, unspent stimulus 

funds, to use that as an offset. 

And finally, I think we should have a jobs impact statement on 

every piece of legislation that comes through the U.S. Congress so 

that we know whether or not it is actually creating jobs, losing 

jobs, or preserving jobs. I mean, I think it is that critical for the 

future of this country and for the interests and well-being of small 

business, the one entity we are depending on to create jobs. 

Secretary GEITHNER. Senator, I agree with much of what you 

said. I think what businesses need more than anything else is more 

confidence there is going to be growing demand for their products, 

and they also want less uncertainty about what is going to happen 

in Washington and about the basic rules of the game. I completely 

agree with you about that. 

I want to respond, though, to two things you said in particular, 

and this is important. We have proposed—you are actually right— 

to let the tax cuts that were given to Americans with incomes 

above $250,000 expire at the end of this year. Congress designed 

them to let them expire, proposed to let them expire. But independent analysts who have looked at this—it is not just the Treasury Department analysts who have looked at this—say that those 

will only affect 2 to 3 percent of small businesses. Now, you could 

say 2 to 3 percent is a lot of small businesses, but it is only 2 to 

3 percent. Again, I think the fairest independent assessments of 

that stuff justified that conclusion. 

Now, I completely agree with you that to bring health care to 

resolution would be helpful in reducing some uncertainty about 

what has actually happened, but it is also important to recognize 

that businesses today under our current system, small business in 

particular, face enormous hidden costs in our health care system. 

Those that have health care pay much more for it than large businesses do. They all pay for the hidden costs of paying for the uninsured. 

This country’s health care system today is not a good system for 

businesses or small businesses, and they are facing much more 

rapid growth in health care costs than large businesses. But I 

agree with you that bringing resolution to health care reform would 

be helpful to certainty and confidence, and I think it would be good 

for small businesses, too. 

The CHAIRMAN. Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. I want to pick up on 

your questions as well. 

20 

Secretary Geithner, the banks are getting bigger, and lines of 

credit to Main Street employers are getting smaller, and it looks 

like a vicious cycle. The taxpayers bail out the too-big-to-fail institutions, only to be more vulnerable to them. 

Now, a few minutes ago you told the chairman that the banks 

that got bail-out money were increasing lending. Your own Treasury data, however, paints a different picture. The Treasury data 

demonstrates that the 22 banks that got the most help from Treasury bail-out programs have actually been decreasing small business 

lending. The Inspector General’s report on January 30, the TARP 

report, says exactly the same thing. 

So my first question to you picks up on the chairman’s point 

about the urgency of small business lending. Tell me, if you would, 

how the new program that is being discussed is going to be an improvement on the two programs that your own data and the Inspector General have said are not working? 

Secretary GEITHNER. I think if you look carefully at the evidence 

of people who took TARP money and those who did not, I still 

think the evidence is pretty good that, on a relative basis, you saw 

more lending, or a less sharp reduction in lending, across those institutions. 

Senator WYDEN. Not for small business. 

Secretary GEITHNER. Yes, I think even in that case. But again, 

the point is, I think our basic challenge is, how are we going to 

make this better, how are we going to fix it? To be honest about 

it, the big challenge we have had is that small banks have not been 

willing to come and take advantage of these programs because they 

have been deeply concerned about both the stigma that comes with 

taking out assistance and the potential concerns about conditions, 

actual and prospective. We had hundreds of small banks that withdrew their applications from the Treasury, even as we tried to 

make these programs more attractive. They do that because of, 

again, a fear of the stigma and fear of the conditions. 

So what we propose is to in some sense separate this from the 

trauma and damage of association with the TARP and do it with 

a better, more sensibly designed set of conditions. But that requires 

legislation, that requires working with you, and it requires getting 

some input, frankly, from banks, community banks and others, on 

how best to do it. 

We proposed one way to do it, but there are a lot of people out 

there with lots of ideas on how best to do it. We are willing to work 

with you and other members on how best to do it. But if you do 

not do things that help community banks, it is very hard to do 

enough to help small businesses that depend on community banks. 

Senator WYDEN. I would like a more detailed answer in writing, 

if I could get that, because I continue to be uncertain with respect 

to how this new program is going to improve on two others that 

your Department and the Inspector General have criticized. 

[The information appears in the appendix on p. 117.] 

Senator WYDEN. Let me go to an area where we are seeing 

progress, and that is the funding of infrastructure. The Build 

America bonds program, to a great extent because of the chairman 

and Senator Grassley, we thought might promote the issuance of 

perhaps $5 billion worth of bonds for roads and transportation sysVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
21 

tems. As you know, it exceeded $60 billion. Clearly, this is now the 

boldest effort in municipal finance as it relates to generating improvements in infrastructure. 

Now, you all proposed making this permanent, but you also, it 

appears to me, seem to be suggesting that there be additional areas 

that would be eligible for Build America bonds: refinance projects, 

covering operating expenses. What concerns me is, if the country 

goes that route, that will not do as much to create new jobs, new 

family wage jobs, particularly in transportation where there is the 

great economic multiplier, as the original bipartisan proposal that 

Senator Thune, Senator Talent, a big group of us have been working on. 

So tell us, if you would, how your revisions in the Build America 

bonds program will still help us to achieve what has long been the 

bipartisan objective up here, which is to generate more new jobs in 

the infrastructure area. 

Secretary GEITHNER. You are right, it is a remarkably effective 

program, to the credit of you and many of your colleagues up here. 

Senator Baucus, I know, has been very supportive of this stuff. It 

is one of the most effective programs per dollar of taxpayers’ money 

that we have seen out there. That is a good case for making it permanent. 

But we think there is also a good case to look at the scope of applicability, but we do not have a monopoly of wisdom on this. We 

would be happy to work with you in trying to make sure that, if 

we expand it, we are not going to reduce its basic effectiveness. But 

we propose something that has no cost, and therefore meets that 

basic test of fiscal responsibility. 

A very important note. Because of this program and a range of 

other programs, the cost of borrowing by State and local governments has come down very, very dramatically over that period of 

time, and that has been very, very helpful because State and local 

governments still face really, really difficult challenges that they 

have not seen in many, many decades, and we need to keep working at trying to help them get through this. We think this program 

is one way to do that. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Bunning? 

Senator BUNNING. Thank you, Mr. Chairman. 

I was glad that a lot of my colleagues brought up clarity, confidence, and certainty, because that is one of the unbelievable 

things that the American people are having difficulty with; therefore, I am going to question you on some other things that kind of 

led up to that clarity, confidence, and certainty. 

The reasons you and others have stated for bailing out AIG and 

the terms of the bail-out seem to have changed over time, so I 

wanted to give you the opportunity to set the record straight on 

two questions. First, why did you believe AIG could not be allowed 

to fail? Was it the impact on insurance policyholders, the derivative 

counter-parties, the money market, or something else? 

Secretary GEITHNER. Senator, thank you for asking that question. As I have said from the beginning, our judgment was that the 

failure of AIG would have been catastrophic to the stability of the 

financial system. It would have had the effect of undermining conVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
22 

fidence in the insurance system. It would create a prospect of much 

greater failure across the financial system. You would have seen 

much more damage to the basic value of American savings. I think 

if anyone doubts that, you just have to look back to what happened 

after Lehman failed. 

Our judgment was—and this was not just my judgment, Senator, 

it was the judgment of a range of people who were responsible for 

those decisions at that time, including President Bush, Secretary 

Paulson, and Chairman Bernanke—that those pressures you saw 

after Lehman’s failure would have been dramatically amplified if 

AIG had failed, and they would have spread to parts of the system 

that would otherwise have been unaffected, including basic confidence in the insurance system. 

Senator BUNNING. Let me get to the point, though. Was it the derivative business, security lending at the insurance companies, the 

commercial paper, the aircraft leasing business, or something else? 

Secretary GEITHNER. Again, it is hard to separate. What is systemic risk is a difficult thing to judge. There is no—— 

Senator BUNNING. We are all finding that out up here. 

Secretary GEITHNER. But that is the reality of it. But again, I 

think the simplest way to say it is, look at what happened after 

Lehman Brothers and the broader collapse of many of our large institutions. Look what happened to that. Value of American savings 

fell by 40 percent. You saw hundreds of thousands of businesses 

forced to close, millions of people lost their work, basic confidence 

in the stability of the system was broken. You had the rivets coming off the submarine. 

In that environment, to have the largest insurance company in 

the world, that had written savings protection contracts to thousands—hundreds of thousands—of American households and to a 

bunch of State and local governments, to have that institution fail 

in that environment, in our judgment, would have been catastrophic. So what we did was the best we could with limited tools 

to try to limit risk to the taxpayer and contain that broader damage. 

Senator BUNNING. All right. 

When did you first become aware that AIG was in trouble, you 

personally? 

Secretary GEITHNER. AIG informed the Treasury and the Fed on 

Friday—I cannot remember if it was September 12th, or if that is 

exactly the right Friday. But it was that Friday—that they 

were—— 

Senator BUNNING. This was in September? 

Secretary GEITHNER. That is right. September 2008. And that 

they were at the edge at that point and they did not believe that 

they were going to make it without support from the government. 

Senator BUNNING. So AIG’s condition did not come up at your 

July 29th meeting with the company’s CEO when he was asking 

about access to Fed lending? 

Secretary GEITHNER. No. As I have testified before, AIG’s officials, including the CEO, approached us informally, and other of 

my colleagues, at other times over the preceding probably 6-month 

period and said, what if we faced the possibility of significant liquidity pressure? Under what circumstances is it possible for the 

23 

Fed to come to our assistance? But it was really only on that Friday, Senator, that they came to us and said—and you know, remember this: the Federal Reserve had no authority and responsibility for the risk AIG was taking. They were subject to supervision 

by State insurance companies, by Federal regulators. 

Senator BUNNING. No. But the Fed did have recourse. 

Secretary GEITHNER. The Fed had absolutely no authority, absolutely no responsibility for supervising/overseeing the activities of 

AIG. 

Senator BUNNING. Oh, no. Not for supervising. 

Secretary GEITHNER. Yes. But at that point that is why we 

had—— 

Senator BUNNING. Is that why TARP money was used? 

Secretary GEITHNER. No. But again, you know this history well, 

Senator. 

Senator BUNNING. Yes, I do. 

Secretary GEITHNER. When they got to the edge where they could 

no longer operate without government assistance, they came to the 

Fed and said, will you help avoid default? We said, like we always 

do, what is going to be the best way to contain damage at least cost 

to the taxpayer? We made those judgments with exceptional care, 

with extreme reluctance. No one would ever want to be in the position, ever, of giving a dollar of taxpayers’ money to a company like 

that that had mismanaged its way, despite the supervision of an 

insurance company—— 

Senator BUNNING. Even at the time when you knew it was failing? 

Secretary GEITHNER. Of course. No one wanted to be in the position, if there was any other way, to put taxpayer money on the line 

to prevent default by a company like that. If there was any way 

to avoid that without a penny of dollars, we would have jumped on 

that and embraced it. 

Senator BUNNING. But you did it with Bear Stearns and not Lehman. 

Secretary GEITHNER. Well, the Bear Stearns case—it is good you 

raised that case. 

Senator BUNNING. Yes? 

Secretary GEITHNER. In the Bear Stearns case, there was a willing buyer able to come in and buy and guarantee—— 

Senator BUNNING. There is some question whether they were 

willing or not. 

Secretary GEITHNER. Well, you can ask them that. 

Senator BUNNING. We have. 

The CHAIRMAN. Senator Stabenow? 

Senator BUNNING. Thank you very much. I will continue later on. 

The CHAIRMAN. Senator Stabenow, you are next. 

Senator STABENOW. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. I want to take the previous questions 

and actually pivot back to what is happening to American families, 

American businesses. To avoid a disaster, actions were taken last 

year, AIG Investment Banks, because the country was at the edge 

of a cliff and there was a concern about disaster. 

We have 15.3 million people who do not have jobs, who do not 

have breadwinners in their families nationally. That is a disaster. 

24 

Most of that, overwhelmingly, did not happen on President 

Obama’s watch or your watch, but I would first state that, when 

we have 6.4 people looking for jobs, or 6 people looking for work 

for every job available, that is a disaster. 

I believe the Recovery Act was a response to the disaster that 

families and businesses had been facing and was an appropriate response, and that we need to keep our focus there. So I appreciate 

your focus on small business, which is critical for job creation. As 

I am sure you know, even though things have been done through 

SBA and so on this last year, we do not have enough capital available for small businesses. 

We have serious issues. We have small businesses that are now 

in a situation where they do not have collateral because their 

equipment, their business is not worth what it was, their home is 

not worth what it was, and so they now have a one-two punch of, 

cannot get a loan, do not have collateral as well, which is something that we need to address as we are looking at these issues. 

We have suggestions on how to do that, but I appreciate the focus 

on small business, on exports, education, health care costs, deficits. 

I would like you to speak just for a moment, though, on why it 

is so critical now in terms of deficit reduction and the economy to 

focus on jobs. Jobs and deficit reduction are not separate, in my 

mind. I wonder if you might just speak a little bit more about how 

creating jobs will actually grow the economy and reduce the deficit. 

Secretary GEITHNER. Well, I believe you said it exactly right. The 

economy is in crisis still, and for the average American, for many 

businesses, this is still the worst economic environment and the 

most challenging economic environment they have ever experienced. That is true, even though we have been successful in putting out this financial fire at the center of the system and even 

though we have been successful in starting to repair the damage 

and putting a floor under an economy that is falling off the cliff. 

But you are absolutely right. It is because of that that our first 

priority has to be ways to use additional assistance from the government to provide incentives for investment and for job creation. 

We want to make sure as we do that—again, because we do not 

have unlimited resources—that we are focused on things that have 

the biggest bang for the buck. 

Focusing on small businesses and tax incentives and credit is one 

way to do that. That is not the only answer, though. We think it 

is important that be complemented by support for a broad range 

of other investment incentives, for clean energy technologies, for infrastructure, and there are some things that State and local governments need, that they need desperately now to make sure they 

can weather this major storm ahead. 

Senator STABENOW. I wonder if you might also speak a little bit 

to one critical investment that I am very pleased is in the President’s budget, and it relates to manufacturing, clean energy manufacturing. In the 8 years prior to President Obama taking office, we 

lost almost 6 million middle-class manufacturing jobs in this country. I think there was a belief at that time that, if you could buy 

something, it did not matter where it was made. We want very 

much to see the words ‘‘Made in America’’ again on the products 

around the world, and in this country. 

25 

The $5-billion expansion of the Manufacturing Tax Credit—I am 

very pleased. I have worked with Senator Bingaman and Senator 

Lugar, Senator Hatch. We have legislation in to expand what was 

an effort we worked on very hard with you in the Recovery Act. 

But I wonder if you might speak to why it is important to focus 

on the clean energy manufacturing incentives and the success that 

we have had up to this point. 

Secretary GEITHNER. Well, as you heard the President say, and 

I know you believe this, we want the United States to be a leader 

in those technologies. We think they are critical. We think in some 

ways they are the best hope for trying to make sure that we take 

advantage of the great skills and expertise and productivity of the 

American worker and have them working on things that are going 

to be, obviously, central to our economic future. 

Now, this tax program is, I think by all measures, a very effective program. It has been remarkably over-subscribed. As you 

know, we are proposing to expand it. We are not going to wait for 

Congress to act in this case because we can use the remaining resources we have now to continue to make sure we are providing 

support on it. But we think it makes a lot of sense, and we would 

be happy to work with you and your colleagues to make sure that 

it is designed in a way that it meets that basic test. We want to 

do things that have the maximum bang for the additional assistance we provide, either through the tax system or direct investments, and this program meets that test. 

Senator STABENOW. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. You bet. 

Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for your service. I am glad to see the 

President’s budget has something that I have championed, which 

is Alternative Minimum Tax relief continuing. There are a lot of 

middle-class families in the country, certainly in New Jersey, that 

are affected by it. 

I appreciate your comments on loan guarantees with SBA. I have 

a concern, however, that if there are no loans, there are no loans 

to guarantee, so we look forward to maybe working with you on 

that to see how, in fact, that actually becomes something much 

more than a hollow promise. 

But I want to go up to three things very quickly, and I hope you 

will work with me so I can get through them. One is, the administration has proposed a modest responsibility fee on the largest 

banks to help pay back the taxpayers’ TARP funds. The banks are 

objecting to this modest fee to pay back the taxpayers because of 

the supposed effects on lending, they claim, and the cost to consumers. At the same time, many of these entities are paying some 

of the largest bonuses to their own executives. 

So, one, how do they reconcile that position? Second, should we 

not be looking after banks to pay back taxpayers for TARP in a few 

years? Should we not have those banks continue to pay into an insurance fund so that in the future banks, rather than taxpayers, 

effectively, would be paying if one of them fails? 

26 

Secretary GEITHNER. Senator, I do not think there is any significant risk that this fee, as we designed it, would have a negative 

impact on lending, probably for the reasons you said: banks do not 

have to pass this on, and modest reductions in the compensation 

budget would absorb the cost of the fee. 

We think it is absolutely essential to make sure that, in financial 

reform legislation, we are meeting a basic common-sense test, 

which is, if the government has to take risk or loss in the future 

to put out some future financial fire, we do not want the taxpayers 

to have to bear the burden of that cost. That is why we have proposed to make sure that they do not bear a penny of cost under 

TARP for what we had to do in AIG or anywhere else, and we want 

to make sure in the future that taxpayers are not on the hook to 

save large financial institutions from the consequences of their mistakes. 

Senator MENENDEZ. And the question is, how we do that, whether we do it prospectively or retroactively? It just seems to me that, 

when we do not do it prospectively, we put the taxpayer out there, 

and then we seek to recoup it. So, it is something we look forward 

to working with you on. 

Second, I find it ironic that some of my colleagues on the other 

side of the aisle, who passed $2.5-trillion worth of unpaid-for tax 

cuts and failed to pay for two wars, passed an expanded drug benefit with an overwhelming Republican majority without financing 

one dime’s worth, have now rediscovered the issue of the deficit. At 

the same time, I hear the same voices clamoring on that, saying 

let us fully repeal the estate tax. 

What sort of consequence would it be to our deficits if we fully 

repeal the estate tax? Is there not a way to get about 98, 99 percent of all Americans exempt from the estate tax but not bust the 

deficit in the process and allow us the room for the middle-class tax 

cuts that the President’s budget calls for? 

Secretary GEITHNER. Senator, we believe what the President has 

proposed, and we hope to work with you to do, is to extend the 

rates and exemptions that were in place in 2009 and make them 

permanent. We hope Congress will act and make those changes retroactive to January 1st of this year. We think that is fair. It captures only a very, very tiny fraction of all estates, between 1 and 

2 percent. We think it is fair to do it that way. We do not think 

it would be responsible to—— 

Senator MENENDEZ. That is, 98 percent of Americans would 

never—— 

Secretary GEITHNER. Probably 99. 

Senator MENENDEZ. So 99 percent of Americans would never pay 

an estate tax, only the wealthiest 1 percent would. 

Secretary GEITHNER. Again, what we are proposing to do is take 

what was in place in 2009 and make that permanent. That is a 

lower rate and broader exception than would be in place if Congress did not act this year, because it would go up higher in 2011. 

Senator MENENDEZ. Well, that gives us the opportunity to create 

absolutely no liability for about 98, 99 percent of Americans and 

gives us the opportunity to pursue the middle-class tax cuts instead 

of busting the budget. 

Secretary GEITHNER. That is correct. 

27 

Senator MENENDEZ. Lastly, last year you and I discussed my concern regarding a current law tax loophole using reinsurance between affiliates that allows foreign-based insurance companies to 

ship their revenues offshore and avoid paying taxes. This is behavior that gives foreign insurers a significant advantage over U.S. 

competitors, which both hurts our domestic companies and blows 

significant holes in our tax base. 

I am pleased to see that this year’s budget has a proposal to seek 

to resolve this problem, however, I note the approach you all take 

differs from the approach of the Senate Finance Committee discussion draft and a similar bill introduced in the House. Could I get 

you to commit to me that you are willing to work to make this a 

priority and have your staff work with those of us on the Finance 

Committee to find common ground to effectively close this loophole? 

Secretary GEITHNER. Yes, of course we would be happy to work 

with you on that. 

The CHAIRMAN. Thank you. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator. 

Senator Enzi, you are next. 

Senator ENZI. Thank you, Mr. Chairman. 

One of the things I have been concerned about in the budget is 

the way that small businessmen are going to be affected by the tax 

increases. They talk about it being over $250,000 in revenue. I 

know a young couple from Gillette, WY who started a restaurant. 

It was very successful. They have expanded it out to eight restaurants. 

I went to their newest restaurant in Casper and ran into one of 

the people who started it. He said, you know, we started this with 

$2,000 in our pocket. We now have eight restaurants, and we still 

only have $2,000 in our pocket. Everything they made, they put 

back into the business. But we are going to stifle the economy by 

stopping them from putting it back into the business because we 

are going to make them pay it to the Federal Government instead. 

I appreciate your comments on small business that you made. 

You will remember, in your confirmation hearings, I mentioned 

that a small businessman from Montana had mentioned to me the 

need for $5,000 per new employee in order to be able to expand 

their business, and I appreciate, particularly, that number being in 

there. There are a bunch of complications that I will work with you 

on to be sure that we are expanding jobs in order to get that, but 

we also need to expedite the way that they get that. 

The $30 billion in small business lending that you mentioned in 

your opening statement, would that be funded through the SBA? 

Because the SBA has some requirements about showing that you 

cannot get money before you can get money, and it takes a long 

time to go through the process because you do not have enough 

money to begin with. So they are trying to get the money to the 

people who need it the most, but in the meantime that kind of stifles the economy. So is there a way to get that through the banks 

instead? 

Secretary GEITHNER. Senator, excellent questions. Let me just 

start where you ended, and then I want to come back to the beginning. We are proposing both to expand what the SBA can do by 

28 

raising the loan limits, and lowering the guarantee fee on the most 

successful SBA programs. 

Karen Mills at SBA is working very hard to make sure that she 

reduces and streamlines the requirements in those programs without leaving the taxpayer more exposed to risk of loss. But we want 

to complement that by trying to make sure we are helping community banks, too. So the $30-billion program the President referred 

to is to take $30 billion of repayments we have gotten from the 

largest institutions, put those aside to help make it available to 

help community banks that are committing to support small business lending. 

I did want to come back to the point on the tax side, though. This 

is very important. We are, in the interests of what makes sense for 

the economy and in the interests of certainty and clarity, proposing 

to make permanent the tax cuts now in place for people earning 

below $250,000. As I said, that is about 97 percent of small businesses. The increase only affects 2 to 3 percent of small businesses. 

But we are also—and this is very important to emphasize—proposing to extend the expensing provisions to expand the accelerated 

depreciation allowances, proposing to make permanent the R&D 

tax credit, and we are proposing a very well-designed additional incentive to small businesses that add jobs and increase wages and 

payroll. We think that is a very powerful package that gives assistance and clarity to small businesses, on balance. So I hope we can 

work with you, and we hope we find common ground on what we 

think is a very well-designed, powerful package of tax measures. 

Senator ENZI. Thank you. I will switch, because of my limited 

time, to another topic here, and that is, you are proposing eliminating tax preferences for the oil and gas industry and for the coal 

industry. That will cost jobs in places like Wyoming, and it will increase the taxes on the oil and gas industry and on the coal industry, and those will be passed on to consumers in their electricity 

bills and at the pump. So I am kind of curious as to how we are 

going to increase the taxes on those industries and keep it from 

being a hidden tax on everyone else. 

Related to that, there is also an abandoned mine land tax that 

the President is talking about eliminating in certain cases. That is 

actually a law that was passed. It was not an appropriation. That 

was one crafted by Senator Baucus and I, and others, that was designed to extend the abandoned mine land tax, which for 30 years 

had promised that those States that received it would be paid back 

that money. It was kept in the trust fund, and what we have done 

is released that money. 

In exchange, we got the companies to agree to extend the tax. We 

got the unions pleased that we were able to take care of orphaned 

minors. All of those things, plus the production, stand a chance of 

having difficulties if we eliminate those payments. So, I hope that 

we will take another look at that. 

Secretary GEITHNER. Senator, I am happy to work with you and 

make sure we understand your concerns with how that was designed and proposed. You are right, we are proposing to eliminate 

a set of subsidies that now go to the oil, gas, and coal industry, and 

those will raise significant resources over time. We are doing that 

not only for the reason that we think it is part of being fiscally reVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
29 

sponsible, but because we think we need to eliminate subsidies in 

the system that go to objectives that conflict with our broader effort 

to try to improve energy efficiency and reduce carbon emissions, 

but we recognize they will be difficult. 

We do not think they are going to have any effect on prices. We 

do not think they will. People may disagree about that, and they 

have been carefully designed in that sense. But I understand that 

is going to be difficult and hard, and we would be happy to work 

with you, particularly on your concerns about the way the abandoned mine proposal was designed. 

Senator ENZI. Thank you. 

The CHAIRMAN. Thank you. Mr. Secretary, I share the concern on 

that program with Senator Enzi, and I hope we can work that out. 

Senator Carper, you are next. 

Senator CARPER. Thanks, Mr. Chairman. 

One of the reasons I sought for so long to serve on this committee—8 years, actually, before I finally succeeded in getting 

here—was I have always admired the bipartisan way that this 

committee works. That history and that characteristic has really 

been tested over the last year. We have the opportunity, as we sort 

of reset here for a bit and focus on jobs and job creation, to go back 

to the tradition that would help make this effective, and I think 

very much admired, here in the Senate. 

Mr. Secretary, yesterday was Mike Enzi’s birthday, today is John 

Cornyn’s birthday. I could probably offer a resolution commending 

both of them on their birthdays this week; I do not know that I 

could get 60 votes for it. [Laughter.] 

Well, I might be able to. 

Senator CORNYN. Well, I bet you could not. 

Senator CARPER. I might be able to. 

Senator CORNYN. Not for commending us, but for committing us. 

Senator CARPER. We could get it out of committee, but after that 

I am not sure what would happen. 

Well, I am going to ask you to spend a minute or two. You have 

outlined in your oral testimony—I got a copy of it, thanks to your 

staff—what seemed to be pretty good common-sense ideas to try to 

keep job creation activity going as we move from a huge net loss 

of jobs a year ago to something almost dead even right now. 

But you have outlined some ideas that it would seem to me 

would not only enjoy Democratic support, from the administration 

and from folks on our side, but a number of our Republican friends. 

I just wanted you to come back, and just talk to us about the ones 

where you see the most potential for common ground, moving the 

package forward, and why. 

Secretary GEITHNER. Well, Senator, we have tried to take what 

we think are the best ideas from both sides in this area, and I 

think at the core of this agenda is the recognition that businesses 

need to be able to grow if we are going to create jobs, and that requires that government do things that are going to help make that 

easier, not harder. 

Businesses have a huge stake in making sure that we have the 

government investing in research and development, providing targeted tax incentives that will help the technologies of the future, 

and making our education system do a better job of educating our 

30 

children. These are things that business needs, businesses rely on. 

I think at that core, these suggestions should have broad support. 

I tried to say when I began that you have people on both sides 

of the aisle now saying very important things, saying that deficits 

matter, tax cuts are not free, that if we are going to do more programs we have to pay for them, that we have great fiscal perils 

ahead, but that our priority right now is growth and jobs and confidence. 

So I think at that core message, again, our hope is, and I think 

what the American people want to see, they want to see their leaders coming together and trying to bring practical solutions to those 

problems. We provide a set of suggestions for doing that. We do not 

have a monopoly of wisdom, a monopoly of ideas, and we will be 

open to other suggestions. But I think our test is going to be, again, 

what is going to offer the best prospect of support now to help repair what is broken in our country, get people back to work. 

Senator CARPER. I am going to ask you to be a little more specific, if you will—thank you for what you just said—in terms of the 

proposals that you submitted to us, whether it be $17.5 billion in 

SBA loan guarantees, whether it happens to be the $5,000 tax 

credit for those who hire new, that is one agenda, but a good agenda. 

Secretary GEITHNER. Business expensing, accelerated depreciation, permanent R&D tax credit, zero capital gains for new investments in small businesses, a new jobs tax credit that rewards 

small businesses and expand employment and wages, SBA credit 

to small community banks. 

Those things that I have heard from members on both sides of 

the aisle are very important to them. Again, they meet that basic 

test: they are pro-growth, they are pro-jobs, you can do them in 

ways that are fiscally responsible, and you can look at people and 

say a dollar of taxpayers’ money will make a difference in those 

areas. But those are just some things. 

Senator CARPER. I just heard my colleagues on the other side, 

Mr. Chairman. Those are pretty good ideas. They are not just 

Democratic ideas, they are not just Republican ideas. Those are 

pretty smart ideas. I would hope that we could find common 

ground. 

As my time runs out, Mr. Secretary, I had spoken to you before 

about another idea that could help free up a lot of money that is 

tied up in the student loan auction rate securities, university dollars. The Department of Economics has actually studied this, and 

they say we could free up a lot of money, an estimated $60 billion 

provided for a stimulus that would not cost taxpayers—as far as I 

can tell—a dime and would translate into potentially up to 400,000 

jobs or more. 

I have raised this with you; I have raised it with others in the 

administration. I thought it was a good idea when the University 

of Delaware brought it to my attention, and I still think it is a good 

idea. I would lay it at your feet once more. Thank you. 

Secretary GEITHNER. I want to just emphasize that Chairman 

Mary Schapiro at the SEC and State IGs across the country are 

working on that. You are right to say there is a lot of money still 

locked up in that, and I would be happy to spend time with you 

31 

working through it, or other things that we can do to help on that 

problem. 

Senator CARPER. Thanks for being here today, and thanks for 

your service. 

The CHAIRMAN. Senator Kyl? 

Senator KYL. Thank you, Mr. Chairman. 

Secretary Geithner, first let me talk about the bank tax, or fee. 

How many firms will pay the tax that did not directly receive 

TARP funds? 

Secretary GEITHNER. I do not think I can give you the exact number today. I would be happy to respond in writing on that. 

[The information appears in the appendix on p. 108.] 

Secretary GEITHNER. We have set it to make sure that it only 

hits firms that are above $50 billion in assets. Again, those were 

the firms that we think were the principal beneficiaries of what we 

had to do to fix the financial system, even though not all of them 

were direct recipients of taxpayers’ money. 

Senator KYL. Yes, we all benefitted from it indirectly. Yes or no? 

Secretary GEITHNER. But they also—— 

Senator KYL. Did all of America indirectly benefit from the infusion of TARP funds? 

Secretary GEITHNER. Absolutely. 

Senator KYL. Good. All right. Thank you. And I will appreciate 

getting the number of those that directly received the funds. 

The point is, some banks will pay for this, or entities will pay 

the tax that did not directly receive the funds. Of those that did, 

were there not some that were reluctant to take the funds and, in 

fact, argued that they should not have to? 

Secretary GEITHNER. Well, I have read that, but I actually think 

a fair reading, looking back, is that that capital was essential to 

all of them. 

One quick point, Senator Kyl. You need to look—as I know you 

do—they all benefitted from the guarantees the FDIC provided, the 

emergency guarantees they provided also. 

Senator KYL. All right. Well, let us just go with that then. Because what you said is you are going to keep the fee on until the 

taxpayers are made whole, and this is almost a direct quote, the 

taxes on the banks that benefitted most from TARP. 

Now, I think you are shooting at the wrong target because, is it 

not also true that the entities to whom this tax will apply either 

have already paid, or are expected to repay, what they directly received in the way of TARP funds? 

Secretary GEITHNER. Exactly. But the law is—— 

Senator KYL. All right. All right. So the banks that are going to 

be taxed, some of them did not receive direct funds, some contend 

that they did not want to take the funds, and in any event they 

have paid them back. Now, there was an implicit guarantee for 

some other folks, however, and a direct guarantee, and they have 

not paid money back that they received from the government. I am 

talking about General Motors, AIG, the Government-Sponsored Entities. So they are the ones that have not paid the money back. 

Why tax entities that have paid the money back, but not tax the 

entities that have not paid the money back? 

32 

Secretary GEITHNER. Senator, the way the law was written, it 

puts an obligation on me to propose to the Congress how to make 

sure we recoup any losses. So the question is how to do that. We 

have the obligation, so the question is how to do that. Again, what 

we designed—and this is a proposal Congress has to consider—is 

a proposal that is targeted to people we thought benefitted most 

from the financial actions we took to rescue the economy. It is fair 

in that way, and it is designed, in a sense, as a fee on risk, as a 

fee on leverage, and that will help reinforce an objective I think 

many—— 

Senator KYL. But you could also, under that same logic, apply 

the tax to the three types of entities that I just mentioned. 

Secretary GEITHNER. Well, there is no perfect way to do that. 

Senator KYL. They benefitted. 

Secretary GEITHNER. Yes. But as you said, of course you could 

cast it much more broadly. You could cast it on every bank in the 

country. 

Senator KYL. Is it not the fact that you are trying to go after the 

people who have the money, and that is the banks that have repaid 

the money, and should you not be trying to examine a way to get 

the money back from the entities that I mentioned? 

Secretary GEITHNER. We are going to work very, very hard to 

make sure that we get as much back as we can from those entities, 

and we are going to be, I think, remarkably successful relative to 

what anybody said. But we are still left with that obligation in the 

law. 

Senator KYL. Could you send a letter to the committee at an appropriate time indicating how you think you might be able to get 

more of the money back from the entities that I mentioned that are 

not subject to the—— 

Secretary GEITHNER. Absolutely. 

Senator KYL. Now, let me, before the time is out, ask you about 

the dollar. You have a responsibility for managing dollar policy, 

and I gather you believe in a strong American dollar. 

Secretary GEITHNER. Of course I do. In fact, that particular 

phrase and commitment of policy was first written in my office at 

the Treasury Department in 1995. 

Senator KYL. Great. Now, let me just ask, does issuing more government debt make the dollar stronger or weaker? 

Secretary GEITHNER. Senator, I think you are raising the right 

question, which is that, if the world does not have confidence in our 

ability to manage our financial future, then we will lose confidence 

in—— 

Senator KYL. Is not an honest way to answer the question that 

issuing more government debt makes the dollar weaker, and that 

is a real problem, and we need to do everything we can to work 

around that problem? It is probably not the best idea in the world 

to be taking on more debt if we want to have a strong dollar, but 

there are policy reasons that cause the President to want to do 

that? 

Secretary GEITHNER. No, I would not say it that way. It is very 

interesting, if you look back at what has happened in the last year. 

Senator KYL. Go ahead and say it. 

33 

Secretary GEITHNER. When the world was in crisis, when people 

were deeply concerned about the stability of our financial system 

and about the stability of the global economy, people still wanted 

to hold dollars and hold U.S. financial assets. The dollar rose over 

that period of time, and our borrowing costs fell even though we 

were taking exceptional actions to help fix this economy. That is 

because they believed in us. They thought we were going to fix it, 

and they were counting on us to do that. 

Now, as people become somewhat more confident, they are willing to take risk again. That is really the story in this period of 

time, and Americans should really understand this. When the 

world was most at risk and most scared, people were still putting 

their resources in dollars—— 

Senator KYL. I understand what you are saying. Excuse me. The 

time is—— 

Secretary GEITHNER. And we want to preserve that. 

Senator KYL. Yes. But here is the point. We are talking about 

next year’s budget and the huge deficit that we are going to incur 

next year. There is a point at which our lenders are not going to 

have that same kind of confidence. Would you not be willing to 

state that you agree with me that it is not a good idea to have a 

big deficit if we want to have a strong dollar? 

Secretary GEITHNER. I agree completely with you that, if we do 

not make people believe that we are going to fix those deficits, 

bring them down over time, then we will risk losing confidence in 

our financial future, and that will raise interest rates, you will 

have less investment, and that will be bad for the American economy. 

The CHAIRMAN. Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. 

Mr. Secretary, why not take the $30 billion in resources that the 

President has outlined for small business and implement a program immediately as opposed to working its way through a legislative process in Congress? 

Secretary GEITHNER. An excellent question. I think the best way 

to say it is this. We have been trying for 8 months to try to get 

community and small banks to come and take capital from the 

Treasury under programs many of you supported and use that to 

lend. Frankly, they have not been willing to come. They took back 

their applications by the hundreds because they were worried 

about the stigma and the conditions. 

Now, it may be that that would fade over time—— 

Senator CANTWELL. Mr. Secretary, I do not think that they were 

worried about the stigma of TARP dollars. I do not think they liked 

the terms of the agreement. For somebody who gave 100 cents on 

the dollar to AIG, I think you would understand that the terms of 

the agreement matter. 

Secretary GEITHNER. I agree with that. I agree with what you 

said. 

Senator CANTWELL. Why not implement a program now—we 

have small businesses every day that are folding. We acted with 

urgency when it came to the big banks, but when it comes to the 

small banks and small businesses, Americans are being told, no, we 

are not going to design or come up with a program. So you are 

34 

right, the Inspector General has said you were supposed to come 

up with a program last March, and you have not come up with 

that. 

Secretary GEITHNER. Well, no. But that is not quite true, Senator. Again, we have substantially expanded resources to community development financial institutions. We have had a program in 

place that is very attractive on its financial terms to small community banks. Some have come. Most people have been reluctant to 

come. You are absolutely right that terms matter. This is not something that takes any time, this is easy to do, but it requires legislation. 

Senator CANTWELL. Excuse me, Mr. Secretary. It does not require legislation. We have been in consultation with CRS, and they 

say it does not. You said you could not do the bail-out to the auto 

industry from TARP either without legislation, and then when we 

did not pass legislation—— 

Secretary GEITHNER. I never said that, Senator. 

Senator CANTWELL. Well, that is exactly what happened, and 

help was given to the auto industry by the administration afterwards. So I am sitting here with a high-tech company in my State 

that had a performing line of credit pulled by Bank of America and 

ordered to repay within 30 days. The CEO took himself off of the 

payroll just so they could barely survive. 

I have a woman who is a State employee with no debt, a credit score over 800, $400,000 in a home, but she has 25 banks who have 

denied her access to a line of credit. When the FDIC closed the 

Bank of Clark County, they basically unilaterally cut customers off 

of their original—we had a company, Columbia Gin, forcing their 

owner to try to fund the company out of his own pocket; a restaurant, very popular in that area, its assets were frozen and taken 

over. These are not people who caused the problem; these are people who had performing lines of credit, and they have had their 

capital cut right out from under them. 

Secretary GEITHNER. Senator, I could not agree more with you. 

What happened in this is deeply unfair. People who were careful, 

they were prudent, they were responsible, they ran good businesses, but they were—— 

Senator CANTWELL. Where is the urgency, Mr. Secretary, in solving this? If we go through a legislative process here and we take 

another 90 days—and who is to say that in that legislative process 

you will have had the right criteria and the right terms anyway? 

We could come out of that just as the TALF program did, just as 

these other programs that were supposedly going to help small 

business did, and we find out it has not solved the problem. 

So my point is, why wait? Why not come to terms right now with 

community banks? Because the big banks—somebody came to 

terms with them, and they walked away very happy customers, but 

small businesses in America are not getting access to capital. 

Secretary GEITHNER. Senator, we want to fix this as quickly as 

we can. Nothing would make me happier than if small banks want 

to come today to the program we have in place today and take capital from it. But they have in some ways voted with their feet; hundreds and hundreds took back their applications because of concerns about terms. It is not hard, I think, in this way for a ConVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
35 

gress to do a quick, deft, surgical, powerful act to reduce their concern that the conditions they face would make it untenable to run 

their businesses. I do not think that is hard to do. 

Senator CANTWELL. I think, Mr. Secretary, you should take swift, 

deft action to implement that immediately. If you do not get it, 

then understand, that is what people in America are angry about. 

They are angry that that is what happened. The past administration took swift, deft action to help the big banks on terms that 

some people find outrageous today. Now these small banks are not 

getting access to the terms that would help small business. 

These are not unfair terms, these are not unfair justifications, 

but people put the screws to the community banks and gave all the 

money away to the big banks. If we do not implement change right 

now, we are going to lose more jobs. We cannot propose a budget 

that talks about credits for keeping small business while, right 

now, people are cutting lines of credit to small business and they 

are laying off people. 

Secretary GEITHNER. I agree. This is not about the fiscal year 

2011 budget, and I agree about the urgency completely. Completely. I completely agree. 

Senator CANTWELL. Well, I would urge you, Mr. Secretary, I am 

telling you, they are coming in to my office every day with these 

stories. I would urge you and the administration to act now. Do not 

wait for legislation. Come to terms with the community banks on 

reasonable terms that they can agree to with a broad spectrum of 

daylight, and I think that we will be well on our way to getting 

Americans back to work. 

Secretary GEITHNER. I agree with you. The President agrees, too. 

We are happy to work with you and your staff on the best ideas 

of how to do that. 

The CHAIRMAN. I think there are a lot of Senators who share the 

concerns raised by Senator Cantwell. 

Senator Nelson? 

Senator NELSON. Well, this Senator certainly does. I can tell you, 

daily, Mr. Secretary, I hear the same kind of cries of anguish of 

small businesses going out of business because the banks will not 

lend. You go to the community banks, and they say the same thing 

that I raised with you in the Budget Committee 6 months ago, 

which is the community bankers say, well, we cannot lend because 

the regulators will not let us lend. When I raised this with you in 

the Budget Committee last summer, you said, well, we have a 

problem—I am paraphrasing—we are going to in essence educate 

the regulators so that these banks will lend. But the system has 

not worked, and we are now 1 year after you all have taken office. 

Where did it go? 

Secretary GEITHNER. Community banks that I speak to, and I 

think they say the same to you, what they say to us is, they have 

three big concerns. One is, they are very worried that, in financial 

reform, they are going to be subjected to additional burdens that 

make it hard for them to run their institutions. That is not for the 

present, but that is something they are very worried about. We believe we can work on a financial reform package that will be responsive to those concerns. 

36 

The second thing they say, they say that our examiners and our 

supervisors are killing us. They say, after a period where they were 

very supportive of what the banks were doing, they are now overcorrecting, and they are making it harder for them to make new 

loans to customers they believe in and they support. We hear it 

from everybody. I completely understand it. 

I am the Secretary of Treasury. I do not have the ability to affect 

and direct what those independent supervisors do. They have made 

some efforts to put out qualifying guidance. They did last November. The chairman has said he is looking for other guidance, things 

they can do with the FDIC and the OCC to be responsive to that 

concern. But you are absolutely right. They say the same things to 

me. It is not any different. 

The third thing they say is, we need the ability to get capital and 

more help from the SBA. What they say is that we need a little 

bit more confidence that, if we come and take that capital, we are 

not going to be subjected to conditions in the future that are going 

to make it hard for us to run our banks, so we are trying to navigate through those pressures. But I completely agree with you. 

They say the same thing to us, and basically they have it right. 

Senator NELSON. Well, the system is not working. We are the 

government. We are supposed to help the people by making the 

system work. You say you do not have any control over the regulators, but your boss does. Your boss is the President of the United 

States, and he has the power of persuasion. What we would say in 

the South, well, go have a little prayer session with them. We have 

to get the system functioning. 

Now, let me ask you about something I think you can agree with. 

Secretary GEITHNER. I can agree with everything you said on 

that, too. 

Senator NELSON. Well then, let us make it work. All right. 

We agree on the fact that bank executives have been getting 

away with these big bonuses and so forth, so there are a bunch of 

us who are introducing a provision whereby banks’ future tax deductions, large banks, that they are going to depend on responsible 

executive compensation. 

The form would require banks to adopt policies that reward longterm performance, so extended vesting pay, employer stock, clawback arrangements for misconduct, all of those things would be required. The banks that adopt these responsible pay practices for 

their executives would therefore see no loss in benefits, and banks 

that continue those irresponsible executive compensation practices 

would see their bank taxes rise. Is that something you can get behind? 

Secretary GEITHNER. I think you had exactly the right objectives, 

exactly the right standards, how to encourage more prudent risktaking and not incent short-term risk-taking, make sure you have 

longer vesting periods, et cetera. We completely support that. I am 

happy to work with you and your colleagues on how best to achieve 

that. We think a centerpiece, of course, is trying to make sure that 

shareholders have the right to vote on those packages, that there 

is more disclosure and transparency, and that the supervisors are 

enforcing just those standards, but I would be happy to take a careful look at your suggestions. 

37 

Senator NELSON. All right. 

We are about to introduce that. There are a bunch of us who are 

doing this. I would just say in passing, remember—and I have 

talked to you until you are sick of me talking to you about this— 

Florida and other areas of the country are different in the homeowners’ mortgages that are under water. Forty percent of the mortgagees in Florida are under water. 

This loan modification program that you all have started, the 

banks are using those trial modifications as a way to delay the recognition of the loan losses, and they are not making the permanent 

changes in the loans. Our people are hurting, and they cannot get 

the mortgages extended so they can stay in their homes and keep 

their lives going and keep the property values in the neighborhood 

from just plummeting, and that would happen when they are foreclosed. Please, we need help. 

Secretary GEITHNER. Senator, I agree with you. I think a critical 

thing we have to do is to make sure that those temporary modifications get converted into permanent modifications. They provide 

very, very substantial cash flow relief to what is now more than 

three-quarters of a million Americans. But we want them to be 

translated into permanent modifications for just the reasons you 

said. 

The CHAIRMAN. Thank you, Senator. 

This is perhaps re-plowing old ground. You mentioned three 

things you hear from banks and their concerns about getting capital to loan to a small business. Could you specifically address what 

is being done in the administration with respect to each of those 

three concerns? 

Secretary GEITHNER. Exactly. 

The CHAIRMAN. Because I think Senator Nelson makes a good 

point. You may not have direct authority over some of the independent regulators, but you are, after all, Treasury Secretary. You 

have very credible influence in this administration. So, what is 

being done? 

Secretary GEITHNER. All right. The first concern: is it really a 

concern about regulatory uncertainty principally in terms of design 

of the financial reform package moving through the Congress? In 

the House—and I know Chairman Dodd is working very carefully 

to try to make sure there is a balanced approach that encourages 

innovation and competition, consumers have choice, we are protecting banks from competition by unregulated entities—we are 

working very closely together to try to address those concerns. 

Second, is the concern about supervisors. This is a tragic pattern 

in financial crises. What happens is, you have a long period where 

credit is too cheap, it is too easy, it is too available. Then when 

things turn, they over-correct: examiners over-correct, markets 

over-correct, banks over-correct. This is a very important issue. 

The supervisors are worried about it, too. They are trying to send 

a more consistent signal across the army of examiners across the 

country for more balance and more care so they do not over-correct, 

and I think they have more work to do in that area. 

Their concern is about, not just the way the SBA program works, 

but how to make sure they can come take capital under the programs we described and use that for things they believe in. As SenVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
38 

ator Cantwell said, it is not just the financial terms that matter. 

The financial terms of these programs were quite attractive, and 

there are many sensible conditions in that program too, but they 

are worried that the full bulk of conditions and the fear about future conditions will make them vulnerable if they actually come. 

We need to be responsive to that concern, because it will not 

work if we put something out again and nobody comes. So, that is 

the test we have to meet. We are working very closely with many 

of your colleagues, including Senator Warner and Senator Landrieu, on ways to make sure we adapt this program so that they 

will actually come and use it and use it to expand small business 

lending. 

The CHAIRMAN. Another question is on health care. Could you explain how health care reform will help businesses? 

Secretary GEITHNER. Senator, you can do this, I think, better 

than anyone in the country. 

The CHAIRMAN. As well as get the deficit down. 

Secretary GEITHNER. Yes. Our long-term fiscal costs are primarily driven, fundamentally driven, not just by the aging of our 

population, but by what is happening to health care costs. The only 

way to reduce the long-term deficit is to reduce the rate of growth 

in health care costs. 

Now, this is not just about the future. The system we live in 

today is not fair and is very expensive to small businesses. They 

are the ones that pay much more, for those that actually pay for 

health insurance. They are the ones that face, in many ways, the 

most rapid growth in cost. They bear a substantial part of the hidden cost in the system today. 

We are not helping them if we leave that system in place. We 

are going to be left with a worse fiscal problem and the risk of 

eroding confidence in our capacity to manage that fiscal problem if 

we cannot demonstrate we have the capacity to put reforms in 

place that change how people use health care and reduce that rate 

of growth in costs. It is good policy for the private sector, the business community, and for the country to do things that will reduce 

the rate of growth of costs in health care. 

The CHAIRMAN. Have you given some thought to addressing corporate governance? Shareholders, in many cases, really do not have 

much authority, as a practical matter. Executive compensation 

committees are often handpicked by the top person. That gets to 

other, similar questions. To what degree are our corporate governance laws/rules a bit dated, and to what degree is the administration, and maybe you, looking at ways to address that? 

Secretary GEITHNER. I agree with you that part of what failed in 

our system was a failure of boards of directors of financial institutions to exercise their responsibility. You are not going to have 

firms run in the interests of their shareholders over the longer 

term if you do not have boards of directors that understand the 

business of banks and are able to exercise a set of constraints and 

checks and balances on what management is doing. 

Now, one of the most important things we can do is improve disclosure to the public and to investors, not just about compensation 

packages, but of the broader risks the firms are taking. That will 

help give the market shareholders a bit more leverage and influVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
39 

ence over these decisions and help boards of directors do a better 

job. 

But I think the basic responsibility of government, particularly 

in the financial sector, is to set and enforce better-designed constraints on risk-taking. We cannot run a system based on the hope 

that shareholders will be able to act in their long-term interests, 

that boards of directors will always be wise and knowledgeable 

about the future. 

It is the job of government to make sure there are constraints in 

place, sensibly designed, that limit risk-taking by those institutions, because there will be times when the interests of the management, the boards, and the shareholders may seem to conflict 

with what is in the broader interests of the stability of the financial 

system. 

The CHAIRMAN. Thank you. My time has expired. 

Senator Grassley? 

Senator GRASSLEY. I just have two questions, one on education 

and tax policy and the other one on questions of oversight, given 

that we have not gotten documents from you. 

On education, I think I can say with confidence that every Senator is concerned about high inflation in the cost of education. 

Chairman Baucus and I included a package of education tax relief 

provisions in the bipartisan 2001 Tax Relief bill because of that 

concern. Recently I introduced legislation to make that package 

permanent, and I am pleased that the administration’s budget includes similar measures. 

The administration’s budget also includes an expansion of higher 

education entitlement provisions enacted last year. The provision 

would lower the cap on student loan payments from 15 percent to 

10 percent of a graduate’s income, and then would forgive any remaining balance in 20 years instead of 25 years. 

As would be expected, this new entitlement is very popular, but 

some experts worry about two risks from fiscal exposure of the entitlement. One risk would be higher-than-expected interest rates; 

the second risk would be a continuation of a 30-year trend where 

higher education cost inflation exceeds general inflation. 

As a manager of our Federal debt, I assume that you ought to 

be, and are, concerned about the potential of unlimited Federal liability. Since 2008, through this committee’s oversight functions, I 

have been reviewing the activities of universities with large endowment funds. For instance, the Harvard endowment was last valued 

at about $26 billion, just about the size of the Gates Foundation— 

of course, that is a private foundation. 

Our hearings and investigation found a policy paradox; while 

these universities are accumulating large endowments, they are at 

the same time raising tuition and other expenses at alarming rates. 

Parents and students bear the cost of that burden. It does not 

make sense to have tax-favored endowments and tuitions both 

growing geometrically. While some of these institutions voluntarily 

agreed to increase financial aid, there is no fixed policy to protect 

middle-class families from future tuition hikes. 

So my question: with everyone concerned about rapid inflation in 

higher education costs, aside from proposing more popular entitlements, what is the administration willing to do to provide incenVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
40 

tives to colleges to keep costs down? I ask this question because 

parents and students are on the hook, and under this budget the 

Federal Government would be on the hook to even a greater degree, as I read the budget. 

Secretary GEITHNER. Senator, I thought you stated the challenge 

exactly right. I am not sure—actually, I could probably say with 

confidence, I do not think we found the best mix of policies to try 

to give Americans confidence that they are not going to see the 

same rate of increase in tuition they have seen in the past. 

We do think it is good public policy to make higher education 

more affordable to Americans. We want to make sure that people 

have the chance to go to college and that we are generating a larger number of college graduates as a share of our population in the 

future. That is good policy. We think there is a very high return 

on that. But we are happy to hear your ideas and listen to you, 

work with you on ways we can help, sensible ways we can limit future rates of growth in tuition. 

Senator GRASSLEY. Congress would not have to pass a bill if the 

President would give equal time to helping middle-class families 

by, as he is doing, jaw-boning banks and Wall Street, et cetera. 

There would not be a disagreement with me on his part for doing 

that if he would do the same thing with some of our major universities, or all of our universities, for increases in tuition. 

Let me go on. In December, I asked you for details regarding the $168-million AIG retention bonus payments paid in 2009 and the 

$198 million in AIG retention bonuses planned for March of this 

year. Some of the AIG executives promised to return $45 million 

of the 2009 bonuses, but that did not happen. Nevertheless, AIG 

still plans to pay $198 million in bonuses this year. 

Last week I received a letter, not from you but from Kenneth 

Feinberg, Special Master for TARP, on executive compensation. He 

said you asked him to reply on your behalf. He offered to brief me, 

but did not provide the documents I requested. 

The offer of a briefing is appreciated, but first I need the documents. This is especially frustrating because I read in the press 

that AIG has offered to pay the 2010 bonuses early, by the end of 

this week, I have been told, rather than in March. AIG is reducing 

the amount of bonuses by 10 percent rather than collecting on broken promises some executives made to repay 2009 bonuses. 

The terms of this bonus deal are exactly the sort of information 

that should have been provided to Congress earlier in response to 

my request. We should not have to read about these things in the 

newspaper, only to have it a done deal. When will I receive the documents I requested in my December 24, 2009 letter, and why is 

Treasury allowing AIG to pay bonuses again this year? 

Secretary GEITHNER. Senator, I will commit to you that we will 

work as quickly as possible to make sure you have the information 

you need to provide the oversight that this committee has to provide in this issue, and all other issues. 

I just want to emphasize that Ken Feinberg, whom I appointed 

to try to make sure we are fixing what happened in compensation 

structure for this set of institutions, is working very hard on just 

the concern you raised. I am sure he will be able to provide a little 

more detail in public, and is ready whenever you need his judgVerDate Nov 24 2008 19:37 Jun 07, 2011 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 R:\DOCS\66486.000 TIMD
41 

ments. But in the interim, I will make sure we are providing the 

information you need and be responsive to your questions on this 

specific issue. 

Senator GRASSLEY. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Bunning? 

Senator BUNNING. Thank you, Mr. Chairman. 

I wanted to go back to something you said earlier about the Fed 

and oversight on AIG. You said that they did not have—— 

Secretary GEITHNER. Did not have any authority or responsibility. 

Senator BUNNING. Right. But they did have authority on almost 

every AIG major counter-party. Almost every, not all. Is that correct? 

Secretary GEITHNER. No, that is not quite correct, because a very 

large number of AIG counter-parties, on their derivatives transactions, were foreign banks. 

Senator BUNNING. I agree with that. I am talking about the 

United States of America’s counter-parties. 

Secretary GEITHNER. Many of those counter-parties were. 

Senator BUNNING. All right. 

Secretary GEITHNER. But remember, what is important to recognize is the Fed, under the laws of the land, had authority over institutions called bank holding companies. AIG had hundreds—tens, 

hundreds, thousands—of counter-parties that were not bank holding companies. 

Senator BUNNING. Correct. 

I want to go back to something that Senator Cantwell was talking about, because, if I heard it once I have heard it one hundred 

times from my community bankers, and that is that it is the Fed 

regulators that have stopped the flow of money out of the community banks to the small business person for fear of the Fed regulators coming in and consuming the bank or stopping all lending 

to the people who absolutely need the lending. I am talking about 

small businesses that have 50 jobs, and small businesses that need 

a line of credit, and on down the line. I am telling you, it is almost 

unanimous. It is not totally, but it is almost unanimous with the 

community bankers in Kentucky. 

Secretary GEITHNER. I have heard the same thing. I think that 

in many cases I am sure those concerns are justified, and I think 

you are exactly right to emphasize it, and I think you need to keep 

this message very clear to those supervisors and examiners: they 

need to make sure that they are not making this problem worse. 

It is very difficult as it is—— 

Senator BUNNING. They are both Federal and State examiners. 

Secretary GEITHNER. Yes. 

Senator BUNNING. The State examiners are scared to death that 

they are not going to be as tough as the Fed regulators. 

Secretary GEITHNER. I think all the examiners—this is what happens in a recession like this—are scared. They are looking over 

their shoulder. They are worried they are going to get killed and 

lose their jobs if they look like they are too soft in this environment. Many are concerned they were too soft before. Of course, the 

risk is that they will over-correct. 

42 

Senator BUNNING. All right. 

Mr. Secretary, I want to follow up on something you said at the 

House Oversight Committee hearing last week. You were clear that 

you supported the decision to pay AIG counter-parties off at par, 

no doubt about that, and that you played no role in the decision 

to cover up those payments. What I want to know is, if you thought 

then, and think now, that it was the right decision to keep that information of those payments private? 

Secretary GEITHNER. That is a very good question, but let me say 

what I said to your colleagues in the House. When the Fed disclosed that information in March of 2009, it looked like, to me, it 

was the right thing to do. I thought it was the right thing to do 

at that point, and I think it is reasonable for many people to say, 

looking back now, if it was right then, why not right earlier? 

But this is a very important thing for me to say: I did not stand 

in their shoes at the time. I have enormous trust and confidence 

in the integrity of the people who made that decision, and their 

care and experience and judgment. I do not know how to say it differently than that. It was the right thing to do in March of 2009. 

I understand why so many people would say, if it was right then, 

why not earlier, but that is hard for me to speak to since I did not 

sit in their shoes then. 

Senator BUNNING. All right. 

Then do you think it is appropriate for one Federal agency or 

regulator to negotiate with another Federal agency on behalf of 

somebody whom they regulate? Because that is what happened 

here. Your New York Fed lobbied the SEC to keep the information 

secret that normally would have been made public. 

Secretary GEITHNER. Again, I cannot speak to the details of that 

question, and I do not think that is an accurate characterization of 

actually what happened in that case, but that is something that 

you would better address to the Fed and to the SEC. 

Senator BUNNING. Do you think firms that receive government 

assistance should be less transparent than public firms that do not 

receive it? 

Secretary GEITHNER. Absolutely not, Senator. One of the most 

important reasons why our system is more stable today is because 

we forced and compelled a level of disclosure and transparency on 

our largest institutions about their risk of loss and recession than 

they or any of their foreign competitors have ever been subjected 

to. 

Senator BUNNING. Mr. Secretary, the Inspector General on TARP 

would disagree with you 100 percent. 

Secretary GEITHNER. No. 

Senator BUNNING. I read his report. 

Secretary GEITHNER. Not on this question, I do not think he 

would. Again, what made it possible for us to put out this financial 

fire with very little cost to the taxpayer was we made it possible 

for private capital to come in and pay us back. That was only possible because we forced a level of disclosure and transparency on 

these institutions that went dramatically beyond what existing regulation required. That was a sensible thing to do. 

Senator BUNNING. You have read the Inspector General’s report 

on TARP? 

43 

Secretary GEITHNER. Of course. 

Senator BUNNING. All right. 

Secretary GEITHNER. And I spent a lot of time with him and his 

colleagues, helping them work through and understand the choices 

we made in that context. 

Senator BUNNING. Well, just so I know that you read it. 

The CHAIRMAN. Senator Cantwell? 

Senator BUNNING. Thank you. 

The CHAIRMAN. Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. 

Following up on this issue with the small community banks and 

the examiner issue, as you are calling it—I will come back to the 

regulatory uncertainty issue. But on the examiner issue, is the 

issue not really that capital requirements and leverage ratios were 

changed by the FDIC basically coming in and saying, you have to 

have more capital, and basically at a time when, where would you 

go get capital? Where would you get capital? Nobody could get capital, and so what they did is they basically started canceling loans 

to individual businesses. That is where they got the capital ratio 

to come back. They basically started saying to small business, you 

do not have your loan anymore. 

So why not come back and lower the cost of the TARP money 

through dividends and warrants? Why not adjust that, and adjust 

the viability? I mean, we were basically saying to people, you can 

have TARP money if you can prove that you are viable without 

TARP. 

Secretary GEITHNER. Excellent question. You are absolutely 

right, the community banks now have a very hard time raising capital. That is part of what is forcing them to shrink, apart from 

what they are getting in terms of pressure from examiners. I am 

very supportive personally—and, if you just look at what the President announced back in October, you can see that he is—of trying 

to make sure that the economic terms, in terms of dividends and 

warrants, et cetera, are more economically attractive for them. I 

completely agree with that. 

Senator CANTWELL. All right. 

Secretary GEITHNER. I completely agree with that. 

Senator CANTWELL. All right. 

And what about the viability? 

Secretary GEITHNER. Viability. Let us just sort of sit back and 

think about it this way. Banks in the country, particularly small 

banks, are still under enormous pressure. We have to be careful 

that we are using any assistance we provide as carefully as we can, 

as wisely as we can. The viability test that exists out there is, I 

am trying to make sure that it is going to institutions that are 

more likely to use it to expand. If you use it at firms that do not 

meet an objective standard of viability, then there is a risk not just 

that you put the taxpayers’ money unnecessarily at risk, but it will 

not be effective. 

Senator CANTWELL. What about viability with TARP? 

Secretary GEITHNER. Well, we have looked at a variety of different ways to make sure—and under our current system you can 

count the TARP dollars you get towards meeting—I will have to go 

back and check to make sure this is right—that viability standard. 

44 

Let me say it differently. If you raise some capital as part of TARP 

money, you can count that to help meet the viability standard. 

But again, Senator, what we are trying to do is make sure that 

the dollars we give do not put the taxpayer unnecessarily at risk, 

and they go to banks that are more likely to use those dollars to 

expand credit. We want to get that balance perfect. I am not claiming that supervisors got that balance perfect. In the system we 

have in place, we leave it to the supervisors to make that broad 

judgment about viability. We do not make the independent test of 

viability because it is a hard thing for this Treasury to do, to go 

bank-by-bank and make that test of viability. 

Senator CANTWELL. But the criteria, I think, the viability criteria, is part of the challenge along with making it a more affordable program. Again, I cannot emphasize enough the anger in 

America when people get 100 cents on the dollar for something, 

and then these people are basically cutting them out of capital because of these requirements. 

Secretary GEITHNER. I agree with you about that, but I want to 

be careful that I did not misstate this. Let me make sure. I will 

make sure I describe for you in writing exactly the way the current 

viability test works, and you are going to hear more details from 

us on very small banks and CDFIs, some suggestions for how we 

can mitigate just the concern you described. 

Senator CANTWELL. I could not urge you enough to act without 

legislation. 

On regulatory uncertainty, one thing that concerns me greatly 

about the proposal is that, on this issue of separation of commercial 

banks and investment banking, the definition of ‘‘prop trading’’ is 

going to be so narrowly defined as—I think it was The Economist 

or one of the publications recently came out saying that it was 

going to be ‘‘a door to massive loopholes.’’ So how is that going to 

work? 

Secretary GEITHNER. It is a very hard thing to draw that line in 

a way that is sensible, but I agree with your concern. I think that 

is something we can solve. My colleague, Neal Wolin, is testifying 

later today before the Banking Committee, and he will have a 

chance to talk through some of the complications we have in drawing that line. 

Senator CANTWELL. Even the CFO of Goldman Sachs says it will 

be very difficult to distinguish between prop trading and trading 

for clients, or hedging. 

Secretary GEITHNER. That is right. 

Senator CANTWELL. Even he is saying it is going to be difficult. 

Secretary GEITHNER. You have to start by recognizing the reality 

that it is difficult, but that is why reform is so important. I mean, 

the basic objective we are trying to do is to make sure we have 

clear constraints on risk-taking by these large institutions so they 

do not bring us to the edge of collapse again. 

Part of that is making sure they are holding enough capital 

against those risks, but part of it involves tougher constraints on 

what they can actually do. But we have to design those in ways 

that are sensible and careful, and recognize the reality of the way 

institutions are run. 

45 

Senator CANTWELL. I think you know I support a more clean approach. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Thank you, Secretary Geithner. Clearly, we have huge challenges 

ahead of us. I think you can tell, this committee wants to work 

with you. It is a 2-way street. No surprises, but tell us what you 

are working on. Let us know because we want to help both stimulate the economy and get those jobs. I also urge you to take very 

strong heed to the words of Senator Cantwell about urgency. I 

think there is a sense that perhaps there is not a sufficient sense 

of urgency in the administration for getting assistance for small 

businesses, and also for community banks, to get that program 

working better. 

Secretary GEITHNER. We share that sense of urgency, the President does, and we want to make sure we are doing things that 

work and make a difference. Where we do not need legislation, we 

will not come and ask you to do something. 

The CHAIRMAN. I think that is advisable. 

Secretary GEITHNER. But where we need it, we need to work 

quickly on it. I do not think this is complicated. I really do not 

think it is. It does not need to take a lot of time. 

The CHAIRMAN. Well, thank you. We will not keep you any further. You have work to do. Thank you for coming. 

The hearing is adjourned. 

[Whereupon, at 12:32 p.m., the hearing was concluded.] 

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