U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

2012

PRESIDENT’S FISCAL YEAR 2013 BUDGET 

PROPOSAL WITH U.S. DEPARTMENT OF THE 

TREASURY SECRETARY TIMOTHY F. GEITHNER 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 15, 2012

Serial No. 112–20 

Printed for the use of the Committee on Ways and Means 

( 


ccoleman on DSK8P6SHH1PROD with HEARING
ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER SAFAVIAN, Staff Director 

JANICE MAYS, Minority Chief Cousel 


ccoleman on DSK8P6SHH1PROD with HEARING
iii 

C O N T E N T S 

Page 

Advisory of February 15, 2012, announcing the hearing ..................................... 2 

WITNESSES 

The Honorable Timothy F. Geithner, Secretary, U.S. Department of the 

Treasury, testimony ............................................................................................. 6 

The Honorable Sam Johnson .................................................................................. 26 

The Honorable Pat Tiberi ....................................................................................... 35 

The Honorable Pat Tiberi A .................................................................................... 38 

The Honorable Joseph Crowley .............................................................................. 58 

The Honorable Geoff Davis ..................................................................................... 67 

SUBMISSIONS FOR THE RECORD 

Center for Fiscal Equity .......................................................................................... 72 

National Community Tax Coalition ....................................................................... 79 

U.S. Chamber of Commerce .................................................................................... 81 

QUESTION FOR THE RECORD 

The Honorable Timothy Geithner, responses ........................................................ 88 


ccoleman on DSK8P6SHH1PROD with HEARING

ccoleman on DSK8P6SHH1PROD with HEARING
(1) 

PRESIDENT’S FISCAL YEAR 2013 BUDGET 

PROPOSAL WITH U.S. DEPARTMENT OF THE 

TREASURY SECRETARY TIMOTHY F. 

GEITHNER 

WEDNESDAY, FEBRUARY 15, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

WASHINGTON, DC. 

The committee met, pursuant to call, at 10:05 a.m., in Room 

1100, Longworth House Office Building, the Honorable Dave Camp 

[chairman of the committee] presiding. 

[The advisory of the hearing follows:] 


ccoleman on DSK8P6SHH1PROD with HEARING
2 

HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Camp Announces Hearing on the 

President’s Fiscal Year 2013 Budget Proposal with 

U.S. Department of the Treasury Secretary 

Timothy F. Geithner 

Wednesday, February 15, 2012 

House Ways and Means Committee Chairman Dave Camp (R–MI) today announced that the Committee on Ways and Means will hold a hearing on President 

Obama’s budget proposals for fiscal year 2013. The hearing will take place on 

Wednesday, February 15, 2012, in 1100 Longworth House Office Building, 

beginning at 10:00 A.M. 

In view of the limited time available to hear the witness, oral testimony at this 

hearing will be from the invited witness only. The sole witness will be the Honorable Timothy F. Geithner, Secretary, U.S. Department of the Treasury. However, 

any individual or organization not scheduled for an oral appearance may submit a 

written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

On February 13, 2012, the President is expected to submit his fiscal year 2013 

budget proposal to Congress. The proposed budget will detail his tax proposals for 

the coming year as well as provide an overview of the budget for the Treasury Department and other activities of the Federal Government. The Treasury plays a key 

role in many areas of the Committee’s jurisdiction. 

In announcing this hearing, Chairman Camp said, ‘‘With the unemployment 

rate above 8 percent for the last three years, it is clear that our economy 

is still far too weak and the Administration must change course if we are 

going to truly get America working again. This hearing will provide the 

Committee an opportunity to review the President’s proposals, especially 

his policies that would make the Tax Code more complex and our companies trying to compete around the globe less competitive. 

FOCUS OF THE HEARING: 

U.S. Department of the Treasury Secretary Geithner will discuss the details of the 

President’s budget proposals that are within the Committee’s jurisdiction. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on 

Wednesday, February 29, 2012. Finally, please note that due to the change in 

House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to 

all House Office Buildings. For questions, or if you encounter technical problems, 

please call (202) 225–1721 or (202) 225–3625. 


ccoleman on DSK8P6SHH1PROD with HEARING
3 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman CAMP. Good morning. I want to thank everyone for 

being here this morning, especially our honored guest, Treasury 

Secretary Timothy Geithner. 

Before we get started with our discussion of the fiscal year 2013 

budget, I do want to take a moment and recognize Reginald B. 

Greene, as he has been known to all of us who come to this room 

as Reggie. Today marks Reggie’s 30th year with this committee. In 

those 30 years Reggie has guided many members, myself included, 

in the ways of this committee. His subtle but strong manner and 

direction has kept this committee running like a finely tuned machine. Reggie’s professionalism and demeanor have been a hallmark of his service, and he is appreciated by all who serve on this 

committee. So Reggie, thank you for your continued service, your 

dedication to this committee, and to the House, and our Nation. 

Again, welcome Secretary Geithner. It is good to see you and to 

have you before this committee, and I look forward to your testimony today. Since our first hearing of the 112th Congress, the 

Ways and Means Committee has spent countless hours focused on 

comprehensive tax reform that will strengthen our economy and 

get Americans working again. I am proud of the progress that we 

have made so far. I realize there is much more work to do. 

In our hearings focused on tax reform, there has been one common theme from our witnesses: enthusiastic support for making 

the Tax Code simpler and fairer so that we can transform the code 

from one that hinders to one that helps economic growth and spurs 

a climate for job creation. 


ccoleman on DSK8P6SHH1PROD with HEARING
4 

Unfortunately, much of what we heard from the President in his 

State of the Union address and what we see here in the budget 

points to the opposite. Instead of focusing on tax reform that can 

create jobs, the budget is replete with proposals that will take more 

money away from employers, investors, and savers. And all told, 

there are nearly $2 trillion in tax increases, many of which have 

appeared year in and year out despite the bipartisan and bicameral 

rejection of those policies. Those tax increases include pushing the 

top rates close to 45 percent. 

I understand the President’s claim that everyone must pay their 

fair share, but what I don’t understand is how raising taxes on investors and small businesses accomplishes that objective, and I certainly don’t understand how that is supposed to help get Americans 

back to work. 

Mr. Secretary, you know the facts. The bottom half of earners in 

this country pay no Federal income taxes. Meanwhile, the top 10 

percent of earners pay 70 percent of all income taxes, which includes many small businesses that are critical to job creation. And 

now you want people to pay more, taking as much as 45 percent 

of everything they earn. And it seems to me that in America, no 

matter how much money you make, the Federal Government 

should not be able to take nearly half of your income, especially not 

on top of all the other local, State, and gas taxes that you pay. 

I would also note that this budget more than triples the tax on 

dividends. This massive increase in the top tax rate on dividends 

marks a significant departure from prior budgets, when the President had proposed to raise the dividend rate, quote, only to 20 percent. It is also worth noting that because dividends are paid out 

of income that has already been taxed at the corporate level, and 

then are taxed again in the shareholders’ hands, this proposal 

would push the total Federal tax rate on dividends to 64 percent. 

Equally telling are the policies absent from this budget. For the 

last several years, Mr. Secretary, you have appeared before this 

committee, and we have discussed in private the possibility of some 

sort of comprehensive tax reform coming out of the Treasury Department. But as someone joked to me the other day, it looks like 

we will see a unicorn before we see this administration put out a 

comprehensive tax reform plan. 

I understand it is an election year and playing Washington’s ageold game of promising favors to special industries and special interest groups is a tried and true plan. But, Mr. Secretary, in less than 

2 months, the United States will have the highest corporate tax 

rate in the industrialized world at 39.1 percent. This dubious distinction makes it that much more challenging to attract businesses 

to hire and invest here at home where we need the jobs. Simply 

put, this budget, coupled with the inaction of this administration 

on tax reform, has left U.S. companies and their workers at a competitive disadvantage in the global marketplace. It is an advertising campaign that says to job creators, ‘‘Don’t invest in the 

United States, invest somewhere else.’’ 

Clearly, there is much work to be done on the tax reform front, 

but we must also focus sometime during today’s discussion on our 

debt and deficit. The fiscal year 2013 budget is the highest budget 

deficit ever proposed and fails to deliver on the President’s promise 


ccoleman on DSK8P6SHH1PROD with HEARING
5 

to cut the deficit in half by the end of his first term. We have had 

countless commissions, committees, and panels tasked with finding 

solutions. I have served on some of those. Independent economists 

have found that debt loads greater than 90 percent of GDP could 

result in the loss of up to a million jobs. We aren’t at 90 percent. 

Our debt is now at 102 percent of GDP, and this budget proposed 

to keep the national debt at a level that exceeds the size of the entire U.S. economy every single year into the future. A budget that 

drives debt and deficits even higher will only weaken our economy 

and further put at risk the 13 million Americans who are currently 

out of work. 

And with that, I will now yield to Ranking Member Mr. Levin 

for the purposes of an opening statement. 

Mr. LEVIN. Thank you, Mr. Chairman. Welcome, Mr. Secretary. 

I guess it won’t surprise anybody to say that I had a very different 

reaction to your testimony, and I know that you will have a chance 

to respond to our chairman. 

Indeed, Mr. Secretary, as I read your testimony rather late last 

night, my basic reaction was this: that as you sit here before us, 

you and the administration stand tall. The economic policies of the 

administration are working. Much more improvement in our economy is necessary, but what the critics cannot escape is that there 

has been improvement, and the administration policies importantly 

contributed to this improvement. 

You inherited an economy losing 700,000 jobs a month. The administration was not afraid to adopt a policy that stated clearly 

that in the short term, the principle must be growth. Assisted by 

a variety of government programs, private employers have added 

more than 3.7 million jobs in the last 2 years, and the rate of unemployment has dropped measurably. As your testimony indicates, 

there remain substantial challenges and potential dangers, but the 

administration is sticking to its guns. 

The deficit must be and is being addressed, taking into account 

that in the immediate term there must be a continued emphasis on 

growth, which is also essential for attacking the longer-term deficit; 

thus, an emphasis on improving education and training and investing in infrastructure and research and development, all of which 

require an active public role and an active public-private partnership. 

Likewise, assisting the further strengthening of manufacturing is 

in your testimony. It is often heard that the government should not 

pick winners and losers. When that rhetoric is applied blindly, it 

blindsides American businesses and workers. It led some to oppose 

government assistance to help the American automobile industry 

get back on its feet, not to run that industry, but to allow it to keep 

running. This administration should be proud that it had the courage to persevere despite all the naysayers. 

Your testimony makes clear that we still have a considerable 

way to go to put our economy back on its feet fully, to increase the 

flow of jobs, to assist the American middle class to again move up 

the ladder, to make sure there is shared responsibility, fairness 

and support for entrepreneurship in our Tax Code, and to ensure 

continued increased growth and a major attack on our serious 

budget deficits. 


ccoleman on DSK8P6SHH1PROD with HEARING
6 

We should act on these challenges, acknowledging, and I emphasize this, that against difficult odds, the administration has moved 

us forward towards achieving these goals. Thank you, Mr. Chairman. 

Chairman CAMP. Well, thank you, Mr. Levin. 

Again, I would like to welcome back Secretary Geithner. Thank 

you for your time today. Thank you also for getting us your written 

statement in time for us to review it before the hearing, and it will 

be made part of the formal hearing record. You are recognized now 

for 5 minutes, and you may begin when you are ready. Thank you. 

STATEMENT OF THE HONORABLE TIMOTHY GEITHNER, SECRETARY, UNITED STATES DEPARTMENT OF TREASURY, 

WASHINGTON, D.C. 

Secretary GEITHNER. Thank you, Mr. Chairman, Ranking 

Member Levin and Members of the Committee, thanks for the 

chance to come before you today and talk about the President’s 

budget. 

Our economy today is gradually getting stronger, but we have a 

lot of work ahead of us still. Over the last 21⁄2 years, despite the 

financial headwinds from the crisis, despite the severe cutbacks by 

State and local governments, despite the crisis in Europe, despite 

the increase in oil prices we saw last spring, despite the tragedy 

in Japan, despite all those shocks and headwinds, the economy has 

grown at an average annual rate of 21⁄2 percent. Private employers 

have added 3.7 million jobs over the last 23 months, private investment in equipment and software is up by more than 30 percent, 

productivity has improved, exports across the American economy, 

from agriculture to manufacturing, are expanding rapidly, Americans are saving more and bringing down debt levels. The financial 

sector is in much stronger shape, helping to meet the growing demand for credit and capital. 

Now, these improvements are signs of the underlying resilience 

of the American economy, of the resourcefulness of American workers and businesses, and the importance of the swift and forceful actions we took alongside the Federal Reserve to stabilize the financial system and to pull the economy out of the worst economic crisis since the Great Depression. 

But, as I said, we still face very significant economic challenges, 

particularly for households and families. Americans are still living 

with the acute damage caused by the financial crisis. The unemployment rate is still very high, millions of Americans are living in 

poverty, still looking for work, suffering from the fall in the value 

of their homes, and struggling to save for retirement or for college 

education. 

For these reasons, the President’s budget calls for substantial additional support for economic growth and job creation alongside 

longer-term reforms to improve economic opportunity and to restore fiscal responsibility. 

I applaud congressional leaders for yesterday’s progress towards 

extension of the payroll tax cut and emergency unemployment insurance. These measures will be crucial to supporting millions of 

Americans and the broader economy as a whole, but there is more 

we can do. 


ccoleman on DSK8P6SHH1PROD with HEARING
7 

We will continue to encourage Republicans in Congress to join 

with us in supporting additional actions to cut taxes for workers 

and businesses, to preserve the jobs of teachers and first responders, to put construction workers back to work, to help more Americans refinance their mortgages to take advantage of lower interest 

rates. But beyond these immediate steps, the President’s budget 

calls for a long-term strategy to strengthen economic growth and 

opportunity while reducing our fiscal deficits to more sustainable 

levels. 

Now, the conventional wisdom in Washington is that the debate 

we begin this week on the President’s budget does not matter because Congress is too divided to legislate this year, but this is a 

very important debate to have, and it is important to have that debate now. It matters because this is a fundamental debate about 

economic priorities, how to increase growth and opportunity, how 

to strengthen health care and retirement security, how to reform 

our tax system, and how to live within our means. We must govern 

with limited resources. We have to make choices about how to use 

those resources more wisely, particularly given the millions and 

millions of Americans that become eligible for Medicare and Social 

Security over the next few decades. 

Any strategy to address these challenges has to answer a few 

fundamental questions. How much do we have to cut in terms of 

future deficits? Which programs should be cut, preserved, or expanded? How should we share the burden of deficit reduction? 

Let me explain how we propose to answer those questions. The 

President’s budget would reduce projected deficits by roughly $4 

trillion or $3 trillion on top of the caps and cuts in the Budget Control Act. Overall, the President’s budget would lower the deficit 

from just under 9 percent of GDP in 2011 to around 3 percent of 

GDP in 2018. Reducing the deficit to that level would stabilize the 

overall debt-to-GDP ratio in the second half of the decade, putting 

us on a path to fiscal sustainability, and putting us in a much better position to address—to confront the remaining challenges we 

will still face in future decades as more Americans retire. 

Under this budget, discretionary spending is projected to fall to 

its lowest level as a share of the economy since Dwight Eisenhower 

was President. The President’s plan would also slow the growth of 

spending in Medicare and Medicaid, both through the Affordable 

Care Act and the additional proposals we have in the budget on 

Medicare and Medicaid. But as we reduce spending, we have to 

also protect investments that are critical to expanding economic 

growth and opportunity, and that is why the budget makes targeted but important investments in education, innovation in manufacturing, and infrastructure. 

Now, in order to achieve this balance, significant savings but 

some room for investment to improve growth and opportunity, we 

are proposing to raise a modest amount of additional revenue 

through tax reform. The President’s plan includes $2.50 of spending cuts for every dollar of proposed revenue increases. 

[The insert of Secretary Geithner follows:] 


ccoleman on DSK8P6SHH1PROD with HEARING
8 

f 

Secretary GEITHNER. Our proposal for tax reform would raise 

taxes by roughly 1 percent of GDP. The revenue increases are focused on the top 2 percent of American taxpayers, not the remaining 98 percent. Focusing these revenue proposals on the top 2 percent, those who have fared the best in the last decade of financial 

excess, is far better for the economy and more fair to the American 

people than cuts of an equivalent magnitude to Medicare benefits, 

to infrastructure, or to other programs that support our most vulnerable. 

We propose tax reforms that raise revenues because we do not 

believe it is possible to meet our national security needs, to compete effectively in the global economy, or to preserve a basic level 

of health care and retirement security without some increase in 

revenues as part of a balanced deficit reduction plan. Although we 

illustrate in the budget a range of specific tax changes that could 

be added to the present tax system to generate the necessary revenue, we think the best approach, though, is to get there through 

comprehensive tax reform. We have laid out a broad set of principles for tax reform to make the system more simple and more fair 

and better at encouraging investment here in the United States. 

You can hear a little bit more from us on this topic on the corporate side in the coming weeks. I look forward to discussing those 

proposals with you then. 

Now, I know there are Members of Congress who are critical of 

these proposals and would prefer a different strategy, and you 

should judge our plan, as I know you will, against those alternatives. Some of you have suggested that we should cut deeper and 

faster, with more severe austerity now, but that approach in our 

judgment would damage economic growth, would reverse the gains 

we have achieved in getting more Americans back to work, and 

would push more Americans into poverty. You cannot cut your way 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 1 here 77158.001
9 

to economic growth. For the United States today, given the challenges we face, severe austerity now is not a growth strategy. 

Some have suggested also we try to restore fiscal balance without 

raising any additional revenue from anyone, or even by cutting 

taxes further. To do so, it is very important to recognize this—to 

do so, would entail deep cuts in benefits for retirees and low-income Americans, cuts to investments in education and innovation 

that would hurt growth and opportunity, and cuts in defense 

spending that would damage our national security interests. So we 

will not support those alternative strategies. 

I want to emphasize again, Mr. Chairman, if you do not support 

raising this modest amount of revenue through tax reform, then 

you have to ask yourself: Who are you going to ask to bear the burden that would fall on basic benefits of retirees or on our national 

security capacity if you don’t or are not able to find additional revenues? 

Now, the President’s budget includes very tough reforms but 

with a balanced mix of spending cuts and tax reforms. It preserves 

room for us to make investments that will improve opportunity for 

all Americans, and help make economic growth stronger in the future. It protects our basic commitments to retirement security and 

health care for the elderly and the poor, it provides substantial immediate help for the average Americans alongside reforms to restore fiscal responsibility over the long run. This plan will not solve 

all the Nation’s challenges, but it will put us in a much stronger 

position to deal with those challenges. 

I would be happy to try to answer your questions. 

Chairman CAMP. Well, thank you. Thank you very much. 

[The prepared statement of Secretary Geithner follows:] 


ccoleman on DSK8P6SHH1PROD with HEARING
10 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 2 here 77158.002

Embargoed Until 10:00 a.m. EST, February 15,2012 

Statement of the Treasury Secretary Timothy F. Geithner 

Committee on Ways and Means 

U.S. House of Representatives 

February 15,2012 

Chainnan Camp, Ranking Member Levin and members of the Committee, thank you for the 

opportunity to appear before you today to discuss the President's Fiscal Year 2013 Budget. 

I. INTRODllCTION 

Three years after the worst financial crisis since the Great Depression, our economy is gradually 

getting stronger. The decisive actions we took to combat the financial crisis, combined with the 

President's policies to restart job growth and support the economy. have helped lay the 

foundations for continuing growth. Over the last two and a half years, the economy has grown at 

an average annual rate of 2.5 percent, exceeding growth in the year prior to the recession. 

Private employers have added 3.7 million jobs over the past 23 months. including more than 

400,000 manufacturing jobs. Growth has been led by exports. which have grown 25 percent in 

real terms over the last 2 V2 years, and by business investment in equipment and software, which 

has risen by 33 percent during the same period. 

\Vhile the economy is regaining strength, we still face significant economic challenges. 

Unemployment, at 8.3 percent, is still far too high, and the housing market remains weak. The 

damage inflicted by the crisis presents continued difficulties for consumers and businesses alike. 

In addition, the debt crisis in Europe and the slowing of major economies elsewhere in the world 

present potential impediments to our economic growth. 

The harm caused by the crisis came on top of a set of deep, preexisting economic difficulties. In 

the years leading up to the crisis, the average middle-class family saw few gains in income. 

productivity growth slowed, and the fiscal policies of the previous Administration turned record 

budget surpluses into substantial deficits. 

In my testimony, I want to outline the President's strategy for addressing these immediate and 

underlying challenges. This strategy entails a carefully designed set of investments and reforms 

to improve opportunity for middle-class Americans and strengthen our capacity to grow, 

combined with reforms to restore a sustainable fiscal position. 

The Budget proposes three specific steps to boost growth and secure the United States' position 

as the most competitive economy in the world. 

Improving access to education and job training, so that our workers are the best prepared 

in the world for the jobs of the 21 st century. 

Promoting manufacturing and innovation, with a particular focus on research and 

development andjumpstarting advanced manufacturing, so that the United States remains 

the world's most competitive economy and firms create well-paying jobs here at home. 
11 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 3 here 77158.003

Embargoed Until 10:00 a.m. EST, February 15,2012 

• Investing in infrastructure, in order to create job opportunities now and enhance 

productivity in the long run. 

Under the President's plan, these critical investments are combined with a balanced plan for 

deficit reduction. The Budget reduces projected deficits by a total of more than 54 trillion over 

the next 10 years by adding more than $3 trillion in deficit reduction to the approximately $1 

trillion in savings already enacted through the discretionary caps included in the Budget Control 

Act (BeA). These savings are suflicient to stabilize our debt as a share of the economy by 2015 

and begin placing our debt on a downward path. 

More than two-thirds of the total deficit reduction is achieved through savings in entitlements 

and other spending programs. and discretionary spending is projected to fall to its lowest level as 

a share of the economy since Dwight Eisenhower was President. 

These significant cuts are phased in over time to protect the economic recovery. Cutting 

spending too deeply or too soon would damage the economy in the short-tenn, impede our 

ability to make necessary investments for long-term growth, and achieve deficit reduction at the 

expense of the most vulnerable Americans, including seniors and the poor. 

In order to achieve a sustainable fiscal position, we must combine these cuts with savings 

achieved through reforms to our tax code that make it simpler, fairer, and more efticient. 

Sustainable deficit reduction requires the right combination of policies: we must have a tax 

system that collects revenue fairly and supports growth and investment, but does not place undue 

burdens on families and businesses; spending cuts and entitlement reforms that reduce 

expenditures but do not harm the economy or the most vulnerable Americans; and investments 

that give us the ability to grow but do not misallocate valuable government resources. 

The central challenges addressed in the President's Budget-strengthening growth now, 

investing in our future, and putting our nation on a sound fiscal footing-complement and 

depend on each other. Investing in our economy will help us grow and make our fiscal 

challenges morc manageable. Locking in credible deficit reduction, in tum, will make room for 

investments that enhance our long-term gro\\'th. 

II. INVESTING IN OUR COMPETITIVENESS 

Education and Trai ning 

An educated and skilled workforce is critical for the United States to compete in the global 

economy. We once led all advanced economies in the percentage of our population that 

graduated from high school and college, but today we are not providing enough Americans with 

the educational skills they need. America has fallen to 16th among advanced countries in the 

proportion of young people with a college degree, and many Americans of all ages need further 

education and training in order to succeed in today's economy. 
12 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 4 here 77158.004

Embargoed Until 10:00 a.m. EST, February 15, 2012 

The Budget takes a number of steps to make sure that higher education is attainable and 

aftordable. The President has increased the maximum Pell Grant by 20 percent to $5.635. and in 

academic year 2010-2011. Pell grants supported the educational aspirations 01'9.3 million lowand moderate-income students, who received $35.6 billion in grants, an average ofS3,831 for 

each student. This year's Budget maintains the expanded maximum Pel! grant of $5,635 through 

FY 2013. 

Moreover, as part of the bipaJ1isan December 2010 tax compromise, the President extended 

through 2012 the American Opportunity Tax Credit (AOTC) he created as part of the Recovery 

Act. The AOTC is projected to provide nearly Sl9 billion in credits to over 9 million families 

this year. This year's Budget proposes to make the American Opportunity Tax Credit permanent, 

so it can offer up to $10,000 in tax credits over a four-year college career. 

In addition, the Budget provides $8 billion for the Community College to Career Fund in the 

Departments of Labor and Education to support State and community college partnerships with 

businesses to build the skills of American workers. A $12.5 billion Pathways Back to Work 

Fund will also help jump-start America's economy by putting thousands oflong-tenn 

unemployed and low-income Americans back to work and helping them gain skills for the jobs 

ofthe ruture. The Budget also provides support for a new initiative designed to improve access 

to job training across the nation and make it easier for those looking for work to access help in 

their communities and online. 

Innol'ation and Manufacturing 

As the global economy becomes more and more advanced, it is crucial that U.S. firms and 

workers remain on the cutting edge. Investment in research and development (R&D) creates 

good jobs for American workers, raises living standards, and keeps our economy competitive. 

Private businesses are likely to underinvest in R&D, because they cannot capture all of the gains 

from their investment. A substantial portion of the benefits, however, accrues to the broader 

business community or the public at large. Federal investments in research and development 

have played an important role in spurring the internet. global positioning systems, and clean 

energy. 

Though private sector investment in R&D has continued to grow, when the President took office, 

public investment in R&D was near its lowest levels in haifa century as a share of the economy. 

The FY 2013 Budget proposes a number of important investments in R&D: 

The nudget includes $141 billion for Federal R&D - investments that will promote the 

development of a variety of high-priority technologies, from next generation robotics to 

nanotechnology to improved cybersecurity. The budget also keeps spending on the 

National Institutes or Health steady at $31 billion. 

Of this, the Budget provides $2.2 billion for Federal advanced manufacturing R&D, a 19 

percent increase over 2012. 
13 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 5 here 77158.005

Embargoed Until 10:00 a.m. EST, February 15,2012 

The Budget proposes simplifying, expanding, and making permanent the Research and 

Experimentation Tax Credit, to provide a crucial incentive for businesses to invest in 

R&D. 

Another key part of creating good-paying jobs for American workers is to make sure that our 

manufacturing sector remains on the cutting edge. The Budget includes several key 

investments to suppo11 manufacturing: 

The Budget sets aside $ J 49 million in the National Science Foundation, an increase of 

$39 million above the 2012 enacted level, for basic research targeted at developing 

revolutionary new manufacturing technologies in partnership with the private sector. 

The President's Advanced Manufacturing Partnership invests in a national effort to 

develop the emerging technologies that will create high-quality manufacturing jobs. For 

example, the Budget includes $21 million for the Advanced Manufacturing Technology 

Consortia program, a new public-private partnership that will develop road maps for 

long-term industrial research needs and fund research at universities and government 

laboratories directed at meeting those needs. 

The Administration also supports a range of investments and initiatives to bring about a 

clean energy economy and create jobs for the future, especially manufacturing jobs. For 

example, the Budget provides S290 million to help meet the goal of doubling the pace of 

energy intensity improvements across America's industries over the next decade, as well 

as funding to double the share of electricity that comes from renewable energy sources by 

2035. 

Infrastructure 

Our nation's aging infrastructure is a drag 011 gro\\1:h and productivity. In order to compete in 

the global economy, American businesses require a world-class infrastmcture. In the long-run, a 

modern infrastructure lowers costs for both businesses and individuals. And there is tremendous 

short-term value as well-according to the Congressional Budget Office, infrastructure 

investment is one of the most efllcient job-creation programs available. With more than 2.2 

million fewer construction workers on the job than at the pre-crisis peak, and with interest rates 

at historically low levels, now is the right time for greater public investment in infrastructure. 

The President's Budget provides funding for crucial infrastructure investments. 

Specifically, the Budget proposes investing $476 billion over the next six years in our 

nation's surface transportation system, which builds upon our proposal to immediately 

invest $50 billion to help workers get back 011 the job. The savings achieved through our 

ord~rly drawdown of forct's in Ira4 amI Afghanislan will pay f'or tht'sc invt'stmcnts, with 

the other half of those savings used to reduce projected deficits. 

The Budget also calls for the creation of a National Infrastructure Bank, a bipartisan idea 

that will leverage private capital \-'lith more flexible financing so that we can build 

worthwhile projects efficiently and effectively, based on their merits. 

The Budget also provides significant new investments for the modernization of public 

schools and community colleges so that those who attend have access to a safe 

environment with modern technology. 

4 
14 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 6 here 77158.006

Embargoed Until 10:00 a.m. EST, February 15, 2012 

• Finally, the President has proposed a national effort through the $15 billion Project 

Rebuild to put construction workers back to work rehabilitating and refurbishing 

hundreds of thousands of vacant and foreclosed homes and businesses, \vhich will also 

help counteract the effects of blight on home prices in affected neighborhoods. 

III. CONTINUING TO BUILD FISCAL SUSTAINABILITY 

When President Obama came into office he inherited an annual budget deticit equal to 9.2 

percent of GOP. Moreover, there was a need for additional steps to stop the economy's free fali, 

and so Congress and the President enacted the American Recovery and Reinvestment Act and 

other short-term programs, which temporarily added to the deficit. The expiration of this 

recession-related spending, economic growth, and the spending cuts mandated by the BCA, 

including both the approximately $1 trillion in spending caps and the $1.2 trillion that is to occur 

through sequestration, by themselves are projected to reduce the deficit to 3.7 percent of GDP 

by2018. 

However, between 2018 and 2022 the deficit under this baseline budget would actually start 

rising again, reaching 4.7 percent of GOP in 2022. The President's Budget therefore goes 

beyond the additional $1.2 trillion in deficit reduction required by the DCA, identifying 

additional spending cuts and revenue raisers that reduce the deficit by over $3 trillion over the 

next 10 years, while paying for the policies to strengthen growth and invest in our future. 

Dy identifying savings far greater than the DCA, the Budget allows us to meet the DCA's goals 

while replacing the sequester's $1.2 trillion in damaging, arbitrary cuts with more responsibleand more substantial-reductions. We believe this is the right approach. As the President has 

made clear, it is not acceptable to simply repeal the sequester without a responsible combination 

of policies to replace it-policies such as the ones outlined in this Budget. 

Overall, the PresidenCs plan lowers the deficit from just under nine percent ofGDP in 2011 to 

around three percent of GOP in 2018, atrer which it stabilizes through 2022. 

Our liscal situation is improved by the lact that taxpayers are being repaid for many of the 

investments made in banks under the Troubled Asset Relief Program (TARP). We estimate that 

investments made through TARP bank programs, for example, will return more than $20 billion 

in gains to taxpayers. 

Spending Cuts 

Meaningful deficit reduction requires serious cuts to govemment spending. This will not be 

easy, but the President's Budget identifies areas ... vhere cuts are necessary. while protecting the 

most vulnerable Americans and investments in our future. As described belm\!, President Obama 

proposes to reduce spending by reorganizing the government, cutting discretionary spending 

consistent with targets set forth in the bipartisan BCA, and reforming entitlements. 
15 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 7 here 77158.007

Embargoed Until 10:00 a.m. EST, February 15, 2012 

Non-security Discretionary Spending 

The SI trillion in savings irom the discretionary spending caps mandated by the IleA. which the 

President signed into law, reHeet the hard choices that need to be made in order to meet our 

obligation to building a fiscally slIstainable foundation. Achieving these cuts wil! not be easy 

and will require us to continue to make tough choices. 

The President's Budget meets this challenge, identifying more than 200 cuts, consolidations, and 

savings proposals. This is on top of the ongoing etlart by the Administration to make 

govenlment more efficient by reducing administrative overhead costs, refonning the govemment 

purchasing process, and embracing competitive grant programs. The Budget makes these cuts in a 

way that asks all to ~houlder their fair share. 

The President has also asked for the power to reorganize the executive branch to cut out needless 

duplication, enhance the ef1iciency and effectiveness of government programs, and improve 

service delivery. The President has already proposed consolidating into one department the 

business and trade components of the Department of Commerce, the Small Business 

Administration, and several additional agencies to better support our nation's economic growth 

through trade, entrepreneurship, and innovation. 

As a result of these cuts, non-security discretionary spending will fall tojust 1.7 percent ofGDP 

in the final year of the Budget horizon, as compared to approximately 3 percent this year. 

Discretionary Defense Spending 

Just as we must reprioritize our non-security spending to meet the challenges of the new 

economy, we must also rethink our defense spending in light of the evolving global environment. 

The conflicts our military confronted over the past decade are winding down: our troops have 

exited Iraq, operations in Afghanistan are increasingly being turned over to the Afghan people, 

and we have dealt a devastating blow to al Qaeda by eliminating Osama bin Laden and other 

leaders. This provides us with the opportunity not simply to cut spending, but rather to take the 

hard lessons leamed from the past decade of conflict to create a military that secures the safety of 

the United States while taking into account the more fiscally constrained environment in which 

we aTC operating. 

Over the next year, the overall defense budget, including overseas contingency operations 

reductions, will be down by 5 percent from the 2012 enacted level. On January 5, the President 

announced the Defense Strategic Review (DSR), which will set priorities for our national 

defense over a longer period. The review is designed to provide us with a leaner, more 

technically advanced fighting force, better designed to address the threats oftoday's world. Tn 

particular, the strategy calls for strengthening our presence in the Asia-Pacific region, along with 

continued vigilance in the Middle East and North Africa. We will also continue to invest in our 

critical partnerships and alliances. including NATO. 

The DSR is designed to reduce defense spending over the next 10 years by $487 billion relative 

to last year's Iludget. which will slow the gro\\1h of defense spending. The President's Iludget 

6 
16 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 8 here 77158.008

Embargoed Until 10:00 a.m. EST, February 15,2012 

will allow us to make significant and thoughtful reductions in defense spending without 

implementing the damaging path of the SeA sequester. 

Mandatory Spending 

Achieving fiscal sustainability in the long tenn will require changes to mandatory spending 

programs. The President is proposing $270 billion in savings over 10 years in mandatory 

programs outside ofllealth care. This includes the modemization of the pay and benefits of 

federal workers and the military, and increasing the efficiency of our agricultural support 

programs. The Budget also proposes increasing the retirement security of American workers by 

giving the Board of the Pension Benefit Guaranty Corporation (PBGC) the authority to gradually 

adjust the premiums it charges pension plan sponsors, as well as a proposal to restore solvency to 

the unemployment insurance program. Together, these latter two proposals would reduce the 

federal deficit by more than $60 billion over 10 years. 

However, as the population ages and health care costs continue to rise, one of the biggest 

challenges in addressing our long-term fiscal sustainability results from projected spending on 

health programs due to aging of the population and excess health care cost growth. 

The Affordable Care Act (ACA) was a significant step toward controlling health care spending. 

According to analysis from the Congressional Budget Office, the ACA is estimated to reduce the 

deficit by more than Sl 00 billion from 2012 to 2021 and by more than $1 trillion in the second 

decade. It is projected to reduce Medicare's average annual growth by 1.5 percentage points. 

One of the most important steps we can take right now for long-teml deficit reduction is to 

implement the ACA fhlly and efTectively. 

Still, more needs to be done. The Budget therefore proposes an additional $362 billion in health 

care savings over the next 10 years, through better administration and innovation, strengthening 

program integrity, aligning payments with costs of care, and strengthening provider payment 

incentives to improve quality of care. The Budget also includes structural changes that will belp 

encourage Medicare beneficiaries to seck high-value health care services. 

Tax Reform 

While the proposed spending cuts are an important component of reducing our deficit, the 

President has recognized that we cannot responsibly address our fiscal situation without raising 

additional revenue. As a share ofGDP. tax revenues from 2009 to 2011 were at their lowest 

level as a share of the economy since 1950. Our current tax code is ineflicient and filled with 

loopholes. Vole need a tax system that is simpler and more efficient, one where businesses and 

individuals pby by the rules and pay their fair share. Comprehensive tax refonn will strengthen 

our competitiveness, promote fiscal sustainability, and restore faimess. 

As the President has emphasized, these reforms should follow a set of key principles. They 

should be fiscally responsible. so that the tax code promotes jobs and gro"1h while collecting 

appropriate levels of revenue. The code should be simpler, combining lower tax rates for 

individuals and corporations with fewer loopholes and carve-outs-\vhich will increase 
17 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 9 here 77158.009

Embargoed Until 10:00 a.m. EST, February 15,2012 

efficiency so that businesses compete based on the products and services they provide. not the 

tax breaks they are able to collect. And finally, it should be fair, so that middle-class Americans 

are not carrying more than their fair share of the tux burden. 

Individual Tax Reform 

As with corporate tax reform, for individual reform the best path would be to enact 

comprehensive tax reform that meets the principles the President laid out last September and 

revisited as part of the State of the Union. The key to these reforms is fairness. 

The individual income tax cuts of the last decade were tilted toward the wealthy and have 

contributed to tax revenues falling to near their lowest level as a share of GDP in 60 years. As 

we consider individual refonns, families with incomes under $250,000 should not see a tax 

increase. But the most fortunate Americans, the wealthiest 2 percent, must contribute a greater 

share of their income in order to correct the imbalance in our system. And in keeping with the 

Butfett Rule, high-income families should not face tax rates that are lower than those faced by 

middle-income families, 

As we move to consider these re[onns, the Budget presents a path that raises the appropriate 

amount of revenue within the context of the current tax system. The President's Budget 

proposes a number of steps in line with his tax refonn principles, including: 

Allowing the high-income 200 I and 2003 tax cuts to expire; 

Setting a maximum 28 percent rate at which upper-income taxpayers could benefit from 

itemized deductions and certain other tax preferences to reduce their tax liability; and 

Eliminating the carried interest loophole that allows some to pay capital gains tax rates on 

what is essentially compensation for services, 

These steps in the direction of a reformed system would reduce the deficit by about $1.5 trillion 

over the next 10 years and would set in motion the process of broader reform. 

Comorate Tax Refonl1 

Right now, the United States has one of the highest statutory corporate tClX rates in the world, but 

the large number ofloopholes and special interest carve-outs means that effective tax rates vary 

widely by industry, even by company, and allow some corporations to avoid paying income 

taxes almost entirely, Even though our statutory corporate tax rate is among the world's highest, 

the corporate tax revenue we collect, as a percentage ofGDP, is relatively low for advanced 

economies, 

There are too many tax provisions that favor some industries and investments and benetit only 

those who receive them, rather than society as a whole. This creates problems beyond forgone 

revenue: it forces some businesses to carry a larger share of the tax burden than they would 

under a more equitable system, and it also hurts overall economic growth by distorting incentives 

for investment and job creation, 
18 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 10 here 77158.010

Embargoed Until 10:00 a.m. EST, February 15,2012 

Soon, the Administration will release a framework for reforming the corporate tax system. This 

proposal will lower the maximum statutory rate, limit the ability of tinns to shift protits to lowtax jurisdictions, eliminate tax expenditures that have no positive spillovers to society as a whole, 

and bring a sense of pennanence to various provisions in the corporate income tax code. In 

short, it will help level the playing tield for businesses and allow the government to collect 

needed revenue while promoting economic growth. The President's Budget proposals, if 

implemented, would move the existing corporate tax code in the direction of these principles but 

would not eliminate the need for deeper refonns. 

Ill. Conclusion 

In today's testimony, I have outlined the President's plan for addressing our substantial 

economic challenges through the combination of targeted investments, spending cuts, and tax 

rct()rm. 

In closing, I want to emphasize that bolstering economic growth in the long run and controlling 

our deficits both depend a great deal on us taking strong steps to support the economy right now. 

A common mistake in the wake of financial crises is for governments to withdraw support for the 

economy too soon. Though recent economic data has heen somewhat promising, we have a long 

way to go to fully recover from the worst shock to our economy since the Great Depression. 

Failure to act in the face of these challenges is one of the biggest threats to our economy ahead in 

2012 and 2013. There are two key areas where Congress can provide immediate, meaningful 

support: 

First, Congress should extend the payroll tax cut and emergency unemployment compensation 

set to expire at the end of this month. These extensions will put more money in the pockets of 

American families at a time when they need it most and will help support the hroader economy. 

Private sector economists estimate that if these programs are not extended through the end of 

2012, it will shave about half a percentage point from our GOP this year. After a fourth quarter 

of20 I I in which government cutbacks took nearly I percentage point otT of GOP growth, we 

cannot afford to further undern1ine our supp0l1 for the economy. And the savings to families arc 

significant: if extended, the tax cut alone will save $1,000 this year forthe typical household 

earning S50,OOO, while the extension of emergency unemployment insurance will prevent 4.5 

million UI claimants who are looking for work nom losing benefits, helping them and 8.3 

million people living with them over the next 10 months. 

Second, we must continue to work together to support the housing market, whose weakness is a 

stress on millions of families and a drag on overall growth. To this end, the President recently 

announced new policies designed to aid the housing market, including broad-based refinancing 

for responsihle homeowners that would save the typical family $3,000 a year. We are also 

working with the FHA and FHFA to take a range of steps to improve access to mortgage credit, 

and the FHFA also recently launched a pilot program to convert foreclosed homes into rental 

properties. 

9 
19 

f 

Chairman CAMP. I appreciate both in your written and oral 

comments that we are going to look for something, particularly on 

corporate tax and some time. The President has been mentioning 

this in a couple of remarks, particularly since his 2011 State of the 

Union speech a year ago. But we keep hearing details that the 

President wants to lower rates and broaden the base, and that 

those details are just around the corner. And I realize we are waiting a little longer for that in your testimony, but why isn’t comprehensive tax reform part of the President’s budget, or even corporate tax reform part of the President’s budget? 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 11 here 77158.011
20 

Secretary GEITHNER. Well, as I said, and I think you have to 

acknowledge, I think we are going to have to get to comprehensive 

tax reform, individual and corporate. I don’t really see a way to 

meet the Nation’s challenges effectively without doing that. You 

are going to hear a lot about concerns people have with how you 

would raise additional revenue under the current tax system. That 

is a good case for tax reform. So it is coming. It is inevitable, it 

is necessary, and we can’t keep putting it off. 

What we are trying to do is lay the foundation for that debate, 

and it is going to be a tough debate for us to have, by laying out 

specific elements we think we are going to have to see on the individual side to make it more fair. And you are going to see us in 

the next couple weeks lay out the core elements on the corporate 

side. The corporate side is important, too, because we want to improve incentives for investing in the United States. 

So we will have a chance to begin that debate with you, and we 

are going to give you a fair amount of texture, although not a fully 

articulated set of proposals because we want to preserve some room 

to come together on this. I think you are going to find, although 

we are going to start in a different place from you, we are going 

to start tougher from you on a set of key provisions. There is, I 

hope, more room for common ground on this, and we need to use 

this opportunity now to start to lay the foundation for the fundamental changes ahead. 

Chairman CAMP. On July 7th of 2010 you were on CNBC’s 

Kudlow Report, and you said, and I am quoting, ‘‘We are going to 

make sure that we keep at 20 percent the existing rates on dividends and capital gains, we think that is good policy,’’ end quote. 

And this budget takes top marginal rates on dividends, as I said 

in my opening statement, to roughly 45 percent, and when you include the PEP and Pease limitations and the new 3.8 percent investment tax scheduled to go into effect next year, it is pretty high 

numbers. So, do you still believe that 20 percent on dividends is 

good policy? 

Secretary GEITHNER. Well, you are right that in the President’s 

proposals to the supercommittee in September we, as part of that 

comprehensive strategy, we did propose to restore the tax treatment of dividends for the top 2 percent to the rates that prevailed 

in the last years of the Clinton administration, which is to ordinary 

income, that is correct. And we did that because we found, as we 

were putting together a comprehensive deficit reduction plan, we 

were going to—we were putting $360 billion of Medicare, Medicaid 

cuts on the table over 10 years, very substantial cuts, hundreds of 

billions of dollars to other mandatory programs, and deep cuts in 

defense spending, that as part of a balanced package we had to 

find ways to do more revenues. That is why we proposed that. 

But I want to say one thing, Mr. Chairman, just to go to your 

opening comments. You are right that we are proposing to raise the 

effective tax rates on the top 2 percent of Americans. You are absolutely right. We are proposing to do that. We are not doing it because we like doing it. We are doing it because to not do that requires us to find $1.5 trillion in additional savings from, again, either Medicare benefits, low-income programs, infrastructure investments, or national security. So one way to think about this, is it 


ccoleman on DSK8P6SHH1PROD with HEARING
21 

fair to ask 98 percent of the rest of the country to bear the burden 

of that $1.5 trillion, 1 percent of GDP in revenues, that we are proposing to achieve by raising the tax rate on the top 2 percent of 

Americans? 

Chairman CAMP. I don’t think those are the only choices available to us. I think obviously tax reform that creates economic 

growth and prosperity is another way and should be part of this 

mix. You mentioned, quote, the ‘‘fair share’’ and the President talks 

about it as well, high-income earners paying their fair share. The 

top 3 percent pay as much as the other 97 percent in income taxes, 

and the top 10 percent, as I said in my opening statement, currently pay 70 percent of all income taxes, and the bottom 50 percent pay no income taxes at all. Now I know they pay payroll taxes. 

But they don’t pay income taxes. So what should these numbers 

be? Should the top 10 percent pay 80 percent of all taxes? Should 

they pay 90 percent of all taxes? What is the—from your mind, 

what is the appropriate amount that the top 10 percent should 

pay? 

Secretary GEITHNER. Chairman Camp, I know we have been 

having this debate for a long time, we are going to have it for a 

long time in the future, I suspect, and we are going to come to different judgments on this. Again—— 

Chairman CAMP. I am just trying to get your judgment on it. 

Secretary GEITHNER. The fundamental fiscal reality we face 

today is we have unsustainable deficits, we have to recognize those 

constraints. If we are going to bring them down, you have to 

choose, and if you choose to try to do it without any revenues, you 

will find it necessary to embrace cuts in Medicare benefits or in investments or national security that you will not be prepared to support. Then you can ask yourself, okay, if you recognize you have 

to figure out ways to get through tax reform, more revenues out of 

the current tax system, then you should ask who should bear the 

burden. And the question, should be, who is in the best position to 

bear the burden of that additional responsibility? 

Chairman CAMP. I understand the path you want to go down, 

I am just trying to understand from the administration’s point of 

view what is an appropriate level of fair share. Is it that the top 

10 percent pay 80 percent of all taxes? 

Secretary GEITHNER. The way—you know, we live in a—— 

Chairman CAMP. Because obviously 70 isn’t enough; is that correct? 

Secretary GEITHNER. We live in a—— 

Chairman CAMP. The fact that the top 10 percent pay 70 percent of all taxes, you don’t feel that is enough. 

Secretary GEITHNER. Well, Mr. Chairman, maybe I could try it 

this way. We live comfortably in a bipartisan tradition that has 

helped govern this country for decades and decades of a system of 

progressive taxation where we ask the most fortunate people to pay 

a larger share of their income in taxes. 

Now, if you look at the effective tax rate today paid by the top 

2 percent, 1 percent, 0.5 percent, 0.10 percent of Americans today, 

their effective tax rate is remarkably low. It is in the mid-20s 

today. It is not in the 40s, it is not in the 30s, it is not in the 50s, 

it is in the mid-20s. Now, our judgment is, again, that that effecVerDate Mar 15 2010 23:14 Jan 16, 2013 Jkt 077158 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\77158.XXX GPO1 PsN: 77158

ccoleman on DSK8P6SHH1PROD with HEARING
22 

tive tax rate should go up modestly for those people because, again, 

if we don’t do that, then you have to find some way to get the savings you need to meet the other needs of the country. 

Chairman CAMP. But from what I understand in your testimony, what we are going to see maybe in a few weeks is something 

on corporate, which I certainly welcome, and I look forward to seeing that, I hope the President gets engaged on that issue. But I 

don’t think we are going to see anything on individual reform. I 

know you want to raise taxes at a certain point, but what I am trying to get is, why isn’t there a comprehensive reform plan? If this 

is such a key part of economic recovery, why isn’t there a comprehensive reform plan coming from this administration? Why isn’t 

there an outline of a path forward in the President’s budget to help 

us move forward in this great bipartisan tradition that you mentioned? 

Secretary GEITHNER. We have been very specific about the 

types of tax changes we think you would have to do if you are 

going to work off the current tax system. You are right, though, we 

have not put out and we don’t plan to put out in the next few 

months a comprehensive individual tax reform. 

But let me explain why. We spent, as you know, a huge amount 

of time working closely with the Republican leadership over the 

summer to see if we could find consensus on a comprehensive balanced plan, tax reform combined with entitlement reforms. As you 

know, we found it impossible in that discussion, despite a lot of effort, to close the gaps between us. In fact, I think your side walked 

away from the table three separate times because—— 

Chairman CAMP. I don’t think we want to really go there, Mr. 

Secretary. 

Secretary GEITHNER. But that is the explanation. We tried 

with your side, and we found—it is just realistic. We found ourselves too far apart to find a basis today for a consensus on a comprehensive individual reform plan. We are going to have to get to 

that. But we took a run at it, and we found, just to be fair, that 

you were not ready yet. 

Chairman CAMP. Well, to compare some private meetings with 

a few Members of Congress with a public proposal by the President 

is not a fair comparison. What we are asking for is some sort of 

public leadership stand on this issue. 

Secretary GEITHNER. We met with the Republican leadership, 

not just a few Members of Congress, and we had extensive detailed 

discussions about a broad range of strategies on individual tax reform. But, again, to be fair, you guys were not ready. 

Chairman CAMP. I think if you—I think that is not a fair characterization of what occurred there. I wasn’t in those meetings, but 

I will tell you that I think if the President were to lead on this 

issue, I think there would be a receptive audience with the American people, and we could begin to fashion a public debate on this. 

I think what people don’t like is these debates occurring behind 

closed doors where they are not part of it. Those were all closeddoor meetings, those were not part of the public record. So what 

I would like to see is some proposal come from the administration 

on this issue. 


ccoleman on DSK8P6SHH1PROD with HEARING
23 

I think the budget would have been an opportunity to do that. 

I am disappointed that it is not in there. But I do look forward to 

at least seeing this, these ideas that you are going to put together 

on corporate reform. And with that, I will yield to Mr. Levin for 

his opportunity. 

Mr. LEVIN. Well, Mr. Chairman, we welcome this debate. You 

suggested that the Secretary not go there. He went there because 

you went there. I mean, you raised the issue, and I must say when 

it comes to proposals—— 

Chairman CAMP. What I objected to was the Secretary characterizing one side or another not coming to an agreement. I don’t 

think that is—I don’t think that is appropriate, and that is what 

I am pointing to. If he wants to talk about the discussion, that is 

fine. 

Mr. LEVIN. Okay. It is my time. I think what he said was that 

there were discussions and your team walked away, and that is accurate. 

Let me just say in terms of proposing a comprehensive individual 

tax reform, the Republicans have put out a target of 25 percent 

without specifying how to get there. So there is no comprehensive 

individual tax reform proposal by the Republicans, and still you 

criticize the administration. Mr. Chairman, sometimes you talk 

about who pays income tax, but then you ask is it appropriate for 

certain people to pay 80 or 90 percent of all taxes? That is simply 

inaccurate. 

When you look at the charts for 2011, the individual income tax over $1.091 trillion, the social insurance and retirement, essentially 

FICA, is $818 billion. So there is no way that any group pays 80 

to 90 percent of all taxes, and the Secretary appropriately pointed 

to the effective tax rate of 17 percent. It is on the top 400 returns, 

not 40 or 45 percent. 

In terms of income inequality, we ought to remember that those 

figures are in terms of income growth. Between 1976 and 2007, the 

top 1 percent got 58 percent of the income growth. So when this 

administration talks about fair share, that is a fair position to take. 

Mr. Secretary, I would like to just ask you in my remaining time, 

you talk in your testimony about the importance of growth, and 

about how we cannot cut our way to economic growth. On page 9 

you say, ‘‘A common mistake in the wake of financial crises is for 

governments to withdraw support for the economy too soon.’’ You 

have worked on this issue in this country and internationally. So 

tell us the philosophy, the approach, of our government. 

Secretary GEITHNER. You know, unfortunately the world has a 

lot of experience in financial crises, mostly in mismanaging them. 

And again the typical mistake governments make is they wait too 

long to confront the crisis, act aggressively, and then at the first 

signs of traction they pull back and reverse course, leaving the 

economy weaker, the cost of the crisis greater, recession risks much 

higher, more unemployment, more carnage and damage from the 

crisis longer, and we are not prepared to make that mistake. 

It is worth recognizing that today, even with all the concerns 

around the world about the capacity of our American political system to find common ground on these issues, Mr. Chairman, even 

with that concern—and we share that concern, frankly—we pay 


ccoleman on DSK8P6SHH1PROD with HEARING
24 

less than 2 percent to borrow for 10-year maturity. Even with the 

huge increase in deficits we inherited, interest cost today on our 

total debt is very low. 

Now, we have the ability and the room now to be more careful 

about how we dig our way out of this mess, and not do so that adds 

to the burden on average American middle-class families and risk 

making the crisis worse and longer and more protracted. So our 

basic judgment is, and I think the record of history supports this, 

is that you have to be very careful to make sure you are working 

to support growth until you fully recover from the crisis. And that 

is why we are proposing this combination of pro-growth investments combined with long-term fiscal reforms. That is the rationale 

for the strategy. 

Mr. LEVIN. Thank you. My time has expired. 

Chairman CAMP. Thank you. Mr. Herger is recognized. 

Mr. HERGER. Thank you, Chairman Camp, and I must state 

that I completely share your disappointment with this budget. It is 

frustrating to hear the President repeatedly talk about the need for 

bipartisan effort to fix our country’s economic and fiscal challenges, 

yet these words are not backed up by actions. Once again, this 

budget does nothing to bring down our corporate tax rate that will 

soon be the highest in the industrialized world; it does nothing to 

simplify a Tax Code that costs taxpayers hundreds of billions of 

dollars each year just to figure out what they owe; and it does 

nothing to save and strengthen important programs like Social Security and Medicare that are headed towards bankruptcy. 

House Republicans have made it clear that we are committed to 

working to find solutions on these issues so we can create jobs here 

in America and secure a better future for our children and grandchildren. But to make real progress we need leadership from the 

President, and that is why it is disappointing that we have been 

presented with yet another do-nothing budget that appears to be 

driven by election year politics instead of true leadership. 

Mr. Secretary, last year this committee held a joint hearing with 

the Senate Finance Committee to look into one aspect of tax reform, the tax treatment of debt versus equity. Excessive debt was 

one of the main drivers of the recent financial crisis, and there is 

broad agreement that our Tax Code creates a clear bias in favor 

of debt financing and against equity financing; yet the President’s 

budget proposes to triple the top marginal tax rate on dividends 

from 15 percent to roughly 45 percent. Won’t higher taxes on dividends further encourage the use of debt financing and cause businesses to take on more leverage, increasing the risk of companies 

becoming insolvent? 

Secretary GEITHNER. I do not believe so, but let me respond to 

the broader set of things you began with. The President’s proposal 

lays out $360 billion in cuts to Medicare and Medicaid over the 

next 10 years. Now, you can say you like a different mix of cuts 

or more cuts, but you can’t say there is not hundreds of billions of 

dollars in proposed reforms in Medicare and Medicaid in the President’s budget. We also proposed hundreds of billions of dollars in 

other cuts of what are called other mandatory programs, very 

tough, very hard, not very popular sets of programs. We have proVerDate Mar 15 2010 23:14 Jan 16, 2013 Jkt 077158 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\77158.XXX GPO1 PsN: 77158

ccoleman on DSK8P6SHH1PROD with HEARING
25 

posed very substantial cuts in defense on top of the trillion dollars 

of cuts that we worked together on last August. 

Now, again, you can decide, you would propose to go deeper and 

faster. Understand that perspective. Our position, though, is that 

would be damaging to the economy, make us worse off in the long 

run, and in the short run. That is the difference we share in this. 

Now, on your basic question about how you think about debt and 

equity, let me just say a few things. Now, you are right that we 

have the highest statutory tax rate on corporations in the world, 

and that is why you are going to hear us in the next couple weeks 

lay out for you a broader framework of how to make our tax system 

for business income better at encouraging investment in the United 

States, and we are going to have a good debate about how best to 

do that. But the average effective tax rate on American corporations today is roughly the same, the effective tax rate, as our major 

competitors, in the high 20s. And if you look at the effective tax 

rate on investment financed by debt in the United States today, as 

you said, it is low. 

Now, we think in corporate tax reform we can alter the incentives slightly in favor of the same objective you laid out, and we 

think we can do that. But I do not believe the proposal on dividends we suggest carries the risk you are concerned about, but I 

will be happy to talk to you more about that. We will have a 

chance, when we talk about the corporate side, to think about that 

basic question. 

Mr. HERGER. Well, I would—and not only am I concerned with 

that, but others are concerned with that. In your testimony you 

state that there are too many tax provisions that favor some industries and investments and benefits only those that receive them. 

This forces some businesses to carry a larger share of the tax burden than they would under a more equitable system, and it also 

hurts overall economic growth by distorting incentives for investment of tax credit. Well, I will yield back. 

Chairman CAMP. All right, thank you. Mr. Stark is recognized. 

Mr. STARK. Thank you, Mr. Chairman, and thank you Mr. Secretary, for your testimony today. The President’s budget talks 

about almost $500 billion in investment in surface transportation 

system, about $50 billion to create infrastructure jobs right now. 

You noted that there are over 2 million fewer construction workers 

on the job, and with historically low interest rates, this would 

make it inexpensive for communities to begin infrastructure spending right away. 

In contrast, we have got a transportation bill before the House, 

but our House Republican leadership is proudly proclaiming that 

it doesn’t create any jobs, and rather than invest in mass transit, 

they are actually defunding in their proposal the transportation 

funds all together. 

Now, I disagree with that Republican approach, and I agree with 

you that infrastructure investments are the best way to create jobs 

right now. Can you provide some insights into that discussion in 

the President’s proposal to create jobs through infrastructure 

spending? 

Secretary GEITHNER. Absolutely. I think that any American, 

and if you talk to any business, recognize that we are living with 


ccoleman on DSK8P6SHH1PROD with HEARING
26 

a terribly degraded, very inefficient infrastructure across the country. Transportation infrastructure, roads, bridges, rail, airports. 

And that degraded infrastructure imposes a tax on American businesses. It makes it more expensive to run a business in the United 

States than it should be. 

And it is very important we put together a long-term, multiyear 

plan to improve the quality of that basic infrastructure. It is good 

for jobs now, it is good for growth in the future, it makes businesses more efficient, more competitive. You have to do it in a responsible way. We are proposing to do it by adding to the traditional funding mechanisms, using a modest amount of the savings 

we get from winding down the wars in Iraq and Iran—Iraq and Afghanistan. 

Now, there are some people that are going to say we can’t afford 

to do that, and I don’t agree with that. It is a good investment, it 

has very high returns, will help raise long-term growth, and again 

it is very good for getting more people back to work sooner, particularly people in the construction industry that are hurt the most by 

the crisis. 

Mr. STARK. Thank you very much. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. Mr. Nunes is recognized. I am 

sorry, Mr. Johnson is recognized. Apologize. 

Mr. JOHNSON. Thank you. 

Chairman CAMP. The gentleman from Texas. 

Mr. JOHNSON. My questions cover the slides you see before you. 

[The insert of The Honorable Sam Johnson follows:] 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 12 here 77158.012
27 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 13 here 77158.013 Insert offset folio 14 here 77158.014

Dl>al>l!~y 'MU,a n<e P'OI,am- Tlm~·. ~""n' n& 0.. '0 R.a<~ • So,.tIon 

lYNn I~ft 0/ Fulllh".jl"i 

"''' f""1<~ - =~.'" (AO'"I> '. U...... I • ..-y ~;;ii;ii;~ • 1 ""~) 

--.------- _-_.,,,-_ ........... _ .... _-...... _--_._---- --...... ------"', 

,-

,-

-

-

-

- -'--_ .. _-.... '-- - -- ------_ .... _-_ .. , 
28 

f 

Mr. JOHNSON. CBO recently released its budget and economic 

outlook, and the news for Social Security is alarming. On the first 

slide you see that in January of 2009 when the President took office, Social Security had a 10-year cash flow surplus of $73 billion. 

Today there is a massive 10-year cash flow deficit of just over $1 

trillion. 

On the second slide you see that according to the board of trustees, Social Security’s 75-year shortfall has increased 23 percent 

from $5.3 trillion in the 2009 report to $61⁄2 trillion in the 2011 report. 

On the third slide you see that time is running out for us to find 

a solution to ensure full disability benefits will be paid. At the time 

of the trustees’ 2009 report, we had 11 years. At the time of last 

year’s report we had 7 years, and according to CBO we have now 

just 4 years before the disability trust fund is exhausted. 

As you know, President Obama in his 2011 State of the Union 

address said we should also find a bipartisan solution to strengthen 

Social Security for future generations. Last year when you were before the committee, you said it would be good for the country, I 

think, for us to come together on ways to strengthen Social Security, and we are willing to begin that conversation with the Congress soon. Those are your quotes. 

So here we are, Mr. Secretary, 1 year later. As the managing 

trustee of the Social Security and Medicare Trust Fund, you well 

know we are facing one of the most predictable crises that worsens 

with each passing day, and yet there was no mention of Social Security in your testimony. The President ignored the recommendations of his own fiscal commission. He said nothing in his State of 

the Union, and he has proposed nothing in his budget to secure Social Security’s future, not even for the disability insurance program. Why? 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 15 here 77158.015
29 

Secretary GEITHNER. Congressman, we share your view that 

we are going to have to find a way to come together on a bipartisan 

basis to strengthen Social Security. You are right to point out the 

importance of doing that, and we are still going to work with you 

on that. 

Now, of course as you know, at the risk of provoking the chairman again, I don’t mean to do this, I will do this carefully, we did 

spend quite a bit of time with the Republican leadership in the 

summer exploring ways to do that, and we found, frankly, we were 

too far apart; and what we are not prepared to do is to embrace 

reforms to Social Security that would cut deeply into future benefits for moderate-income retirees. That is not something we can do. 

We are just too far apart on that. But of course we are willing to 

work with you on that. And you are right, this is important for us 

to do, but there is no risk in the foreseeable future to benefits for 

Social Security retirees. We have a little bit of time to get this 

right, and we are not going to try to do it on terms that would dramatically—— 

Mr. JOHNSON. Well, we can keep borrowing money. I think the 

American people are tired of empty rhetoric and are looking for 

constructive solutions, so let’s see if we can get somewhere. 

Does the President support increasing the Social Security full retirement age, which his own commission recommended, an idea 

also supported by Democrats such as the vice president and minority whip Steny Hoyer? Yes or no? 

Secretary GEITHNER. Congressman, again, I will be happy to 

talk about the broad imperative, happy to spend time on your side 

talking about alternative proposals. 

Mr. JOHNSON. Well, that is not the question. Can you give me 

a yes or no answer? 

Secretary GEITHNER. I am not going to talk about the specifics 

except to say that we will not support an approach that cuts deeply 

into benefits for middle-income retirees. We are not going to. 

Mr. JOHNSON. I want to ask you, do you know what the tax 

rate and the taxable maximum amount that rate applied to was 

when the program first started? 

Secretary GEITHNER. I don’t know when the program first 

started, but I know—— 

Mr. JOHNSON. Let me help you out. The answer is 2 percent; 

1 percent paid by the employee, 1 percent paid by the employer, 

up to a maximum amount of $3,000. 

As our fourth slide shows, excluding the payroll tax holiday, we 

have got a 12.4 percent tax rate on earnings up to $110,100 this 

year. The maximum is on autopilot to automatically increase every 

year. 

So with that, let me ask, does the President still stand by his 

campaign position of higher Social Security taxes, even though history shows us we cannot tax our way to sustainable solvency? Yes 

or no. 

Secretary GEITHNER. Well, I am not sure I understand that 

question, but I guess I would ask you the question, which is, is 

your proposal to solve this problem by cutting more deeply into 

benefits for middle-income retirees? Because if it is, then we won’t 

join you in supporting that. 


ccoleman on DSK8P6SHH1PROD with HEARING
30 

Mr. JOHNSON. The answer is no. 

And lastly with respect to the disability program, is the administration’s plan to fund disability with general funds, with 45 percent 

of those funds borrowed from abroad, how does this work to make 

the program more secure? 

Secretary GEITHNER. Congressman, again, we would be happy 

to work with you on this. As I said, we tried over the course of the 

summer, didn’t find enough common ground. We will come back 

and do it again with you anytime you want to do it. You are 

right—— 

Mr. JOHNSON. Well, I am telling you there is a lot of common 

ground. Steny Hoyer and I have worked together. He is a Democrat, as you know. 

Secretary GEITHNER. I do know. 

Mr. JOHNSON. And I think that we are willing to discuss Social 

Security and fix it for good. 

Secretary GEITHNER. Okay, I am happy to work with you on 

that, and again I appreciate you pointing out how important it is. 

It is not something we can put off indefinitely, we have to come together on it, but we are very far apart on the core substance, and 

we have got to figure a way to narrow our differences. 

Chairman CAMP. Mr. McDermott is recognized. 

Mr. MCDERMOTT. Welcome to the firing zone, Mr. Secretary. It 

is good to see you, and I agree with you that the budget is a statement of our priorities, and I think the President has the right ones. 

History has taught us that if we don’t keep investing in the economy, we are not going to keep it moving. And one has to wonder 

in those people who want to stop investing whether they really 

want the economy to stagger and slow down as we come into the 

election. It looks very suspicious to me that they don’t want to invest in infrastructure and they don’t want to invest in education 

and R&D and the other things. 

Now, investing, in my view, is absolutely critical for the economy, 

and it is not going to be solved by tax cuts, and I listened to them 

beat up on you about what went on last year, but my—just answer 

a generic question for me. Can you have a good-faith negotiation 

when one side of the table gets up and leaves? Is it possible? 

Secretary GEITHNER. Well, it makes it a challenge, but I think 

the—— 

Mr. MCDERMOTT. Who do you negotiate with when they are 

gone? 

Secretary GEITHNER. Well, it is hard, but the real challenge we 

face, again just to be direct about it, because we have to be honest 

about the debate, the real challenge we face is we are just so far 

apart on these core priorities. 

Mr. MCDERMOTT. I would like to—let me go a little bit further. 

There isn’t anybody who sits on the top row of this committee who 

believes that there is going to be tax reform in the next year. I 

mean, anybody who thinks that simply has forgotten everything. 

The tax reform of 1986 took 6 years of the Reagan administration, 

with Danny Rostenkowski and Tip O’Neill and the President playing golf, smoking cigars, and drinking whiskey, and negotiating for 

6 years. So it isn’t going to happen. So the President needn’t waste 

his time listening to this stuff: Where is your proposal, where is 


ccoleman on DSK8P6SHH1PROD with HEARING
31 

their proposal? They don’t have one because they won’t stay at the 

table. 

And further, when you put a committee of 12 together, and the 

House sends 6 Republicans who, before they walk into the room, 

say there will be no new taxes, you know there is nothing going 

to happen. Everybody knew it. I mean, we all put a brave face on, 

but nobody believed it. 

Now, I would like to hear from you, do you think the problems 

of this country can be solved without raising revenue? 

Secretary GEITHNER. I wish it were otherwise, but I don’t think 

so for the reasons I said. You know, our deficits are just too high, 

they are unsustainably high, and we face a huge set of other challenges. And as you just can see from the terrible crude math, it is, 

I think, impossible to do, meaning bring the deficits down to a sustainable level. 

Mr. MCDERMOTT. Is that because you think that the cuts that 

would have to be made—— 

Secretary GEITHNER. Exactly. 

Mr. MCDERMOTT. —in social programs are so severe? 

Secretary GEITHNER. Just think of it this way. We are proposing $1.5 trillion in tax increases on the top 2 percent of Americans over a 10-year period of time. That is 1 percent of GDP. Just 

1 percent of GDP. But it is $1.5 trillion. So if you are not going 

to do that, you have to cut benefits by $1.5 trillion or you have to 

cut national security by hundreds of billions or you have to cut investments in education or infrastructure. Those are the kinds of 

choices we face. 

So we don’t come to this position with enthusiasm. We come to 

it by sober, responsible recognition that the fiscal alternatives we 

face, challenges we face, cannot be met responsibly without a modest increase in revenues through tax reform. That is the realistic 

responsible recognition that we have come to. 

Mr. MCDERMOTT. My understanding of this President’s budget 

is that it has an increase in investment in transportation over what 

the House bill that we are fiddling around with right now out on 

the floor. Explain your thinking about that as opposed to offering 

tax breaks to business if they will hire people, or all those phony 

things we have tried in the past. Why does infrastructure work better in creating jobs? 

Secretary GEITHNER. Well, to be a little fair to the other side, 

we have actually proposed a combination of approaches. We have 

proposed a substantially higher level of investment in infrastructure for a longer period of time because for the reasons your colleagues know well, because we think there is a very high return 

for that economically. Growth will be higher, more people back to 

work, businesses more competitive. Good use—— 

Mr. MCDERMOTT. More jobs? 

Secretary GEITHNER. More jobs, more growth, businesses more 

competitive. But we also propose to combine that with some very 

targeted short-term tax incentives like 100 percent expensing for 

businesses, for a temporary period of time, hopefully as a bridge to 

broader tax reform that will improve incentives for investing in the 

United States. So we are actually trying an approach that comVerDate Mar 15 2010 23:14 Jan 16, 2013 Jkt 077158 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\77158.XXX GPO1 PsN: 77158

ccoleman on DSK8P6SHH1PROD with HEARING
32 

bines tax incentives for growth with infrastructure investments for 

growth. 

Mr. MCDERMOTT. Thank you. 

Chairman CAMP. Thank you. And I know that some people want 

to talk about everything but this budget, but let me just say that 

I made public statements as a member of the supercommittee that 

everything was on the table. The Toomey plan did put revenue on 

the table through pro-growth tax reform. It was about $250 billion. 

It was not the trillion dollars that the other side wanted. So to say 

that there was no proposal there is just simply inaccurate. 

And I would also say on tax reform, I have a bill, a draft discussion on corporate reform. There is a plan out there. So I would just 

say that while there may have been meetings with the leaders, the 

administration has never come to this committee, which has jurisdiction over this issue, to work with Republicans and Democrats on 

this committee, which we have been trying to do with a series of 

hearings. We had 15 hearings on this issue, we have had hearings 

with the Senate. I think going through a regular process might be 

a better approach. So, again, I know from your statement you are 

going to be giving us some concepts or ideas on corporate reform 

that I look forward to. So with that, I would recognize—— 

Secretary GEITHNER. Mr. Chairman, could I just say—— 

Chairman CAMP. Yes. 

Secretary GEITHNER. I would just like to emphasize the common ground. I agree with you, we are going to need comprehensive 

tax reform. I think it is inevitable, I think it is necessary, I think 

it is the best way to get a better system that is more responsible 

fiscally, so I am with you on that, I think the case is compelling. 

And the reason why I think this debate is worth having now, even 

if we are a little short of, on either side, comprehensive detailed 

legislative language, is because we have got to find a way to narrow the gap a bit if we are going to make progress, and that requires confronting this basic question of how do you make the 

broader plan balanced, how do you make sure there is the right 

mix of pro-growth things with things that are still fair in terms of 

opportunity; that is the debate we have to have. 

Chairman CAMP. But legislation has been introduced on this 

issue on the corporate side. 

Secretary GEITHNER. Yeah. 

Chairman CAMP. I don’t pretend to say it is complete. 

Secretary GEITHNER. You are ahead of us on the corporate side, 

that is right, but we will be happy to have a little more detailed 

discussion in the coming weeks. 

Chairman CAMP. Mr. Nunes is recognized. 

Mr. NUNES. Thank you, Mr. Chairman. Mr. Secretary, I am 

going to try to quote you here, but I think you just said that this 

budget was a sober, direct recognition; is that what you said? 

Secretary GEITHNER. Of the fiscal reality we face, which is 

unsustainable deficits we need to cut by about $4 trillion over 10 

years. 

Mr. NUNES. Well, I was a little stunned by the word ‘‘sober,’’ because I was wondering if you weren’t sober 4 years ago. You know, 

this is the same thing every year you have come before this committee. I have heard you, at least innuendo, about blaming Bush, 


ccoleman on DSK8P6SHH1PROD with HEARING
33 

the past administration, the problems that you inherited. Every 

year you come to this committee with a budget, you say the same 

thing, but you have borrowed $5 trillion. This country has borrowed $5 trillion in President Obama’s first term, which is basically the same amount that Bush borrowed in his 8 years. And so 

I am just wondering, you know, we are hearing a lot about infrastructure and job creation and you guys are going to have some 

type of tax reform, but what happened 4 years ago? You were saying virtually the same exact speech 4 years ago as what I hear 

today. And so I just don’t know how much more money, if $5 trillion wasn’t enough. 

Secretary GEITHNER. Congressman, again, if you want to talk 

about the relative fiscal virtue of the Republican leadership in the 

last decade relative to what we face, I would be happy to do that. 

Mr. NUNES. No, I am just glad—I am not trying to place blame 

here on you or the Republicans or on anyone. I am just saying that 

I just find it rather ironic that now you guys have become sober 

suddenly and recognize that we have a budget problem in this 

country. 

Secretary GEITHNER. That is not fair. Each of these years and 

budgets, we have proposed a way to get ourselves back to a sustainable position, and we have done it every year with the budget 

from the beginning. Now, what we are debating, though, I think, 

is not whether we should do that, not whether we have to do it. 

We are debating how we should do it. And the reason why we are 

having such a good debate is you do not support the strategy we 

have embraced to cut the deficits because your strategy, as I understand it, is a strategy that would ask us to preserve and lock in 

unaffordable tax cuts for the top 2 percent, and to make that tenable you want to cut—— 

Mr. NUNES. I can see that. The one proposal I did not support 

was the stimulus bill. That was supposed to go into creating infrastructure, shovel-ready project, blah, blah, blah. And so, you know, 

I am just trying to figure out why it is that that policy didn’t work, 

and somehow, you know, it seems like you want to recreate another 

stimulus package. That doesn’t seem to be possible, because at the 

same time you are trying to say you are going to balance the budget. I just want to know how much more should we have spent. How 

much more should we have spent. 

Secretary GEITHNER. If you want to go back and talk about the 

record of what those policies are, that is fine. I can—— 

Mr. NUNES. I just want to know. If you didn’t spend enough, 

how much more should we spend? 

Secretary GEITHNER. If you want to look at the record of analysis about the impact on the economy, I can draw to your attention 

Republican economists who said growth would have been dramatically weaker, unemployment much higher, millions of jobs lost, if 

we had not done that. Congress did the right thing in doing that 

and it was necessary and decisive and effective. 

Now, today, looking forward, if you don’t want to invest in infrastructure, and you don’t want to invest in education, and you don’t 

want to invest in innovation, you don’t want to do things for jobs 

now, then how are you going to get the economy growing more rapidly? That is the debate we are trying to have. Now, I completely 


ccoleman on DSK8P6SHH1PROD with HEARING
34 

understand and share deeply the imperative of reducing our fiscal 

level to a sustainable level, and we propose a way to do that. 

Where we differ, I think, with your side, though, is how to do it, 

not whether to do it. 

Mr. NUNES. I think that my time is almost up and I have another quick question for you, but I think the difference is that for 

some reason in the administration, you guys believe government 

creates jobs. 

Secretary GEITHNER. That is not true. 

Mr. NUNES. Spending creates jobs, and we don’t agree with 

that. But let me switch to a topic that I think we have some agreement on. 

Secretary GEITHNER. I just want to say that what you just said 

there is not true. We recognize, as does anybody who believes in 

fiscal responsibility in this country, that the job of government is 

to create the conditions that allow businesses across the country to 

invest and create jobs. 

Mr. NUNES. Like Solyndra would be a good example of that. 

Secretary GEITHNER. Investments in clean energy are absolutely a good use of the taxpayer’s money. Absolutely good, and we 

are going to do more of it—— 

Mr. NUNES. Solyndra was a good investment? 

Secretary GEITHNER. It is a very good strategy, economic strategy. And there is lots of support on your side of the aisle for doing 

this to make sure we are creating tax incentives and financial incentives for investment in clean energy. And we will continue to 

find ways to do that. There is risk in doing that. 

Mr. NUNES. I am glad to have you on the record defending 

Solyndra. That is very interesting. 

Mr. LEVIN. Mr. Chairman, he wasn’t doing that, by the way. 

Chairman CAMP. The gentleman’s time is expired. 

Mr. NUNES. Mr. Chairman, if I may, I do have a question for 

you on the SEC regulations and I think we actually are in agreement on this, and I will get you a question in writing, Mr. Secretary. 

Secretary GEITHNER. Okay. Thank you. 

Chairman CAMP. If you accommodate, responding in writing 

would be helpful. 

Secretary GEITHNER. Absolutely. 

Chairman CAMP. Mr. Brady is recognized for a moment. 

Mr. BRADY. Mr. Chairman, today I want to take a moment to 

honor one of our heroes amongst us. Thirty-nine years ago Sam 

Johnson returned home safely from Vietnam after being in prison 

for 7 years in the Hanoi Hilton, nearly half of it in solitary confinement. He is a hero among us, and each and every year we are 

grateful for your safe return, Sam. 

Chairman CAMP. Mr. Tiberi is recognized. 

Mr. TIBERI. Thank you, Mr. Chairman. That is a tough act to 

follow. 

Mr. Secretary, you mentioned economic growth, pro-growth, 

growing our economy. Let me tell you a little bit about what is happening in Ohio. In Eastern Ohio you may have heard, you may 

have read, there has been over the last year a huge find of natural 

gas shale; not even really much on line yet, quite frankly. That 


ccoleman on DSK8P6SHH1PROD with HEARING
35 

could be a huge game-changer in Ohio. In fact, many are coming 

into Ohio investing. But Ohio’s oil and gas industry is primarily 

made up of a whole lot of mom and pop—some second-, thirdfourth-generation families running oil and gas businesses. 

Mr. Chairman, I would like to ask unanimous consent to submit 

an article from the Washington Times for the record. The article 

discusses an Iraqi war veteran from Ohio, who upon returning 

couldn’t find a job, and was recently hired by an oil exploration 

company making between $60- and $70,000 per year, allowing him 

to stay in his hometown. 

Chairman CAMP. Without objection. 

[The insert of The Honorable Pat Tiberi follows:] 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 16 here 77158.016
36 

f 

Mr. TIBERI. The point of that article, Mr. Secretary, as you 

know, is that the find of a game-changer, not just for the oil and 

gas industry, not just for energy, but for jobs and economic growth 

throughout that region of our State, and there is a multiplier effect. 

I talked to an auto dealer in Columbus, who said a friend of his 

in that part of the State, an auto dealer, sold more Cadillacs last 

year than he has sold in years. Now, you might have a particular 

interest in that. That Cadillac dealer is on the verge of selling a 

whole lot more Cadillacs over the next several years if this oil and 

gas is allowed to continue to be explored and extracted. 

Now, like the Cadillac dealer, most of those oil and gas companies are pass-through entities. As you know, they pay their taxes 

individually, the owners of those companies do. And the oil and gas 

industry, it is a big deal in Ohio. My understanding is the President’s budget proposes to increase the top two marginal individual 

tax rates, therefore impacting those pass-through entities. Would 

that be a tax increase on the top two tax rates of pass-through entities? It is a yes-or-no answer. 

Secretary GEITHNER. Yes. 

Mr. TIBERI. The President’s budget, in my understanding—— 

Secretary GEITHNER. It is worth noting, though, that again, in 

proposing to allow those Bush tax cuts for the top 2 percent to expire, they would return them to the level that prevailed in the late 

1990s, which I think, as you know, was a remarkably good period 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 17 here 77158.017
37 

for private investment and productivity growth and job creation 

and—— 

Mr. TIBERI. It is a yes-or-no answer. The President’s budget also 

proposes to limit the personal exemption on itemized deductions for 

those individuals as well. 

Secretary GEITHNER. Absolutely. 

Mr. TIBERI. And finally, applying it to the oil and gas industry, 

my understanding is the President’s budget proposes to repeal the 

marginal wealth credit, the intangible drilling cost and percentage 

depletion. And I think you have agreed in the past with me when 

we have talked about this, that that would be a tax increase to 

them. 

Secretary GEITHNER. Well, it is a—I think a better way to say 

it, using the language on your side, it is the removal of a subsidy 

in the Tax Code. 

Mr. TIBERI. Okay, Mr. Chairman, I would like to ask unanimous consent to submit this Joint Committee on Taxation report 

which determined that repealing those provisions would have a 

devastating impact on domestic oil and gas production, and would 

result in increased, unfortunately, dependency on foreign fossil 

fuels to be entered into the record. 

Chairman CAMP. Without objection. 

[The insert of The Honorable Pat Tiberi follows:] 


ccoleman on DSK8P6SHH1PROD with HEARING
38 

f 

Mr. TIBERI. Mr. Secretary, in addition—again, talking about 

that Cadillac dealer, my understanding is that the President’s 

budget changes in accounting methods eliminates LIFO, last-infirst-out, accounting within the budget that would impact not only 

that small business, but a number of small businesses, not only in 

my State, distributors, manufacturers, car dealers, devastating effects. In fact, the one car dealer, he said he would be lucky if he 

even stays in business if that position is repealed. Is that in the 

budget? 

Secretary GEITHNER. Yes, it is in the budget. We have a different view of the impact, though. 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 18 here 77158.018
39 

Mr. TIBERI. I would love to have you talk to this car dealer. 

Maybe GM can have him talk to you. 

Mr. Chairman, last point, question to Mr. Secretary. You mentioned that the effective rate of most our U.S. multinationals is in 

the 30s. 

Secretary GEITHNER. High 20s. 

Mr. TIBERI. High 20s. 

Secretary GEITHNER. You know, mid- to high 20s is the effective tax rate. It is much, much lower—— 

Mr. TIBERI. We have had a dozen hearings, Mr. Secretary, and 

we have had CFOs, we have had tax accountants, these folks competing with German companies, Australian companies, companies 

from all over the world. And their effective tax rate—in fact, one 

told us was 36 percent. Most of what we heard from them regarding their effective tax rate was from 30 to 36. 

How can we create more jobs, Mr. Secretary? How can we ask 

the private sector, which you just acknowledged to Mr. Nunes is 

where the jobs are going to be created, if we tell the pass-through 

entities that their taxes are going to go up? And if we tell the oil 

and gas companies that they are not going to be able to drill, and 

if we tell our corporate folks that we are only to get to 28, apparently, in the President’s proposal. The corporate tax rate is not 

even the average of what the world is at 25 so how can we compete? 

Chairman CAMP. Give the Secretary time to answer. 

Secretary GEITHNER. Here is the thing to think about in this 

context. The effective tax rate on the energy industry in the United 

States today is much, much lower than the average. It is lower because the Tax Code provides a substantial amount of subsidies to 

those private companies. 

We propose, for lots of reasons, mostly because we think it is fair 

and more efficient, to dial some of those back. Now, if you oppose 

that, you have to ask yourself who should pay for those subsidies, 

and why is it fair to ask other businesses or other individuals to 

bear the burden of paying for those subsidies in the Tax Code? 

That is another way to think about your question. 

But since you are concerned, as far as I can tell, about the risk 

that the effective tax rate on the oil industry is going to be too 

high, ask your staff to show you what the average effective tax rate 

is today, because you will find it is way below the average of what 

other American businesses pay. 

They pay more in order to subsidize that. We don’t think that is 

efficient. We don’t think it is good economic policy. We don’t think 

it is responsible fiscal policy. And that is why we think there is 

need for reform there. 

Chairman CAMP. Okay. Mr. Neal is recognized. 

Mr. NEAL. Thank you, Mr. Chairman. Mr. Secretary, as you 

know, I have been involved in the battle of Alternative Minimum 

Tax for a long, long period of time. I am intrigued by the proposal 

that the President is offering, and that you and your staff, I know, 

have helped to assemble. But it does bear noting. And many of the 

former Bush economic advisors in the last couple of weeks have indicated that many of the things that they did with the Bush tax 

cuts that I opposed, made the Alternative Minimum Tax not only 


ccoleman on DSK8P6SHH1PROD with HEARING
40 

more complicated, but it simply hit more people because of those 

tax cuts. 

Now, I think there is an opportunity here to, as you have indicated, to force a discussion about tax reform based upon AMT in 

the proposal that you have. And I hope you might in the next couple of minutes maybe flesh that out for all of us. But not to miss 

the point, as Bruce Bartlett has indicated in a powerful little book 

that I would recommend to our Republican colleagues as well, an 

advisor to Ronald Reagan, he has kind of laid out not a left or a 

right scenario as much as a kind of reflection on what went awry 

during those years. 

And the second part of my question is, what do you intend to do 

with the Bush tax cuts? 

And the third part of the question is, I know the money market 

funds discussion has arisen, and as we proceed with that I think 

it is important to acknowledge that local government, and State 

government relies on those money market funds for a lot of privatesector investment and initiative. So that is a three-part question, 

and have a go at it. 

Secretary GEITHNER. Okay. We think the Buffett Rule, which 

is a proposal that says what people that make more than $1 million in this country should pay in terms of their effective tax rate. 

No less than 30 percent is a better AMT. 

Mr. NEAL. Can you eliminate AMT? 

Secretary GEITHNER. We think it is a better version of an 

AMT. And AMT is a mess, and obviously you have to fix it. Again, 

we are making a simple judgment that the only way to restore fiscal responsibility and still preserve the commitments we need to 

make to our retirees and national security, is by a modest increase 

in the effective tax rate for the Americans who are in the best position to absorb that burden. That is the simple principle behind the 

Buffett Rule. 

Now, your second question is, What do we propose to do with the 

Bush tax cuts? What we propose to do is to allow the Bush tax cuts 

that went to the top 2 percent to expire at the end of this year, 

as is scheduled to happen. We propose to extend the Bush tax cuts 

that go to middle-class families, the rest of the 98 percent of Americans that pay taxes. 

We think that is good economic policy, and fair. But it is not 

enough. We have to go beyond that. And so in addition to that, as 

your colleague reminded us, we also propose to limit the value of 

deductions and exclusions for the top 2 percent of Americans, so 

the benefit they get from those deductions is the same as an average middle-class family. We think, again, that is a simple principle 

of fairness and fiscal prudence. 

You raised the SEC money market reform questions. We are 

very, very supportive of the SEC’s objectives of trying to make sure 

that we have put in place additional reforms to make a more stable 

money market fund industry so that it doesn’t pose the risk to the 

broader economy in the financial system that you saw in the fall 

of 2008. And we are working closely, alongside the Fed, on how to 

get that balance right. And people are going to want to look very 

closely at the proposals they come out with. They will have a 


ccoleman on DSK8P6SHH1PROD with HEARING
41 

chance to comment on those proposals. And we will, of course, listen very carefully to any concerns raised about those proposals. 

Mr. NEAL. Lastly, Mr. Secretary, as we proceed at some point, 

I hope, to finish the extenders here at some point, I emphasize, two 

initiatives that I have worked really hard on for a long period of 

time, the Build America Bonds, and, I would note, by way of a document that I have here that my Republican friends—boy, did their 

congressional districts benefit from the Build America Bonds program. And I know that there are some that have had an interest 

in it, and others have insisted on taking it with one hand and 

dissing it with the other, but it has been very effective. 

And the other issue, the new markets tax credits. It worked wonders across New England as well as across the rest of the country. 

I think they are very sound economic principles that we can all adhere to regardless of party position or persuasion. So I am hopeful 

that as you proceed, that you will look favorably upon those opportunities as well. 

Secretary GEITHNER. We will. And I share your enthusiasm 

and support for those two types of tax proposals. 

Chairman CAMP. Thank you. Mr. Reichert is recognized. 

Mr. REICHERT. Thank you, Mr. Chairman. Welcome, Mr. Secretary. Thank you for appearing today. We are still awaiting the 

arrival of Secretary Sebelius. We appreciate your presence. 

Secretary GEITHNER. I wish she could be here today with me. 

Mr. REICHERT. So do we. 

Secretary GEITHNER. To join in the debate. 

Mr. REICHERT. Yeah. Well, I also want to compliment you. You 

have improved in your testimony since 2009 when you first appeared. 

You stick to your speaking points rather well. What I hear, 

though, today, is your sort of theory on economics here is that government needs to invest more money, to spend more money to decrease our debt. And also I hear that we need increased taxes on 

job creators. So that is what I am hearing. 

I want to touch on the corporate tax reform just for a moment 

because I have also heard, and I have written down some quotes 

here, that you see an urgency here in corporate tax reform. You see 

an urgency. We can’t wait. We have got to get this done. But we 

are going to hear from you and the President, a little bit later, on 

some of of the details. 

You are going to lay out some core elements. However, there is 

not a full articulated proposal. You are right. We are not going to 

give specifics. That is one quote that you gave the chairman. This 

won’t be in the next few months, but could be possibly in the next 

few weeks. So are we—I am confused. Are we going to see corporate tax reform? Are we really going to see something from the 

administration on corporate tax reform in the next few weeks, in 

the next few months, or are we going to wait until after the election? 

Secretary GEITHNER. Maybe I should—since you are so interested in this timing question, maybe I should go back a little bit. 

Mr. REICHERT. I only have a limited amount of time, Mr. 

Geithner. Mr. Secretary, are we going to see a plan on corporate 

tax reform in the next few weeks—— 


ccoleman on DSK8P6SHH1PROD with HEARING
42 

Secretary GEITHNER. You are going to see in the next few 

weeks us lay out a framework of proposals for corporate tax reform 

to begin the debate—— 

Mr. REICHERT. Does that mean specific details? 

Secretary GEITHNER. No, it is more than principles, but less 

than fully articulated legislative language. 

Mr. REICHERT. No specific details? 

Secretary GEITHNER. No, that is not true. It will be—— 

Mr. REICHERT. Will we get the details later, Mr. Secretary? Mr. 

Secretary, specific details later to come? 

Secretary GEITHNER. I think that we will—— 

Mr. REICHERT. By the end of the year? 

Mr. LEVIN. Mr. Chairman, he should be allowed to respond to 

the question. 

Mr. REICHERT. It is a yes-or-no question. I am looking for a 

yes-or-no answer, Mr. Geithner. 

Secretary GEITHNER. I think we will give you a framework in 

the next couple of weeks. 

Mr. REICHERT. Let’s just say this. 

Mr. LEVIN. Mr. Chairman. 

Mr. REICHERT. It is my time, thank you. 

Chairman CAMP. Mr. Reichert has the time. 

Mr. REICHERT. Mr. Secretary, let’s say that we get a plan, we 

see some details and some specifics. 

Secretary GEITHNER. I am—— 

Mr. REICHERT. How do you plan, sir, to, for example, in the— 

in Washington State, 56 percent of our jobs are small businesses. 

They pay their corporate income taxes through the individual Tax 

Code, as you know. The very—these very same taxes that you propose, you are raising in this budget to over 40 percent in some 

cases; for example, 2.1 percent tax on medical devices, 3.8 percent 

tax on employers through the health care bill, another 40 percent 

tax on health care plans. You are going to raise the death tax. You 

are also going to raise the capital gains tax. 

How do you plan to protect our small businesses, the people that 

are creating jobs, in your corporate tax reform? How do you plan 

to protect our small businesses, our job creators? That is what I 

want to hear from you today, and I think that is what the American people want to know. 

Secretary GEITHNER. Good question. And as you know, we have 

worked very hard with Congress to put in place a series of very 

powerful tax incentives for small business over the last 3 years; 

very substantial, powerful programs to help get them more access 

to credit. We are going to build on those proposals in the things 

that you are going to hear from us in the next couple weeks. 

It is worth noting, though, and I just want to make sure this is 

clear, that the proposals we have introduced in the budget to allow 

the Bush tax cuts for the top 2 percent to expire, as scheduled—— 

Mr. REICHERT. Mr. Secretary, answer the question, please. 

Secretary GEITHNER. We—— 

Mr. REICHERT. We are looking at a 40 percent tax on small 

businesses. How do you plan to protect small businesses? 

Mr. LEVIN. Mr. Chairman, could you let him answer the question? 


ccoleman on DSK8P6SHH1PROD with HEARING
43 

Chairman CAMP. Mr. Reichert has the time. 

Mr. LEVIN. Don’t abuse the—— 

Mr. REICHERT. Mr. Secretary, please answer the question. How 

do you plan to protect small businesses in your corporate tax reform plan? That is what I want to know. I don’t want to know what 

you have done in the past. I want to know what you are going to 

do. 

Secretary GEITHNER. Again, you are going to have the chance— 

I am sure you will call me up here again, and I am going to look 

forward to talk to you about it when we lay out our—— 

Mr. REICHERT. Answer the question, please. Mr. Secretary, 

please answer the question. How do you plan to protect small businesses? 

Secretary GEITHNER. You will—— 

Mr. REICHERT. The question has not been answered. Answer 

the question, please. 

Chairman CAMP. The gentleman’s time is expired. Mr. Roskam 

is recognized. 

Secretary GEITHNER. Mr. Chairman, can I just respond to this 

question? 

Chairman CAMP. Yes. 

Secretary GEITHNER. Congressman, as I said, you will hear us 

in the next couple of weeks lay out a broad framework for reform 

in the corporate tax system. You will hear in that context some answers to your question. I am not going to answer that today, because we are going to do this a couple of weeks from now. But we 

will have the chance to talk about that, and I look forward to that. 

Mr. REICHERT. Okay. Thank you for not answering the question. 

Chairman CAMP. Mr. Roskam is recognized for 5 minutes. 

Mr. ROSKAM. Mr. Secretary, lets switch gears. When asked 

about how harmful the Senate’s lack of a budget was last week, 

Chairman Bernanke said this two-sentence—three-sentence quote. 

He said, ‘‘Is the uncertainty about the future of the Tax Code government programs and so forth a negative for growth? I think it 

is. Because firms like to have certainty, like to be able to plan.’’ 

Now, when the White House was asked its opinion about no action on the part of the Senate, the White House said they had no 

opinion. What is your view? Do you agree with the White House, 

or do you agree with Chairman Bernanke? 

Secretary GEITHNER. I believe that it is very important to the 

future of the country, to have confidence in the United States, that 

Congress come together and agree on a balanced program of fiscal 

reforms to give Americans confidence and the investors more confidence, that we will find a way to go back to living within our 

means. And that is very important for us to do, and better for us 

to do it sooner, rather than later. And that is why we are here 

today, to debate how best to do that. 

Mr. ROSKAM. So unlike the White House, am I incorrect in interpreting you to say that it would be helpful if the United States 

Senate passed a budget? 

Secretary GEITHNER. No, I was answering a different question, 

which was that—— 


ccoleman on DSK8P6SHH1PROD with HEARING
44 

Mr. ROSKAM. Let’s go back to the question that I answered— 

or that I posed. The Chairman of the Fed says it is not helpful for 

the Senate not to act. 

Secretary GEITHNER. That is not what the Chairman said. 

Mr. ROSKAM. When asked about how harmful the Senate lack 

of a budget is, the Chairman said this: Is uncertainty about the future of the Tax Code government programs’’—that is, budget—and 

so on a negative for growth?’’ Chairman Bernanke, said, ‘‘I think 

it is.’’ 

Firms like to have certainty, like to be able to plan. So you are 

not recharacterizing Chairman Bernanke’s testimony, are you? 

Secretary GEITHNER. Well, to actually be fair, I didn’t hear exactly what he said. 

Mr. ROSKAM. Okay, that is exactly what he said. 

Secretary GEITHNER. But I think you are asking a question 

really about budget process. 

Mr. ROSKAM. No, I am asking a question, Mr. Secretary, about 

budget priorities. That is an acknowledgment by the United States 

Senate, which is what I think would be incredibly helpful to 

produce a budget. When the White House was asked, Mr. Secretary, about that issue, the White House said it had no opinion. 

What I am asking you is, what is your opinion about the Senate’s 

failure to produce a budget? 

Secretary GEITHNER. Let me try it a different way. 

Mr. ROSKAM. No, let’s try it that way. So the question is: Do 

you have an opinion about the Senate’s failure to produce a budget? 

Secretary GEITHNER. Congressman, I will say I will try to state 

it a better way. Maybe this will be helpful to you. Congress, in August, enacted in the Budget Control Act, a series of caps and controls on discretionary spending which we are living within. We 

have some disagreements on how best to do that. Now, what that 

act did not do is reach agreement on a set of entitlement reforms— 

to health care, other mandatory, or broader tax reforms—to help 

deal with the rest of the remaining fiscal challenges we face. 

Now, it is our judgment, which is why we put forward a budget 

and why we are having this debate with you, that we need to start 

to lay the foundation for bipartisan consensus on both of those entitlement reforms and tax reforms. Now, it would be good for us to 

do that. That is why we are having this debate. 

At the end of the year, we are going to have to start that process 

because with the expiration of all of the Bush tax cuts and the sequester hitting at the end of this year, we are going to have to find 

some way to reach broader consensus on fiscal reform. That is why 

we are having the debate right now. So I don’t know that you and 

I disagree in the sense that this is important for the country. That 

is why we are debating it. And what we have got to try to do is 

try to figure out how to find more common ground because, as you 

can tell, at the moment we are a little apart on taxes and we are 

a little apart on entitlements. 

Mr. ROSKAM. So let’s move in to try and find common ground. 

Is there anything fundamentally different about this budget that 

you are here presenting today that is different than the budget 


ccoleman on DSK8P6SHH1PROD with HEARING
45 

from last year that failed to get a single vote of any United States 

Senator? 

Secretary GEITHNER. It is different in two very important respects. It lays out a much more substantial set of savings on Medicare and Medicaid and what is called other mandatory—farm subsidies, civil servants’ retirement and some such things—that were 

not in the President’s budget last year. Together those savings 

amount to hundreds and hundreds of billions of additional dollars 

over 10 years; it outlines some additional savings on the defense 

side, and so in that sense it is different. 

It is also different in the sense that it is a much more substantial 

set of near-term support for job creation and growth than we proposed last February, because we would like growth to be stronger 

than it has proven to be. Those are the main differences from the 

last year’s budget. 

Mr. ROSKAM. My time has expired and I will yield back. Let me 

ask just one rhetorical question, and that is one I doubt you will 

answer. But that is: Does the President have a commitment from 

Senator Reid to put the President’s budget on the Senate floor for 

a vote? I yield back. 

Chairman CAMP. Thank you. Mr. Becerra is recognized for 5 

minutes. 

Mr. BECERRA. Mr. Secretary, thank you for being here. Let me 

first apologize to you for this committee’s lack of decorum, and 

more specifically, lack of courtesy to you as a witness here today. 

There used to be a time when we could disagree without being disagreeable. And there was a time where we could have a real discussion and debate with the witnesses. But perhaps this is why so 

many Americans today are fed up and frustrated with Congress 

and give it such a low rating, in that they don’t believe that we are 

here to listen to Americans or to its representatives, but just to say 

what we think. 

Let me ask you a question about jobs. We have seen progress. 

Last month’s report where over 250,000 private-sector jobs were 

created was a good sign, compared to just 3 years ago, when the 

President inherited the keys to the White House, where we lost in 

that month of January 2009 close to 780,000 jobs in 1 month. That 

is a major—a million jobs turnaround in January 2009, to what we 

see in terms of January 2012. 

But we still have a long ways to go, because during that deep recession that began in 2007 and 2008 under President Bush, we lost 

close to 8 million jobs. Now, we know that we are losing jobs. At 

the same time, we know that a lot of those jobs aren’t being lost 

altogether and disappearing. They are going overseas, a lot of outsourcing of American jobs. And I know that the President has said 

that he is very interested in trying to move forward a bipartisan 

policy that would allow us to insource jobs, to keep jobs in America, 

and I know you have got some specific proposals there. 

Now, one step before I ask a question of you. A review of the employment data shows that in the 10-year period of 1989 to 1999, 

U.S.-based multinational corporations added 4.4 million workers to 

the payrolls in the U.S. They at the same time, by the way, added 

2.7 million jobs overseas. So they were outsourcing back in that 10- 


ccoleman on DSK8P6SHH1PROD with HEARING
46 

year period between 1989 to 1999, but they were also insourcing, 

insourcing more than they were outsourcing. 

The 10-year period that followed, 1999 to 2009, those same U.S. 

multinational corporations based in the U.S. eliminated 864,000 

jobs in this country at the same time that they were adding 2.9 

million jobs overseas. 

So, whereas in the previous decade, they were insourcing while 

they were outsourcing, it has now become the case that too many 

of those American multinational corporations are outsourcing while 

they are cutting American jobs here at home. 

Do you have any proposals, does the President have any proposals in his budget to try to encourage American companies to 

insource jobs here in America? 

Secretary GEITHNER. I think probably the single most important rationale for corporate tax reform and the most important test 

of whether we can do corporate tax reform on sensible grounds is 

whether we can improve the incentives for companies to create and 

build things in the United States, because we want U.S. companies 

not just to be a large share of the huge growth we are going to see 

outside of the United States in the coming decades, but we want 

to see more of that demand met by things that are not just produced and created in the United States, but support American jobs. 

That is, I think, one of the most important reasons is to try to 

find a way to help do corporate tax reform, that brings down the 

rate, broadens the base, and shifts those incentives, in favor of creating and building things in the United States. 

So you are going to see when we begin this discussion in the next 

couple of weeks about corporate tax reform, some specifics about 

how to do that. And I would say we would look at any proposal 

through that simple test, which is relative to what you face today, 

are we making it more likely that that next factory by a U.S. company or a foreign company is built here? 

Mr. BECERRA. Now, in the last 23 or so months, we have seen 

some 3.7 million jobs created. So we are no longer losing the jobs, 

we are creating them, and we want to accelerate that. Some 

400,000 of those jobs are in manufacturing in America, so we are 

increasing manufacturing jobs—again, not as fast as we should; 

but, again, do you have any proposals in the budget, tax credits, 

and so forth, that would incent manufacturing to occur in the U.S.? 

Secretary GEITHNER. Yeah, as you heard the President say in 

the State of the Union, and you will see in the budget, and you will 

see more in the next couple of weeks, we believe that as we consider broad corporate tax reform, we need to be strengthening the 

incentives for manufacturing, advanced manufacturing. We think 

there is a very compelling economic case for doing so; again, very 

high returns in terms of economic growth, and you are going to see 

from us some more specific ideas about how best to meet that test. 

Remember, the things that can move, industries will move if it 

is economically compelling for them to move. Manufacturing is one 

example of that, and that is one reason why you want to focus 

where you think there is a good case for special tax preferences on 

that important industry. 

Mr. BECERRA. Thank you. Mr. Chairman, thank you very 

much. I yield back my time. 


ccoleman on DSK8P6SHH1PROD with HEARING
47 

Chairman CAMP. Mr. Gerlach. 

Mr. GERLACH. Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here. I just jotted a note from your last comment 

that the purpose of the corporate tax reform effort that you are 

going to be undertaking is to basically incentivize growing jobs and 

building jobs here in the United States. 

My district is outside of Philadelphia. We have a very significant 

medical device industry, and we are very concerned that the 2.3 

percent tax imposed on the Obama Care legislation will actually 

have the opposite effect. In fact, there is a study by Avromed that 

there would be about 48,000 jobs lost in the industry if this $20 

billion tax over 10 years is enacted—or excuse me, is implemented. 

So based upon your testimony today that you intend as part of 

the administration to put forward a comprehensive corporate tax 

reform plan of action, although it won’t be in legislative form, will 

the repeal of the medical device tax be part of that? And if so— 

or, excuse me—if not, why not? 

Secretary GEITHNER. No, it will not be part of that, and I understand your concerns about this, and I would be happy to talk 

to you in more detail about it. But let me give you our general 

sense. The Affordable Care Act will dramatically expand insurance 

coverage, as you know, for tens of millions of Americans, and therefore we are pretty confident that the net impact on businesses that 

are in the business of providing health care devices or otherwise, 

will be very positive, very substantially positive, even with the 

measures we propose to make sure we are doing that in a fiscally 

responsible way. But I would be happy to talk to you in more detail 

about that. I understand your concerns. 

Mr. GERLACH. Well, given the nature of the tax, if you are familiar with it, it is a 2.3 percent tax on gross receipts right off the 

top; whereas, many of the companies in our area, and Representative Paulson also has been working very hard on this issue, many 

of the companies only have a net profit at the end of the day of 

only about 1 or 2 percent. So if you are taking 2.3 percent off their 

gross revenues, you are putting many of those companies at risk, 

and in fact allowing them to consider moving to other parts of the 

world to undertake their R&D and their manufacturing. 

So again, what is it about the medical device tax that you think 

somehow is going to create jobs rather than what you agree is the 

purpose of corporate tax reform, which is to incentivize the growing 

of jobs here in the United States—— 

Secretary GEITHNER. Again, I would be happy to spend more 

time trying to understand your concerns on this stuff, but we think 

that on balance, that mix of reforms, again, will expand health care 

dramatically for tens of millions of Americans, will be very positive 

on balance for American businesses that are in that business. 

Mr. GERLACH. So you are open to the industry having more 

communication with you, the administration, to demonstrate why 

that tax is not going to incentivize job growth? 

Secretary GEITHNER. I am always happy to get advice and concerns on these kinds of things and would, of course, listen on those. 

Mr. GERLACH. Okay, one other question. Last year when you 

were here, I asked you specifically what the corporate rate ought 

to be rather than 35 percent, and we got you to answer a little bit 


ccoleman on DSK8P6SHH1PROD with HEARING
48 

on that to say you thought it should be down in the area of around 

28 percent. 

Secretary GEITHNER. I don’t think I said—did I say—I don’t 

think—I have been very, very careful not to give you a number. 

Mr. GERLACH. Well, I would be glad to send you the transcript. 

But you were down—I got you down to around 28 percent. My 

question is: Is that where you are going to be when the corporate 

proposal—tax proposal comes out in terms of the new rate you 

think it ought to be? 

Secretary GEITHNER. I think what I tried to say in the past is 

we want to bring down the rate, and we think we can, to a level 

that is closer to the average of that of our major competitors. 

Mr. GERLACH. Okay, thank you, Mr. Secretary. Thank you, Mr. 

Chairman. 

Chairman CAMP. Thank you. Before I go to Mr. Thompson for 

5 minutes, after him we will be alternating one and one, and we 

will go to 4 minutes, because I know the Secretary has to leave at 

12:30. We appreciate the time that we have had with him. 

So Mr. Thompson is recognized for 5 minutes, but after that, it 

will be 4. 

Mr. THOMPSON. Thank you, Mr. Chairman. Thank you, Mr. 

Secretary, for being here today. And I want to focus in on jobs and 

one particular aspect of jobs, and that is why I was so pleased to 

see that the President continues to make what I think are very important investments in renewable energy, including the extending 

the 1603 Treasury grant program, advanced energy manufacturing 

credit, and the production tax credit for wind, as well as calling for 

investments in energy-efficient buildings. In particular, the 1603 program has leveraged nearly $23 billion 

in private sector investments, and it supported over 22,000 

projects, nearly half of those in my home State of California. And 

I think every district, every congressional district represented on 

this dais today, has taken advantage of the 1603, and benefited 

greatly from that. 

And I know that in California, there has been over $1.2 billion 

in grants issued; in Texas, over $1.6 billion in grants issued; and 

in my district, that means small businesses have been able to completely go to solar power or get increased amounts from wind energy. And this means that when they do that, not only does that 

create jobs, people installing those, people building those. But that 

means more money in their pockets, more money from energy savings, where they can invest more money in their businesses, they 

can hire more workers. And maybe some of those panels were built 

in the Dow plant in Midland, Michigan. 

And I think it is important to point out that they received $17 

million in advanced energy manufacturing credits. And that is important because that is not only jobs in Midland, Michigan, but 

that means that those solar panels that they are installing in my 

district, and most of the other districts on this dais, are made right 

here in the United States of America. 

And also it is important that we continue to extend the production of the tax credit for wind. If that is allowed to go away, that 

will result in the loss of nearly 40,000 clean energy jobs. So as we 

continue to promote job creation, and add to the 3 million jobs that 


ccoleman on DSK8P6SHH1PROD with HEARING
49 

have been created over the past 2 years, what role do you see clean 

energy investments in our Tax Code playing in the creation of 

those jobs? 

Secretary GEITHNER. They should continue to play an important role for all of the reasons you said. I think that they are, as 

part of a comprehensive strategy to make sure Americans are using 

energy more efficiently to reduce our dependence on foreign oil, to 

increase the value of renewable sources of energy. We think tax incentives like the ones you described are an important part of energy policy and a good economic policy for the country. 

Mr. THOMPSON. Well, I can just tell you from my personal experience in my district and different places I have visited across 

this country, this is extremely important. And there are areas that 

are hanging high hopes on the continuation of these programs. 

They are working with community colleges; they are working with 

private business in the private sector to train individuals and to 

work on manufacturing in these areas. And I think this has more 

potential than we have already seen to date, and I see this going 

no place but up. 

It has been brought up during some of the previous questioners, 

about the—what has been known as the Bush tax credits. What 

happens to our deficit if those expire, as they are set to expire? 

Secretary GEITHNER. If you would extend the Bush tax cuts for 

the top 2 percent—— 

Mr. THOMPSON. What if it just goes away? 

Secretary GEITHNER. Oh, I thought you asked the opposite. If 

you—well, let me try to do it this way, maybe it will answer your 

question. Which is, if you would extend them, it costs somewhere 

between $700 billion and a trillion dollars over 10 years. We don’t 

think that we can afford to do that, which is why we propose to 

let them expire. 

Mr. THOMPSON. And then lastly, I just want to point out a lot 

has been questioned of you as to where your proposal is. I am a 

big proponent of us doing the work here in this committee and we 

should be making the proposals. And if you look at the House Ways 

& Means Committee’s discussion draft bill, and if you turn to the 

provision on tax reform for individuals, it reads: ‘‘Individual tax reforms to be provided.’’ 

In other words, there is nothing here. If you look at the corporate 

income tax rate reduction, it reads: ‘‘Other business reforms to be 

provided.’’ There is nothing here. 

So I suggest that we do our work, and get some proposals out 

on the table. I yield back. 

Mr. HERGER. [Presiding.] The gentleman yields back. The gentleman from Florida, Mr. Buchanan, is recognized for 4 minutes. 

Mr. BUCHANAN. Thank you. I appreciate you being here today, 

Mr. Secretary. My concern is, as a guy who has has been in business for 35 years—I got up here in 2007—I am a big proponent of 

a constitutional balanced budget amendment. We couldn’t do that 

today to be a realist because of where we are at. But that would 

have been something that would have been phased in over 7 or 8 

years, and this isn’t a Republican or Democratic idea, both. If you 

look back over 50 years, we balanced the budget five times. 


ccoleman on DSK8P6SHH1PROD with HEARING
50 

I look at the State of Florida, and we have had a tough time, 

high unemployment down there, but we were forced to balance the 

budget. They have had less revenues. They make the tough choices. 

I am very concerned that this philosophy where we don’t put this 

in place, we are betting the farm. 

In fact, one of the past secretaries, because everybody likes to 

refer back to the Great Depression, had said that they stimulated— 

they put more money into the recession. Looking back, it didn’t do 

anything much to jobs, but what they did do is leave a pile of additional debt at that point in time. 

So when we go out here and we look at what has happened over 

the last 4 years, and we have had plenty of debt before that but 

we have added $5 trillion in additional debt, aren’t we potentially 

betting the farm? When you look down the road, we are going to 

be at $20 trillion in debt. The normal cost of money—you brought 

up interest rates—are usually 4 or 5 percent, and you are going to 

have a trillion dollars in interest a year before you pay out one 

benefit. 

Why doesn’t a constitutional balanced budget amendment make 

sense that would be phased in over a period of time, because I personally think we are incapable as an institution to deal with this. 

Secretary GEITHNER. I will give you one piece of history, and 

this is just to comment on what you said, that the Great Depression is a way to think about this question. Which is, if you look at 

what happened to Federal spending and debt in World War II, you 

can see one of the challenges with trying to live with a balanced 

budget. And you saw in that context, necessary, essential, and 

huge, massive increases in government spending for a temporary 

period of time that we were able to unwind, restore, grow out of, 

and leave ourselves in a stronger position. 

And it is, I think, very hard to run a country with an amendment 

that would lock in restraints to make it harder for us to deal with 

national security, were all of the other unforeseen challenges—— 

Mr. BUCHANAN. Well, let me just—— 

Secretary GEITHNER. But I was going to agree with you a little 

more, because I am with you on the basic imperative. You are absolutely right, though, that to get from a point where you have 

unsustainable deficits to more sustained deficits, we have to lock 

ourselves into a fixed set of constraints on how much we can borrow that forces us to come down over time. What we should be 

fighting about together, is not whether we do that, because we 

have to do that. What we should be fighting about is—what is the 

mix of policies we should embrace to get ourselves there, which is 

what you all have to do. 

Mr. BUCHANAN. My point on that is that we have been incapable of that during the last 50 years. During the Clinton Administration, give him some credit; with the Republicans, they seemed 

to work together and got a balanced budget amendment. But what 

this does, I can tell you as a guy who worked in the middle markets for a lot of years, it creates an enormous amount of uncertainty when we start running a trillion-and-a-half and continue to 

run these trillion-dollar deficits, ideally going forward up to $20 

trillion. People are sitting on the side lines with their cash, and 

that is a problem. 


ccoleman on DSK8P6SHH1PROD with HEARING
51 

Let me take you to the next question. I just want to say, because 

someone mentioned something about a Cadillac dealer, and I will 

just take that one industry because I was out at their show out in 

Vegas. But the point is that there are 17- or 18,000 dealers. Most 

of them are pass-through entities. That is just one little segment 

in terms of businesses. Those are the folks—and one of the problems they have got in those industries, as you know, even though 

the banks claim they are lending, there are a lot of areas where 

they can’t get loans, and raise taxes on a lot of small business people with pass-through entities. A lot of those people that I know 

are the job providers. 

So I would like you to just—when you look at this thing about 

where are we going to get the money from, we also have to keep 

in mind if they have to pay another $20,000 or $30,000 a year, that 

is another job that they can’t create. 

Secretary GEITHNER. I understand those concerns and again I 

just want to flesh out two things. The proposals we made to let the 

tax cuts expire for the top 2 percent only affect 2 to 3 percent of 

small businesses that employ people. Now—— 

Mr. BUCHANAN. That might be the businesses, but how many 

jobs do they create or how many jobs do they have? It is a lot more 

than 2 or 3 percent. 

Secretary GEITHNER. That is a fair point. And again, the other 

thing I would say is, I totally understand the concern—there is 

nothing easy in this—is that if you don’t do what we are proposing, 

you still have to ask yourself who are you going to ask to pay higher taxes to avoid that, or who are you going to ask to absorb the 

broader cost benefits? 

Mr. BUCHANAN. But if they create more jobs, ideally, then 

there is going to be more money, ideally, in the Treasury. Instead 

of paying something out, we will get something back in terms of 

revenues. 

Secretary GEITHNER. Another comparison, again, if you look at 

how they did in the second half of the 1990s when they faced similar rates to what we are proposing now, they did really very well. 

And if you look at the health of the business community at that 

time—it is actually pretty strong today—but at that time, we had 

a very impressive record of investment, productivity growth, job 

creation across the business sector, even with the rates that prevailed then. 

Chairman HERGER. The gentleman’s time has expired. Mr. 

Kind from Wisconsin is recognized for 4 minutes. 

Mr. KIND. Thank you, Mr. Chairman and thank you, Mr. Secretary, for your indulgence and patience with us today. To my good 

friend from Florida, I did support the balanced budget when it 

came up for consideration. I wish there was a little more flexibility 

in it for severe economic downturns and security contingencies and 

that, but I supported it, because looking back in retrospect, if we 

had a balanced budget amendment in place, it might have made it 

a little bit difficult to pass the 2001, 2003 tax cuts without paying 

for them or entering into two major wars in Iraq and Afghanistan 

without paying a nickel for them, or passing a new prescription 

drug plan, Part B, the largest expansion of entitlement spending 


ccoleman on DSK8P6SHH1PROD with HEARING
52 

since Medicare was first created in 1965, without paying a nickel 

for it. 

And, Mr. Secretary, you and the President, this administration 

inherited a mess. I mean, we were losing 750,000 jobs a month the 

day President Obama was sworn in; $17 trillion of wealth was already destroyed in the stock market; and you inherited a $1.5 trillion annual budget deficit. And I think, clearly, progress is being 

made, and I appreciate the work that you and this administration 

have put into focusing on the economy and job creation. 

I am going to ask you your thoughts on the insourcing initiative 

that this administration is focused on, and I am glad to see that 

today the President is in my home State, Milwaukee, visiting Master Lock. And it is a wonderful insourcing story of a major manufacturer in the Upper Midwest that has brought back over 100 jobs 

right now. 

And I know this administration has been focused on what more 

we can do to encourage that insourcing and expanding the manufacturing base of this country. 

Later this month, I believe, you are going to be holding a Select 

USA Investment Summit, bringing people together about the value 

of investing and growing jobs here in America. And we will have 

an opportunity, I feel, for the Tax Code, of trying to really incent 

businesses to stay in America or locate in America to produce jobs. 

And I believe that a global economic power like us has to have the 

ability to make and invent and produce things again. 

There are a lot of reasons why businesses decide to locate where 

they are—from wages to sourcing supply to customer base to quality control and that—but also one of the reasons is we can’t ignore 

the Tax Code. And I would like to see us work in a bipartisan fashion, through the Tax Code, of reducing that rate to any company, 

and hold out the promise that if you are a business that wants to 

make something or invent something, create, produce, or grow 

something here in America, you are going to get a significant tax 

advantage for doing that. And I would like to hear your thoughts 

on that. 

Secretary GEITHNER. We are in the same place as you, and you 

made the case well. And again, I think that is the test that you 

should apply to any broad-based tax reform. We want to look at it 

in its totality and say is it going to make it more likely, more economically compelling, that more companies—American and foreign—are making that investment here. So we are not just designing and creating things here, but we are building things here in the 

United States. And I think you made the case well. 

You are going to hear again, you will see some proposals in the 

budget to do that, and you will hear some more from us in the next 

couple of weeks. I think it is important to recognize that, and I 

know you do, that a substantial amount of production by American 

companies is going to happen outside the United States. And that 

is going to continue. That is necessary, it is probably desirable. But 

what we don’t want to do is to have the Tax Code at the margin 

make that happen where it doesn’t need to happen. And again, we 

think through better designed reforms, we can shift the incentives 

in favor of building and creating more of those things in the United 

States. 


ccoleman on DSK8P6SHH1PROD with HEARING
53 

Mr. KIND. While I share the goal that trying to lower the marginal rates for all companies is a desirable goal and that, but I 

think we can be doing more to try to incent manufacturing activity 

in this country as well. And I am looking forward to hearing the 

administration’s proposals on this. There hasn’t been a lot of definition with the work that we have been doing in this committee, and 

to be fair, I think we have to put something on paper so that we 

have a real discussion point rather than the philosophical hearings 

that we have been having. And trying to get to 25 in the deficitneutral fashion is going to be difficult. But it also ignores the fact 

that most of the other countries we are competing with has a VAT 

in place—— 

Secretary GEITHNER. That is right. 

Mr. KIND. —to supplement the lost revenue from having lower 

corporate rates, and no one is discussing that around here. How do 

we do this in a deficit-neutral fashion while still making our companies as competitive as they need to be? 

Secretary GEITHNER. I am glad you pointed that out. Can I just 

say one thing Mr. Chairman, quickly? 

Chairman CAMP. [Presiding.] Quickly, yes. 

Secretary GEITHNER. You are right that, you know, those countries that have moved to lower their statutory rates did so by raising what were already pretty substantial VATs, and the test that 

you should apply to any tax reform plan is, is it going to help reduce the deficit? Is it going to be fiscally responsible, and is it going 

to make the system more fair, more efficient? Is it going to improve 

the incentives for investing here? 

Chairman CAMP. Dr. Price has 4 minutes. 

Mr. PRICE. Thank you, Mr. Chairman. Thank you, Mr. Secretary for joining us again. The level of deficit in the next fiscal 

year projected in your budget, is—— 

Secretary GEITHNER. Let me see if I got this right. We are 

about 8.6, a little below 9 percent in 2011. We have—— 

Mr. PRICE. How about in absolute values? 

Secretary GEITHNER. I am trying to get to this. 

Mr. PRICE. I have only got 4 minutes. 

Secretary GEITHNER. We came down a bit in 2012. We came 

down really quite substantially in 2013, so somewhere between 5 

and 6 percent of GDP in 2013. 

Mr. PRICE. And the absolute number is about $1.3 trillion. 

Secretary GEITHNER. I am not sure that is right, but what matters is the share of GDP. 

Mr. PRICE. The absolute number is about $1.3 trillion. Discretionary spending is about a trillion dollars; is that correct, ballpark? 

Secretary GEITHNER. Well, the discretionary numbers are set 

by the cap. 

Mr. PRICE. I understand. I am just talking about absolute numbers. You have $1.3 trillion in deficit. You have got $1 trillion in 

discretionary spending, which means if you did away with all of 

discretionary spending, the entire Federal Government, outside of 

the mandatory spending, you wouldn’t balance the budget, is that 

correct, in the next year? 

Secretary GEITHNER. I like where you are going. Go ahead. 


ccoleman on DSK8P6SHH1PROD with HEARING
54 

Mr. PRICE. So where is the solution? Where are the reforms on 

the mandatory side that allows us to get to balance in your budget? Secretary GEITHNER. Okay, good question. So we have $360 billion in reforms to Medicare and Medicaid over 10 years. 

Mr. PRICE. And those come from? 

Secretary GEITHNER. They come in Medicare in the form of 

lower payments to providers, and some modest changes to the 

share of health care costs borne by upper-income Americans. Medicaid, a set of other reforms that the budget outlines in some detail. 

We go beyond that, though, in non-health, other mandatory—— 

Mr. PRICE. Let me get this straight, if I may. The fundamental 

reform, the solution to saving Medicare in this country, is to raise 

rates on folks who have a significant income, and to whack away 

again at providers in terms of their payment for services; is that 

right? 

Secretary GEITHNER. No, I wouldn’t say that. We are not claiming to offer the definitive long-term solution to Medicare. 

Mr. PRICE. Let me ask you why—why you are not offering the 

fundamental reform for Medicare, when we understand that we 

could do away with the entire spending in the Federal Government, 

except for mandatory spending, and not even approach balance. 

Secretary GEITHNER. Well, we are, again, we are proposing this 

comprehensive set of reforms, including to Medicare and Medicaid, 

which together bring the deficit down to a sustainable level over 

the next 10 years. But as I said in my opening statement, that just 

puts us in a better position to go confront the long-term challenges 

we face. 

Now, as you know, the Affordable Care Act takes $100 billion, 

roughly, out of the deficit in the next 10 years, and a trillion in the 

second decade. We go beyond that with this additional $360 billion 

of reforms in Medicare and Medicaid in the next 10 years. 

Mr. PRICE. Let me share with you the concerns of physicians 

across this land caring for patients. And that is that your reforms 

in both the Affordable Care Act and in this current budget decrease 

the ability of physicians to care for patients, because you empower 

in this budget, the Independent Payment Advisory Board, which is 

a 15-member board of unelected bureaucrats with no appeal process, no appeal process, no requirement that any of them are actively practicing physicians. And what your budget does and what 

the Affordable Care Act does is say to physicians, we will not pay 

you for those services, because you can’t cut benefits to the seniors, 

as you well know, by law. So the only thing that you can do, by 

your own admission here today, in this $360 billion, is to decrease 

payments to providers. 

What that means, Mr. Secretary, as you well know, and as I 

think the President well knows, and certainly the American people 

know, is what this will result in is a decreased access to care in 

this country, a decreased quality of care in this country, and decreased ability of the physicians in this country to care for patients. 

And that is what gives them nightmares. 

Chairman CAMP. All right, time has expired. We will go to—— 

Secretary GEITHNER. May I respond to that? I understand your 

concerns about this. I just want to point out that if you don’t do 

it the way we propose it, then you are going to have to do it with 


ccoleman on DSK8P6SHH1PROD with HEARING
55 

deeper cuts in benefits to middle-income Americans. So we are not 

claiming we solve all the problems. We understand your concerns 

about this, but life is about alternatives; we have to make choices 

and we think this mixed proposal is better than asking a middleincome retiree to pay dramatically higher costs for their health 

care in their retirement. 

Chairman CAMP. We are going to go back to a 2:1 ratio. And 

after—the next two speakers will be at 4 minutes. We are going to 

have to go to 3 minutes to be able to conclude by 12:30. So, Ms. 

Jenkins is recognized for 4 minutes. 

Ms. JENKINS. Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here. And Mr. Secretary, you have described this 

budget as a carefully designed set of investments and reforms to 

boost growth, create jobs, and improve opportunity for middle-class 

Americans. And last year the President gave a speech in my district, at home in Kansas, where the President boasted about making productive investments to secure a solid future for the middle 

class. However, the President’s speech also instructed the crowd 

that, of course, those productive investments cost money, and they 

are not free. 

I think we all understand that this White House’s spending is 

not free. And I think where we differ is where we should trust middle-class families. Should we trust families in Kansas to make their 

own productive investments rather than funneling our money 

through Washington? And the real threat to middle-class families, 

I believe, is Washington’s never-ending appetite to spend money. This budget would increase spending by $200 billion, to $3.8 trillion, or more than 24 percent of GDP, which, according to even 

your own rosy projections, would result in a projected deficit of $1.3 

trillion, adding $7 trillion in debt through 2022. And the numbers 

only get worse. At the same time, your budget calls for $1.9 trillion in new taxes 

from across the economy. I believe you have proposed tax increases 

on the rich and growing small businesses, an undefined Buffett tax 

increase, double taxation on dividends. You capped charitable contributions, taxed the oil and gas industry, and even managed to 

shake some spare change from the aviation industry, not to mention the $1 trillion in fabricated war savings. And even after your 

budget has taxed the rich, the oil and gas, business, jet manufacturers, you still continue to run record annual deficits for years to 

come; never, ever approaching balance. You never, ever balance the 

budget, or lay out a plan to eliminate this national debt. 

Rather than protecting the middle class, I would suggest this 

budget will saddle the middle class, and those aspiring to be in the 

middle class, with trillions in national debt. It seems that this 

guarantees—your budget guarantees tax increases that will fall 

squarely on the middle class. There is no one left to tax. 

So my question is, doesn’t the White House’s inability to control 

spending mean that eventually middle-class taxpayers will just end 

up footing this bill? 

Secretary GEITHNER. You are mistaken in that judgment, and 

the President is committed and you have heard us say over and 

over again, that we will extend the Bush tax cut for middle-class 

families. 


ccoleman on DSK8P6SHH1PROD with HEARING
56 

Ms. JENKINS. Who is going to pay off the debt? Who is going 

to balance the budget after you tax all of these other people and 

no one is left but the middle class? 

Secretary GEITHNER. You listed accurately not the implications 

of those scenarios, but you listed very accurately exactly how we 

propose to restore our deficit to a little more secure level. 

Ms. JENKINS. You don’t get to balance. 

Secretary GEITHNER. No, we—— 

Ms. JENKINS. And you never, ever even address the national 

debt. 

Secretary GEITHNER. We get to the critical test of fiscal responsibility and sustainability, which is, do we reduce the deficits to the 

level where our debt burden as a share of the economy stops growing and starts to decline. 

Ms. JENKINS. That is your definition. 

Secretary GEITHNER. No, that’s—— 

Ms. JENKINS. In Kansas, hardworking families don’t spend 

more money than they take in. Can you do that? 

Secretary GEITHNER. Well, let me pose it slightly—maybe this 

way it would be helpful. Who would you like to bear the burden 

of reducing our deficits? If you would like—— 

Ms. JENKINS. I would like us to control spending, and that is 

what I am trying to point out. 

Secretary GEITHNER. Where would you like to cut spending 

deeper than what we proposed? 

Ms. JENKINS. I think you will see a House budget that was proposed last year that eventually gets to a balanced budget and 

eliminates the debt, and I would be surprised if—excuse me, I 

would be surprised if you don’t see the House Republicans pass a 

similar budget this year. And I yield back. Thank you. 

Chairman CAMP. And if the Secretary could respond briefly, I 

will then go to Mr. Crowley. 

Secretary GEITHNER. Okay. If you propose a way to get to balance the way you did last year, then what you show again is, if you 

do it without modest tax increases on the top 2 percent, then you 

have to cut deeply into Medicare benefits to do it and into low-income country program. And we will not support that. 

Chairman CAMP. Mr. Crowley is recognized for 5 minutes. 

Mr. CROWLEY. Mr. Chairman, just very briefly. Thank you for 

the time. I do note that, Mr. Secretary, that I suspect they will 

have a similar budget that they did last year that would include 

the Ryan provision which would voucherize, voucherize and privatize the Medicare system. Is that not what you suspect, Mr. 

Geithner? 

Secretary GEITHNER. Well, I can’t speak for them. 

Mr. CROWLEY. The gentlelady just mentioned that they suspect 

that they, she suspects they will pass the same type of budget this 

year, Republican majority will pass the same type of budget. Is it 

not—for the record, did it not include a voucherizing of the Medicare system in their last budget? 

Secretary GEITHNER. Well, again, if they propose what they did 

last year, that would be a fair description. 

Mr. CROWLEY. Thank you. So there is an answer to their side; 

they want to privatize the Medicare system, they want to basically 


ccoleman on DSK8P6SHH1PROD with HEARING
57 

take government out of the Medicare system and put it into the 

hands of private insurance companies. Do you not suspect that as 

well, Mr. Geithner? 

Secretary GEITHNER. Well, again, I don’t want to speak for 

them, but I would say the basic point is if you want to reduce our 

deficits and you want to do it without raising revenues on anybody, 

then you have no alternative but to cut deeply on the principal 

drivers of—which are benefits to retirees. 

Mr. CROWLEY. I want to focus particularly on this section of the 

President’s budget. The President’s budget assumes that average 

civilian unemployment will fall from 9.0 percent in 2011 to 8.9 percent in 2012. The reality is the unemployment data used by the administration is far higher than the current actual levels of unemployment, which is, I think, a good thing. For example, the U.S. 

economy has added private job sectors—sector jobs for 23 straight 

months, for a total of 3.7 million private sector jobs over that period. In the last 12 months 2.2 million private sector jobs were 

added on net. 

The U.S. automobile industry is thriving and adding workers 

again, this despite my Republican colleagues’ objections to the Federal Government aiding the U.S. manufacturers like General Motors and Chrysler. The Recovery Act has helped create millions of 

new jobs, particularly in construction and infrastructure, through 

programs administered by Treasury Department, like the Build 

America Bonds program. 

Chairman Camp, I ask permission to submit for the record a list 

of every Build America Bonds infrastructure project funded under 

the Recovery Act in every district of Members of the Committee on 

Ways and Means. 

Chairman CAMP. Without objection. 

**Information Not Provided** 

Mr. CROWLEY. Now, all of this, Secretary Geithner, has happened with little or no help from my Republican colleagues who 

control the House today. In fact, no help, quite frankly, from my 

Republican colleagues. These are all positive steps and an improvement over when President Bush left office and the Nation was losing 1 million jobs per month. Though I know, I know with an unemployment rate at 8.3 percent, it is not time for a victory lap, and 

I am not going to ask you to go and explain exactly how we got 

to this point in a very positive way. Can you just very briefly tell 

us what the President’s budget lays out for the future in terms of 

job growth? 

Secretary GEITHNER. The President lays out a series of specific 

proposals to improve investments and things that will help improve 

job creation, bring down the unemployment rate faster, like in infrastructure, but to combine those with—this is of course beyond 

the payroll tax cut extension which we hope Congress will enact 

soon—combined with a series of very affordable, quite modest investments in education, in training, community college, and in 

basic science, research and innovation, so that we are doing things 

not just to help near-term growth but also improve the long-term 

growth prospects of the economy. 

Mr. CROWLEY. Mr. Geithner, I made it very clear my disappointment, in particular, with the $260 billion transportation bill 


ccoleman on DSK8P6SHH1PROD with HEARING
58 

that Speaker Boehner has put forward, which he and I both 

agree—which he has said will not create jobs. I just want to submit 

for the record once again the Speaker’s statement here where he 

almost proudly asserts that the Republican $260 billion transportation bill will not create any jobs for Americans. And with that, 

I will yield back the balance of my time. 

[The insert of The Honorable Joseph Crowley follows:] 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 19 here 77158.019
59 

f 

Chairman CAMP. Thank you. Mr. Secretary, I do want to say 

that the House-passed budget contained premium support, and 

that is a very different concept than the one that I think you might 

have agreed to. But we will take this up with Secretary Sebelius 

when she is here later in the month. Mr. Paulsen is recognized for 

3 minutes. 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 20 here 77158.020 Insert offset folio 21 here 77158.021
60 

Mr. PAULSEN. Thank you, Mr. Chairman, and Secretary, thank 

you for being here. I really want to follow up on the question of 

the medical device tax which is going to start in just a little under 

a year as a part of the President’s new health care law. You mentioned earlier that you think this is going to be a net positive or 

have a net positive balance as a part of the implementation of this 

tax. 

Secretary GEITHNER. I would just say—— 

Mr. PAULSEN. Can you just talk a little bit about that? What 

data do you have that might support that contention? 

Secretary GEITHNER. Well, as I said, you know, I would be 

happy to spend more time with you trying to make sure I understand your concerns on this side, but let me try to make the basic 

point. What the Affordable Care Act does, as you know, is expand 

access to health care coverage for tens and tens of millions of 

Americans. By that simple device it substantially improves opportunities for people who are in the business of providing health care. 

So our judgment is, on balance, it is a good package for people in 

the health care business. 

Now, we had to do that in a way that is fiscally responsible, and 

so we have done some things that—you are right, we want to make 

sure we are paying for these things, unlike what Congress did in 

the expansion of the—in the Medicare Part D back in the last decade. We are trying to do this in a responsible way. We think on 

balance it substantially improves opportunities for people in the 

health care business. 

Mr. PAULSEN. Mr. Secretary, I want to follow up on this because I know in Massachusetts, which has some similar provisions 

that are in the President’s new health care law, there has been no 

increased utilization of medical device sales, and Secretary Sebelius 

has been here to talk about this as well. My understanding is that 

75 percent of the folks that are uninsured are 45 years of age or 

less, and, you know, a lot of these medical devices that are life-improving, life-saving, go to folks that are above age 45, and so I don’t 

think there is data—if there is data out there, I would like to see 

the data of what is supporting it. I am going to tell you, the companies I represent in Minnesota are very concerned about that. These 

are research and development jobs. It is innovation; the President 

has talked about it, you mentioned it today. I just really think this 

is an American success story as much as it is a Minnesota success 

story, and I want to keep this here, and this is a tax that is about 

$20 billion over a 10-year period. It is more than the amount of 

money that is invested in this industry actually each and every 

year. 

And so I really want to follow up with you if there is actual data 

that is going to support this down the road. Companies have already announced, in fact Stryker, which is based in Michigan 

where the chairman and the ranking member are from, they are 

laying off 5 percent of their workforce this year because of the tax, 

in anticipation. It is a time bomb out there. And this is a real 

issue. 

Thank you, Mr. Chairman, I yield back. 

Chairman CAMP. Mr. Marchant is recognized for 3 minutes. 


ccoleman on DSK8P6SHH1PROD with HEARING
61 

Mr. MARCHANT. Thank you, Mr. Chairman. Mr. Secretary, 

when we go home every weekend, we travel around our districts, 

and we speak to the businesses, and the number one focus that our 

business people are telling us is that they think the Tax Code is 

too complicated, their compliance costs are extremely high, and 

they would like to have a flatter system and a lower tax rate, but 

they don’t expect to pay less taxes. They just want to spend more 

of their time in their business. 

If Congress sends to the President a comprehensive tax reform 

plan that is revenue neutral, simplifies the Tax Code, lowers both 

the corporate rate and the personal tax rate, is it your opinion in 

your discussions with the President that he would sign that legislation? 

Secretary GEITHNER. Well, maybe I could separate it and tell 

you this way: On the corporate side, we would support a plan that 

lowers rates, broadens the base, doesn’t add to future deficits, helps 

clean up all the distortions and subsidies in the Tax Code, and improves incentives for investing in the United States. 

Mr. MARCHANT. And revenue neutral? 

Secretary GEITHNER. Well, as I said, doesn’t add to the future 

deficits. Now, in the—on the individual side, as you know, you 

heard us debate this, we think we have to find a way through tax 

reform to get some additional revenues out of the current tax system just because the magnitude of the fiscal challenge we face long 

term is too great for us to meet without a modest amount of additional revenues. 

Mr. MARCHANT. So if we put it together, he would not sign it? 

Secretary GEITHNER. Again, we think the combined reform has 

to be consistent with our long-term fiscal challenges, which means 

that we have to find a way—I wish this were not so—we have to 

find a way to get a modest amount of additional revenues out of 

the individual tax system. 

Mr. MARCHANT. So he would not sign it at that point? 

Secretary GEITHNER. Not if it is not fiscally responsible, he 

would not sign it. 

Mr. MARCHANT. Thank you, Mr. Chairman. 

Chairman CAMP. Ms. Berkley is recognized for 3 minutes. 

Ms. BERKLEY. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for being here with us again. I have to say I was somewhat amused by so many members on the other side of the aisle 

talking about the uptick of Cadillac sales in this country. If I am 

not mistaken, Cadillac is a GM brand, and what I find so interesting is that so many on the other side of the aisle opposed the 

administration’s successful attempt to save our country’s auto industry, which would mean all of these dealerships that are now 

selling Cadillacs wouldn’t be in business, and 2 million of our fellow citizens would have lost their job as well. 

A lot of members have spoken about what is happening in their 

particular districts and States. I am sure I don’t have to remind 

you about what is happening in the State of Nevada. We still have 

the highest unemployment rate in the country and the highest 

mortgage foreclosure rate. What is a very potentially strong boon 

to our economy is the development of our abundance of sun and 

wind and geothermal. Not only will it create thousands of good 


ccoleman on DSK8P6SHH1PROD with HEARING
62 

paying construction jobs, when it has been estimated that close to 

80 percent of my building trades are unemployed, it will put them 

back to work. And then we will have a product to export, and that 

is energy, which this Nation so desperately needs. 

Now, I think Mr. Nunes was very intent on getting you on the 

record about Solyndra. I think you believe, as I do, that if there 

was wrongdoing that they need to be punished, but that you 

shouldn’t be throwing the baby out with the bath water. For a 

State like Nevada, putting our revenue into developing sun, wind, 

and geothermal would be a tremendous boon, and can you comment very quickly on that? 

Secretary GEITHNER. Well, as I have said before, I think there 

is a very good economic case for a carefully designed set of incentives to the Tax Code and some other cases for encouraging development of clean energy renewable technologies. I think it is a necessary part of any effective energy strategy, and we are going to 

continue to support that. 

Ms. BERKLEY. I am glad to hear that for the sake of my State. 

The Build America Bonds, I was very pleased that the President 

is increasing and making them permanent. For a State like Nevada 

they have been essential, and I can tell you that representatives 

from the city of Reno and city of Las Vegas depend on these bonds, 

and I just wanted to compliment the administration on that. 

And the last thing is, if you wouldn’t mind, I would like to be 

a conduit in writing. My Nevada’s treasury secretary has a number 

of questions that she would like to ask you, and I would like to submit them to you, if I may. 

Secretary GEITHNER. Absolutely. 

Ms. BERKLEY. With that, thank you again for being here. 

Secretary GEITHNER. Thank you. 

Chairman CAMP. Thank you. At this time—— 

Ms. BERKLEY. I yield back. 

Chairman CAMP. Thank you. Mr. Berg is recognized. 

Mr. BERG. Thank you, Mr. Chairman. One of the questions that 

I have is this, of course, accumulating debt that we have got. In 

your opinion, at what point do you raise the red flag? 

Secretary GEITHNER. The way we look at the debt burden, you 

have to measure it as a share of the economy as a whole, and you 

should look at the debt, net debt held by the public, net of financial 

assets, and if Congress were to embrace and adopt the President’s 

proposals, then by that measure our debt burden would stabilize as 

a share of GDP in the roughly 70 to 80 percent range, and then 

gradually start to come down over time until we see Medicare and 

Social Security costs start to rise again as millions of Americans retire. 

Now, a debt burden at that level is a manageable debt burden 

for the country. It is possible that as the economy recovers and we 

get out of the crisis, that we would be able to find prudent, sensible 

ways to get it lower over time, but we met that basic test of getting 

the deficit down low enough so you stabilize the debt burden appropriately measured at a level that is manageable. Again, manageable until in the outer decades you see millions and millions more 

Americans retire and eligible for Medicaid. 


ccoleman on DSK8P6SHH1PROD with HEARING
63 

Mr. BERG. And then the other countries that look at that debt 

level, are they using the net debt as well? I mean, is that something pre-skid? 

Secretary GEITHNER. I know that is sort of hard. Some people 

use the gross and don’t take out financial assets. 

Mr. BERG. Right. 

Secretary GEITHNER. Some people use the net, but I am really—— 

Mr. BERG. It is not a standard really? 

Secretary GEITHNER. But I am quite confident that the test 

that we use is a reasonable test. 

Mr. BERG. Okay. 

Secretary GEITHNER. Of course, now, to get there, though, even 

to get to that level, as you know, we have to make some very tough 

choices and bring the deficits down really quite a long way and 

hold them there. 

Mr. BERG. Well, let me shift gears. One of the things that I see 

in the proposal is to eliminate the intangible drilling costs, and I 

know there has been a lot of talk about that, but from my experience in small business, I mean, that is an expense that, you know, 

we are actually out-of-pocket expense. My question is why—why is 

that being repealed? I mean, where is it consistent in other parts 

of the code where a small business, you know, is depreciating that 

or deducting that? What is the rationale? 

Secretary GEITHNER. Well, as you know, we have done in the 

last 3 years very, very generous and really very, very powerful incentives for investment through hundreds in expensing and bonus 

depreciation, a range of other provisions over the last 3 years. We 

thought that was necessary and very important. And when we 

come to discuss comprehensive corporate tax reform, we will have 

a very important debate about which of those types of incentives 

we should preserve, which ones we can’t afford any longer. 

In that context, you will have to make some very tough choices 

about whether the level of specific subsidies for particular industries are things we can afford now, and that is the tough choice we 

are going to face. But, again, you will have a chance to work 

through those things while we start to confront—— 

Mr. BERG. What we are saying, where else in the code do we 

see a small business can’t deduct its hard costs? Is there another 

business or industry that—— 

Chairman CAMP. Time has expired, and we are running very 

short. Mr. Schock is recognized. 

Mr. SCHOCK. Thank you, Mr. Chairman. Mr. Secretary, thank 

you for being here. I want to ask a few specifics on taxes that are 

proposed, specifically the one dealing with banks. It seems that 

this is a recurring theme each year in your proposal. 

I might note that when Democrats controlled both the House and 

the Senate, they did not embrace this proposal, and last year, of 

course, Republicans in the House did not embrace this proposal. So 

I question the sincerity in putting it again in the budget, other 

than the fact that perhaps the President is being consistent. 

You know, there has been a lot of talk about getting the banks 

to pay back for the costs of TARP. But based on testimony by the 

Treasury Department and numbers from your agency, the $245 bilVerDate Mar 15 2010 23:14 Jan 16, 2013 Jkt 077158 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\77158.XXX GPO1 PsN: 77158

ccoleman on DSK8P6SHH1PROD with HEARING
64 

lion that was injected into banks, according to the Treasury Department, turned a $13 billion profit. However, some of that TARP 

money was invested in other organizations, like AIG, General Motors, Chrysler. The Treasury Department has let us know that on 

the Chrysler investment we have lost $1.3 billion, on the General 

Motors investment we have already written off $4.4 billion in loss, 

$23 billion of public stock was sold, another $23 billion is yet owed. 

We have 500 million shares of stock. According to the share price today, we could get about $12 billion from the shares of stock if we 

would sell them. So we are looking at about another $10 billion on 

top of the already $4 billion in loss on GM, in addition to losses 

on AIG. 

So my question, of course, is if we have lost all this money on 

the car companies, which the President seems to be very proud of 

the bailouts of the car companies, but it seems to be that is where 

the taxpayers lost their shorts, and we actually made money on the 

money we gave to the banks, why is it that we are taxing the 

banks? 

Secretary GEITHNER. Good question. Thanks for raising it. 

When Congress passed the legislation to authorize TARP, they put 

in a provision as part of that legislation that placed on us the obligation to propose to Congress a way to recover any losses from the 

financial industry, so the way the law was written, in our judgment, we have an obligation to propose to Congress how we would 

recover any losses across the program from the financial industry. 

Mr. SCHOCK. And that is very helpful. So in your opinion, 

would it be more fair for Congress to give you the ability to recoup 

the losses from the industries you bailed out that you lost money 

on, as opposed to the only industry you can recoup from, according 

to the current law, which is the financial sector in which you made 

money? 

Secretary GEITHNER. There is no—I am glad you are reminding 

people we made money on the investments in the financial sector. 

It is good to remind people that that was a very well designed, very 

sensible set of investments, and I am grateful that you have done 

that. 

Now, there is no way of doing this, recovering any losses, whatever losses we face, in a way that is going to be judged fair by people. But if you don’t ask the financial industry to bear that cost, 

then you are going to ask other industries that benefited less from 

these programs, other industries that were innocent victims of the 

crisis, to bear the cost. And I don’t think that makes a lot of sense. 

Of course, Congress—— 

Chairman CAMP. All right, time has expired. Mr. Reed is recognized. 

Mr. REED. Thank you, Mr. Chairman, I didn’t expect that. Mr. 

Secretary, I appreciate you being here, I truly do. One thing I 

would just say, when you want to respond to the question that the 

Senate doesn’t have a budget and that had no impact on your position, whether or not that impacts where we are going forward as 

a Nation, from a credibility point of view, the fact that the House 

will have a budget, the President will have a budget, I think it just 

makes common sense that if the Senate had a budget, it would be 

good to have that in black and white so we could have an open and 


ccoleman on DSK8P6SHH1PROD with HEARING
65 

honest debate with America. So I just offer that for your thought 

process going forward. 

The area I want to spend a little time on, I don’t know if we 

spent enough time on today, is the area of trade and China and 

currency manipulation. And I am very concerned about the various 

proposals on how we are going to deal with that issue, and I would 

be interested in your thoughts on the currency manipulation bills 

that are pending and what your thoughts from the Treasury Secretary’s point of view as to how we move forward on the issues of 

potential unfair trade practices by China, one of our largest trading 

partners? 

Secretary GEITHNER. If I am not mistaken, I am going to have 

a chance to come up and talk to the committee in more detail about 

those exact kind of questions with some of my colleagues from the 

Cabinet in the next few weeks, so I look forward to doing that in 

more detail. 

So let me just say a couple things right now. China is allowing 

its currency to gradually appreciate against the dollar. It is up 

about 81⁄2 percent in nominal terms over the last 19 months or so, 

20 months; but if you adjust for inflation, it is up more like 12 percent against the dollar. If you look at the cumulative appreciation 

over the last 5 years or so, it is up close to 40 percent in real terms 

against the dollar. We think they have got some ways to go. We 

would like them to move more quickly along the grounds for reasons that—— 

Mr. REED. And how do we—because I only have a very short 

amount of time. What is the plan from the Treasury’s point of view 

as to how to advance that agenda? 

Secretary GEITHNER. The only—what we are doing is to work 

with countries around the world. 

Mr. REED. On a multilateral—— 

Secretary GEITHNER. With the IMF, and of course working very 

hard on the Chinese to try to get them to move more quickly, and 

we are going to use every means available to be persuasive in encouraging them to move more quickly. 

Mr. REED. Any of the legislation pending or proposed in the 

House and Senate, do you see as a barrier to that agenda, from 

your perspective? 

Secretary GEITHNER. Again, we will have a chance to talk 

about this in more detail in the next couple weeks or so. I think 

just to be fair about it, we have got to be careful. For those tools 

to be effective, they have to be consistent with our international obligations. Otherwise they don’t really give us any leverage. 

Mr. REED. I so appreciate you saying that because I wholeheartedly agree with that. We need to be consistent with those 

international obligations. With that, Mr. Chairman, I will yield 

back. 

Chairman CAMP. All right. Thank you. Mr. Pascrell is recognized. 

Mr. PASCRELL. Thank you, Mr. Chairman. It certainly is a convoluted policy, Mr. Secretary, when you close jobs in the USA and 

bring them overseas, that the taxpayers provide the money to help 

you move. That is pretty convenient. But if you are an American 

company reversing the trend, and that is in-sourcing jobs, and this 


ccoleman on DSK8P6SHH1PROD with HEARING
66 

is the first President that has talked about that of the last six, 

Democrat or Republican, and now we are finally understanding 

how manufacturing is critical and a balanced economy is critical. 

And the decline of manufacturing jobs, I think it is about to be 

reversed, if not already. In-sourcing is a critical policy decision. 

This is a big deal, I think, with people, and with the perception 

that people have who is really getting helped and who is getting 

hurt. 

Mr. Secretary, how will the President’s in-sourcing policies help 

manufacturers in my district or any districts bring employees back 

home, and can you specifically address the 20 percent credit insourcing and the 18 percent advanced manufacturing deduction? 

Secretary GEITHNER. What we propose to do is to improve the 

tax incentives for investing in the United States, to make them 

more powerful if you are in the manufacturing business and advanced manufacturing, and to reduce the incentives in the current 

Tax Code to shift investment and income overseas. That is a hard 

thing to do, but, as we have been discussing, we have a chance in 

the next few weeks to begin the discussion about how best to do 

that, but it is very important that we find a way to do that. 

Mr. PASCRELL. Wouldn’t you agree that the Republican decision to reduce the Section 199 deduction for manufacturers is contrary to what you are attempting to do with this budget? 

Secretary GEITHNER. Well, again, I think what you want to do 

is look at—when we talk about comprehensive reform, you want to 

look at the combined impact of the whole mix of changes to lower 

the rate, broaden the base. And, again, I think we are agreeing 

that what you want to look at is the net impact of those changes 

on the economic incentives to invest here. 

Mr. PASCRELL. I hope we work very closely, Mr. Secretary, and 

I agree with Mr. Reed’s opening remarks about what direction we 

should be going in. So we could find some compromise, believe it 

or not. Thank you. 

Chairman CAMP. Thank you. Mr. Davis is recognized. 

Mr. DAVIS. Thank you, Mr. Chairman. Mr. Secretary, appreciate 

you being here today, and I would like to revisit a subject you and 

I have talked about before in these hearings over the last several 

years. 

I would like to make a statement, though, before that on the lastin-first-out accounting, or LIFO, that was included in the budget. 

I am disappointed that for the fourth straight year the administration included a repeal of LIFO in its budget. LIFO is not a loophole 

or exotic tax shelter, it is a conventional and well-established accounting practice dating back to 1936 when it was brought into 

being. It minimizes inflation gains and accurately reflects replacement costs for inventory. It is also important to many industries 

in the United States, with an estimated 36 percent of companies 

using LIFO for some portion of their inventories. 

The repeal of LIFO would have a devastating practical impact, 

and according to your estimate it would raise overall taxes by $73 

billion in the midst of what is a challenging economic climate, with 

the increase falling heavily on manufacturing companies, thereby 

significantly reducing the capital they have available for investment in needed machinery, equipment, and ultimately job creation, 


ccoleman on DSK8P6SHH1PROD with HEARING
67 

and frankly would become a huge obstacle to the whole in-sourcing 

discussion that has been taking place. Repealing LIFO will further 

reduce U.S. competitiveness in the global economy at a time when 

we are trying to encourage more U.S. manufacturing, and indeed 

it is going to accomplish just the opposite. 

Last month my good friend Mr. Thompson and I, along with 20 

other colleagues, including many on this committee, wrote a letter 

to the President asking that he refrain from including the repeal 

of LIFO in this year’s budget. Mr. Chairman, I would like to submit our letter for the hearing record. 

Chairman CAMP. Without objection. 

[The insert of The Honorable Geoff Davis follows:] 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 22 here 77158.022
68 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 23 here 77158.023

It"" Erik ..... Iorn 

Memb"""fC""grt>. 
69 

f 

Mr. DAVIS. Thank you. It demonstrates strong bipartisan support for LIFO and the need for this accounting method to remain 

in any future budget. 

Mr. Secretary, the President’s budget states, quote, ‘‘By almost 

any measure, the economy this past year was stronger than it was 

in 2009 at the start of the administration,’’ end quote. This claim 

does not square with reality. Since the President took office, there 

are 1.2 million fewer jobs, unemployment has gone from 7.8 to 8.3 

percent, the price of gas has increased from $1.85 to $3.48, the median value of single-family homes are down $33,000, the national 

debt has increased from $10.6 to $15.4 trillion. Considering these 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 24 here 77158.024
70 

statistics, by what measures do you believe Americans are better 

off since the start of the administration? 

Secretary GEITHNER. Well, thanks for asking that question. It 

is the defining issue in this debate. If you look at when growth resumed—which it did really remarkably quickly in the summer of 

2009—since growth resumed we have grown an average rate of 

about 21⁄2 percent, despite all the shocks I referred to in my opening statement—oil, Japan, Europe, all the financial headwinds that 

follow a crisis like we had, people bringing down debt, working 

through the overhang in the housing markets, we have 3.7 million 

private sector jobs created over that period of time, private investment is up by 30 percent. Any measure of the basic health of the 

business for the United States is much stronger today. Profits are, 

for example, as a share of GDP, higher than they were before the 

crisis. Balance sheets of corporate America are much stronger, productivity growth is stronger, Americans are saving more as a share 

of their income, they are bringing debt down. Those are good fundamental improvements. 

Now, parts of the American economy are still, obviously, terribly 

suffering from the crisis. Housing, construction, environment for 

many small businesses is still very tough. Those are the aftershocks and the legacy of a crisis like we have lived through produced by a long period of too much borrowing, unsustainable investments in housing and construction, but we are working 

through those things. And this economy and the health of the business community in the United States would be dramatically worse 

today if we had not taken the steps we did to put out those financial fires and get growth started again. 

Chairman CAMP. All right, thank you. We just have one person 

left. Last but not least, Ms. Black is recognized for 3 minutes. 

Mrs. BLACK. Thank you, Mr. Chairman, and I will be brief in 

my comments. I want to go back to what you acknowledge to be 

the greatest driver of our debt, and that is Medicare. You actually 

did say to the Congressman from Kansas that it was a principal 

driver. You also said that the President’s plan does work on bringing the debt down, but until then we see debt burden begins to rise 

with the retirement of millions of Americans. So you acknowledge 

that this is an issue. The President acknowledged it was an issue 

when he asked the Bowles-Simpson Commission to give him recommendations, and they did, and they were bold recommendations. 

And yet when you answered the questions from my colleague from 

Georgia, you talked about the changes that are going to be made 

or the things that are going to be directly affecting this in the 

President’s budget is lower payment to our providers and also affecting the upper-income Americans in what their benefits are. 

These are not bold, these are not recommendations that have been 

put out there by Bowles-Simpson. We continue to just kick the can 

down the road by nipping around the edges, and I am really disappointed in that. 

I would like to know where in this budget I can see, I have 

looked on some of the pages on 112 and 113, on some of these recommendations. But unless there is something more to it than what 

I see there, these are not bold changes. 


ccoleman on DSK8P6SHH1PROD with HEARING
71 

And if I may say one more thing before I turn this over to you 

to give me some advice on where I might find those, it is that I 

am really disappointed that we continue to have folks who were not 

enthralled about the budget that we put out last year in the Path 

to Prosperity to continue to misrepresent the program and calling 

it a voucher program. Either the folks that are using this term are 

just not bright enough to understand what premium support is, or 

there is some other sinister reason why they continue to use language that is not true. 

So we have all got to be honest with one another, and since we 

acknowledge this is the greatest driver of our debt and we cannot 

take care of it until we do take care of this with fundamental 

changes, I am disappointed that those are not what I see, unless 

you can point me to someplace else in this budget document. 

Secretary GEITHNER. You are right that over the next 50 years, 

30 to 50 years, Medicare, Medicaid, Social Security produce an 

unsustainable rise in our debt burden. 

Mrs. BLACK. We are going to see it before then. 

Secretary GEITHNER. But for the next 10 years those costs are 

not the principal driver of our deficits. 

Now, we have a fundamental disagreement about how to restore 

fiscal balance and also what type of mix of reforms to Medicare are 

going to allow us to maintain our commitment to guarantee our 

seniors retirement and health care security. The big—I think the 

most simple way to contrast our two strategies for reform of Medicare are whatever you want to call the Ryan Republican strategy, 

what it would do is dramatically reduce the benefits available to 

middle-income seniors. 

Mrs. BLACK. With all due respect, Mr. Geithner, I think that is 

a misrepresentation of what was put out there, and again I really 

am disappointed that we continue to have misrepresentations of 

what the plan actually does, and I wish that we could just talk 

without—take the political out of it and talk about the reality. And 

we can’t deny the fact that all of those who are economists tell us 

this is the biggest driver of debt, it is going to cause us a big problem not in 30, 40, 50 years, but sooner than that, when we see that 

that fund is going to totally be unsustainable. So I know my time 

is up, and I yield back. 

Secretary GEITHNER. Two quick things in response to that. One 

is the characterization I used is CBO’s, it is not a political or 

Democratic criticism, it is the CBO evaluation of the impact on 

beneficiaries. 

Again, the other thing I would emphasize is, you are right to remind everybody that our commitments in Medicare and Medicaid 

over time are unsustainable, and we are going to have to embrace 

reforms to get them on a sustainable path, but if you try and restore overall sustainability to our fiscal position without a dollar of 

revenues, then you will make that challenge much harder, and you 

will be forced to embrace much deeper cuts in benefits than I think 

we should find acceptable as a country. 

Chairman CAMP. Thank you very much, Mr. Secretary, and I 

appreciate you staying over so that every member of the committee 

who wanted to ask you a question and remained could do that. And 


ccoleman on DSK8P6SHH1PROD with HEARING
72 

thank you again for making yourself available, and with that this 

hearing is adjourned. 

[Whereupon, at 12:39 p.m., the committee was adjourned.] 

[Submissions for the Record follow:] 

SUBMISSIONS FOR THE RECORD 

Center for Fiscal Equity 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 25 here 77158.025
73 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 26 here 77158.026

There are two v'iays that Congress and the Admini~tration can play small ball. Sadly, this is the 

most likely scenmio given the state of the n8tional economy. The most likely V,:8Y is to delay 

action until aftcr thc clection and, as a packagc, cxtcnd thc dcbt lilllit through Dcccmbcr 2013 in 

exchange for extending the expiring income, payroll, unemployment and medical payment 

proyisiom. for an cqual period of time, accepting the tcmporary pain of one year of sequestration. 

A slightly more ambitious version of this scenario, \vhich leaves less to chance as far as the 

impact of the election (as a lame duck Pre::-.ident ha:; no intcrest in any eompromisc at all) is to 

extend thc debt limit, doc fix suspension, the payroll tax cut, extended unemployment and tax 

rates for middle class and wealthy taxpayers through .Iuly 2013 in exchange for making certain 

tax cuts for lower income Americans permanent, including the 10% tax rate and expanded Child 

T8x Credit - of Is cuing some or 811 of the spending cuts that have already been agreed to. Thi:; 

allows discourse on tax reform \\-ithout holding our most vulnerable citizens hostage. 

Should the President indicate that he is likely to let gridlock rule the day, a medium ball :;olution 

is more likely as opposition to a balanced solution evaporates as the likelihood of automatic tax 

cuts increases. The balanced solution is some combination of the cuts and tax reforms supported 

by the majority of the Fiscal Commission, also known 85 Bowles-Simpson, and the proposals of 

the Bipartisan Policy Center, also kno\vn as Rivlin-Domenici. Many ofthcse proposals arc 

similar and where they coincide seems like a fruitful place to stan drafting legislation. Using the 

congressional budget process to begin enacting these provisions could occur in regular order, 

with the Depmtmcnt of the Treasury playing a supporting role in writing tax reform language. 

The large ball game would be to actually balance the budget and enact radical reform in 

entitlement revenue and spending provi:;ions, a shift ii'om income t8xes for most filers to 

consumption taxes and higher tax rates on those most ability to pay. The Center for Fiscal 

Equity proposes a large ball solution \vith four major provisions: 

• A Value Added Tax (VAT) to fund domestic military spending and domestic 

discretionary spending with a rate between 10% and 13%, which makes sure very 

American pays something. 

• Personal income surtaxes onjoint and widowed fllers \'iith net annual incomes of 

S I 00,000 and single filers earning 550,000 per ycar to fund net interest payments, debt 

retirement and overseas and strategic military spending and other international spending, 

with graduated rates bet\\een 5% and 25% in either 5% or 10% increments. Heirs would 

also pay taxcs on distributions from est8tcs, but not the assets themselves, with 

distributions from sales to a qualified ESOP continuing to be exempt. 

Employee contributions to Old Agc and Survivors Insurance (OAS1) with a lower incomc 

cap, which allows for lower payment levels to wealthier retirees without making bend 

points more progressi\ c. 

A VAT-like Net Business Receipts Tax (NBRT), which is essentirllly a subtraction VAT 

with additional tax expenditures for family support, health care and the private delivery 

ofgovernmcntaI services, to fund entitlement spending and replace income tax filing for 

most people (including people who file \\ithout paying), the corporate income tax, 

business tax filing through individual income taxes and the cmployer contribution to 

OASI, all payroll taxcs for hospital insurance, disability insurance, uncmployment 

insurance and survivors under age 60. 
74 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 27 here 77158.027

We h,1\e no proposals regarding environmental taxes, customs duties, excise taxes and other 

offsetting l.!xpenses, although increasing these taxes would result in a lower VAT. American 

competitiveness is enhanced by enacting a VAT, as exporters can shed some of the burden or 

taxation that is nO\\ carried as a hidden export tax in the cost or their products. Thc NBRT \vill 

also be zero rated at the bordcr to the extcnt that it is not onset by deductions and crcdits for 

hcalth care. lamily support and the private delivery of governmental scrviecs. 

Some oppose V A Ts bel.!ause they see it as a money machine, 11O\Yever this depends on whether 

they are visible or not. A receipt visible V AT is as susceptible to public [lressure to reduce 

spending a& the FairTax is designed to be, however unlike the FairTax, it is harder 10 game. 

A voiding lawful taxes by gaming the system should not be considered a eonsen'ative principle, 

unless conservatism is in dcfense of entrenched corporate interel>ts who have the money to game 

the tax codc. 

Our VAT rate estimates are designed to fully fund non-entitlement domestic spending not 

othef\\ ise offset with dedicated revenues. This makes the burden of funding government very 

explicit to all taxpayers. Nothing else will reduce the demand f()f ~uch spending, save perceived 

dcmands Ii'om bondholders to do so - a demand that docs not ~cel1l evident given their continued 

purchase of U.S. Treasury Notes. 

Value Added Taxes can be seen as regressive because wealthier people consume less, hO\vever 

v.hen used in concert with a high-income personal income tax and with some form of tax benefit 

to families, as \ve suggest as part of the NBRT, this is not the case. 

The shift from an income tax based system to a primarily consumption based system will 

dramatically decrease participation in the personal income tax system to only the top 20% of 

households in terms of income. Currently, only roughly halfofhouseholds pay income taxes, 

which is by design, as the decision has been made to favor tax policy to redistribute income over 

the use of direct subsidies, which have the stink of" elfare. This is entirely appropriate as a ,,·ay 

to make work pay for families, as li\ing \\age requirements without such a tax subsidy could not 

be sustained by small employers. 

The income surtax is earmarked for overseas military, naval sea and international spending 

because this spending is most often deficit financed in times of war. Earmarking repayment of 

trust funds for Social Security and Medicare, acknowledges the j~\ct that the buildup or these 

trust funds was accomplished in order to fund the spending boom of the 1980s v. ithout reversing 

the tax cuts \\hich largely benefited high income households. 

Earmarking debt repayment and net intcrest in this way also makes explicit the fact that the 

ability to borrow is tied to the ability to tax income, primarily personal income. Thc personal or 

household liability for repayment of that debt is therefore a function of each household's 

personal income tax liability. Even under current tax law, most households that actually pay 

income taxe~ barely cover the services they receive from the govemment in terms of national 

defense and general government sen-ices. It is only the higher income households \vhieh are 

truly liable for repayment of the national debt, both governmental and public. 

If the debt is to ever be paid back rather than simply monetized, both domestically and 

internationally (a situation that is less sustainable with time), the only \Yay to do so without 

decreasing economic growth is to tax higher income earners more explicitly and at higher rates 

than under current [lolicy, or even current law. 
75 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 28 here 77158.028

The decrease in economic class mobility experienced in recent decades, due to the collapse of the 

union movement nnd the rapid growth in the cost of higher education, means that the burden of 

this repayment does not fall on everyone in the next generation, but most likely on those who are 

living in high income households now. 

Let us emphasize the point that when the donors who take their cues from Americans for 

Tax Reform bundle their contributions in support of the No Tax Pledge, they are 

effectively burdening their own children with future debt, rather than the entire populace. 

Unless that fact is explicitly acknowledged, gridlock over raising adequate revenue will 

continue. 

Unlike other proposals, n grnduated rate for the income surtax is suggested, ns at the lower levels 

the burden of a higher tax rate would bc morc pronounced. More rates make the burden of 

higher rates easier to bear, while actually providing progressivity to the system rather than 

simply offsetting the reduced tax burdcn duc to lowcr consumption and thc capping of the 

payroll tax for Old Age and Survivors Insurance. 

One of the most oft-cited reforms for dealing with the long term deficit in Social Security is 

increasing the income cap to cover more income while increasing bend points in the calculation 

of benefits, the taxability of Social Security benefits or even means testing all benefits, in order 

to actually increase revenue rather than simply making the program more generous to higher 

income earners. Lowering the income cap on employee contributions, while eliminating it from 

employer contributions and crediting the employer contribution equally removes the need for any 

kind of bend points at all, while the increased floor for filing the income surtax effectively 

removes tbis income from taxation. Means testing all payments is not advisable given the 

movement of retirement income to defined contribution programs, which may collapse witb tbe 

stock market - making some basic benefit essential to everyone. 

Moving the majority of Old Age and Survivors Tax collection to a consumption tax, such as the 

NI3RT, effectively expands the tax base to collect both wage and non-wage income while 

removing the cap from that income. This allows for a lower tax rate than would otherv.lisc be 

possible \\'hilc also incrcasing thc basic bcnefit so that Medicare Part B and Part D premiums 

may also be increased without decreasing the income to beneficiaries. 

If personal accounts are added to the system, a higher rate could be collected, however recent 

economic history shows that such investments are better made in insured employer voting stock 

rather than in unaccountable index funds, which give the Wall Street Quants too much power 

over the economy while further insulating ownership from management. Too much separation 

gives CEOs a free hand to divert income from shareholders to their own compensation through 

cronyism in compensation committees, as well as giving them an incentive to cut labor costs 

more than the economy can sustain for purposes of consumption in order to realize even greater 

bonuses. Employee-ownership ends the incentive to enact job-killing tax cuts on dividends and 

capital gains, which leads to an unsustainable demand for credit and money supply growth and 

eventually to economic collapse similar to the one most recently experienced. 
76 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 29 here 77158.029

The NBRT base i~ similar to a Value Added Tax (VAT), but not identical. Unlike a VAT, an 

NBRT would not be visible on receipts and should not be Lero rated at the border - nor should it 

be applied to imports. While both collect from con~umers, the unit ofanalysi~ for the NBRT 

should be the business rather than the transaction. As such, its application should be universalcovering both public companies who currently file business income taxes and private companies 

who eurrcntly file thcir business expenses on individual returns. 

In the long term, the eX[llosion of the debt comes from the aging of society and the funding of 

their health care costs. Some thought should be given to ways to reverse a demographic 

imbalance that produces too fev. children while life expectancy of the elderly increases. 

Unassisted labor markets work against popUlation growth. Given a choice between hiring 

parents with children and recent college graduates, the smmt decision will always be to hire the 

new graduates. as they will demand less money - eS[lecially in the technology area where recent 

training is onen valued over experience. 

Separating out pay for families allows society to reverse that trend. \ .... ith a significant driver to 

that separation being a more generous tax credit for children. Such a credit could be "paid for" 

by ending the Mortgage Interest Deduction (MID) \vithout hurting the housing sector, as housing 

is the biggest area of cost growth when children are added. While lobbyists for lenders and 

realtors would prefer gridlock on reducing the MID, iffon::ed to chose between transferring this 

deduction to familie~ and llsing it for deficit reduction (as both Bo\Vles-Simpson and RivlinDomeniei suggest), we ~uspect that they would chose the former over the latter if forced to make 

a choice. The rcligious community could also sec such a development as a "pro-life" vote, 

especially among religious liberals. 

Enactment of such a credit meets both our nation's short term needs for consumer liquidity and 

our long term need for population growth. Adding this issue to the pro-life agenda, at least in 

some quarters, makes this proposal a \vin for everyone. 

The expansion of the Child Tax Credit is \\hat makes tax reform wortlmhile. Adding it to the 

employer levy rather than retaining it under personal income taxes save~ families the cost of 

going to a tax preparer to fully take advantage of the credit and allows the credit to be distributed 

throughout the year with payroll. The only tax reconciliation rcquired would be for the employcr 

to send each beneficiary a statement of how much tax \\as paid, which would be shared \vith the 

government. The government would then transmit this information to each recipient family with 

the instruction to notify the IRS if their employer short-changes them. This also helps prevent 

payments to non-existent payees. 

Assistance at this levcl, especially ifmatchcd by statc governments may very well trigger 

another baby boom, especially since adding children will add the additional income now added 

by buying a bigger house. Such a baby boom IS the only real long term solution to the 

demographic problems facing Social Security, Medicare and Medicaid, which are more 

demographic than fiscal. Fixing that problem in the right way definitely adds value to tax reform. 

The NI3RT should fund services to families, including education at all levels, mental health care, 

disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, 

Medicare and Medicaid. Ifsociety acts compassionately to prisoners and shIfts from punishment 

to treatment for mentally ill and addicted offenders, funding for these serviccs \vould be from the 

NBRT rather than the VAT. 
77 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 30 here 77158.030 Insert offset folio 31 here 77158.031

The NBRT could also be used to shift governmental spending from public agencies to private 

providcrs without any involvement by the govell1ment - especially if the seycral states adoptcd 

an identical tax structure. Either employers as donors or workers as recipients could designate 

that rcvenues that would othel"\visc be collected for public schools \vould instead fund the public 

or private school ofthcir choice. Privatc mental health providers could bc prefcrred on the same 

basis over public mental health institutions. This is a feature that is impossible \-vith the FairTax 

or a V A T alonc. 

To extract cost savings under the NBRT, allow companies to otTer services privately to both 

employees and retirees in exchange for a substantial tax benefit, provided that services arc at 

least as generous as the current programs. Employers \\ ho fund catastrophic care would get an 

even higher benefit, with the proviso that any eare so provided be superior to the care available 

through Medie<lid. Making employers responsible for most costs and for all cost savings <lllo\vs 

them to use some market power to get lo\'.er rates, but not so much that the free market is 

destroyed. Increasing Part B and Part 0 premiums also makes it more likely that an cmployerbased system wi1I be supported by retirees. 

Enacting the NBRT is probably the most promising way to decrease health care costs from their 

current upward spiral- as employers who would be financially responsible for this care through 

taxes would have a real incentive to limit spending in a way that individual taxpayers simply do 

not havc thc mcans or incentive to exercise. While not all cmploycrs would participate, those 

\vho do would dramatically alter the market. In addition, a kind ofbeneliciary exchange could be 

established so that participating employers might trade credits for the funding of former 

employecs who rctired clsewhcrc, so that no onc must pay unduly for the mcdical costs of 

workers v,. ho spent the majority of their careers in the service of other employers. 

Conceivably, NBRT ofTscts could exceed revcnuc. In this easc, cmploycrs v-,iould reccivc a VAT 

credit. 

The Center calculates an NBRT rate of 27% before offsets for the Child Tax Credit and Health 

Insurance Exclusion, or 33% after the exclusions are included. Thi~ is a "balanced budget" rate. 

It could he set lo\ver if the spending categories funded receive a supplement from income taxes. 

These calculations are, of course, subject to change based on better models. 

In tcstimony beforc the Scnate Budgct Committcc, Lawrence B. Lindsey cxplorcd thc possibility 

of including high income taxation as a component ofa Net Busincss Receipts Tax. The tax form 

could have a line on it to report income to highly paid employee~ and investors and pay surtaxes 

on that income. 

The Center considered and rejected a similar option in a plan submitted to President Bush's Tax 

Reform Task Force, largely beeausc you could not guarantcc that the right peoplc pay taxcs. If 

only large dividend payments are reponed, then diversified investment income might be undertaxed, as would employment income from individuals with high investment income. Under 

collection could, of course, be overcome by forcing high income individuals to disclosc their 

income to their employers and investment sources - however this may make some inheritors 

unemployable if the employer is in charge of paying a higher tax rate. For the sake of privacy, it 

is preferable to leave filing responsibilities with high income individuals. 

Dr. Lindsey also stated that the NBRT could be border adjustable. We agree that this is the case 

only to the extent th8t it is not a vehicle for the offsets described above, such as the child tax 

credit, employer sponsored health care for workers and retirees, state-level offsets for directly 

providing social services and personal retirement accounts. Any taxation in excess of these 

offsets could be made border adjustable and doing so allows the expansion of this tax to imports 

to the same extent as they are taxed under the V AT. Ideally, ho\\!ever, the NBRT will not be 

collected if all employers use all possible offscts <lnd transition completely to employee 

ownership and employer provision of social, health and educational services. 

Thank you for the oppOlilmity to address the committee, We arc. of course, available for direct 

testimony or 10 ans\\cr questions by mcmbcrs ancl starr. 
78 

f 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 32 here 77158.032
79 

National Community Tax Coalition 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 33 here 77158.033

~ NATIONAL COMMUNITY TAX COALITION 

II' .. 

Strengthening Tax Compliance, Government Efficiency & 

Families' Well-Being Calls For Sustaining 

Volunteer Income Tax Assistance 

Comments on the President's Proposed Budget for 

the U.S. Department of the Treasury in FY2013 

By Jackie Lynn Coleman, Executive Director, National Community Tax Coalition 

Feb. 29. 2012 

Chairman Camp, Ranking Member Levin and Members of the House Ways and Means Committee; 

Thank you for the opportunity to share our thoughts on the President's FY2013 budget proposal for 

the U.S. Department of the Treasury. Specifically, we'd like to address several aspects of the 

projected budget for the Volunteer Income Tax Assistance (VITA) matching-grant program, 

overseen by the Internal Revenue Service (IRS). 

The National Community Tax Coalition (NCTC) supports maintaining the VITA matching 

grant at its current} $12 million funding level, as outlined in the President's budget proposal 

for FY2013 - just as we greatly appreciate Congress' having sustained these crucial 

resources in recent years. Such resources are critical to the well-being of millions of low- and 

moderate-income, working families who depend upon VITA help in communities throughout 

the nation. That's especially so during these tough times, when fiscal pressures fall heavily 

on families. If anything, struggling families need moxg such help - certainly not less. 

NCTC is the nation's largest, most comprehensive membership organization of community-based 

organizations offering free tax preparation and financial services to low- and moderate-income 

working families. Our member organizations operate more than 5,700 Community VITA sites that, 

in turn, leverage the help of more than 52.000 trained and certified volunteers throughout the 

country. Last year, these efforts helped households file about 1.5 million federal tax returns - about 

half of all returns filed with free tax preparation assistance. 

Among taxpayers served by VITA, the average Adjusted Gross Income is only about $21,200. Most 

come from traditionally hard-to-reach and underserved communities that include people with 

disabilities, limited-English speakers. the elderly, and Native Americans. All seek help in working 

their way through an often-byzantine tax code, in order to meet their obligations as taxpayers. With 

VITA assistance, these hardworking families are better-able to identify and claim the full amount of 

the tax refunds for which they're qualified, without losing up a significant amount of those refunds 

to the costs of commercial tax preparation. Last year, for instance, VITA saved taxpayers who claim 

the EITC an estimated $90 million in costs of paid tax-return assistance. In addition, VITA helps 

families obtain financial education, open bank accounts and explore other asset-building 

opportunities. file the Free Application for Federal Student Aid for higher education and more. 

(over) 
80 

f 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 34 here 77158.034
81 

U.S. Chamber of Commerce 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 35 here 77158.035

100 Years Standing Up for American Enterprise 

U.S. CHAMBER OF COMMERCE 

Statement 

Of the 

U.S. Chamber 

Of Commerce 

ON: ADMINISTRATION TAX PROPOSALS IN FY2013 BUDGET 

TO: THE HOUSE COMMITTEE ON WAYS & MEANS 

DATE: FEBRUARY 15,2012 
82 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 36 here 77158.036

The U.s. Chamber of Commerce is the world's largest business federation, 

representing the interests of more than three million businesses and organizations of every 

size, sector, and region. 

The Chamber's members are businesses of all sizes. Our membership consists of small 

businesses with 100 or fewer employees, 70 percent of which have 10 or fewer employees. Yet, 

virtually all of the nation's largest companies are also active members. We are cognizant of the 

problems and challenges facing the business community at large. 

Besides representing a cross-section of the American business community in terms of 

number of employees, the Chamber represents a wide management spectrum by type of business 

and location. Each major classification of American business -- manufacturing, retailing, 

services, constmetion, wholesaling, and finance - is represented. Also, the Chamber has 

substantial membership in all 50 states. 

The Chamber's international reach is substantial as well. It believes that global 

interdependence provides an opportunity, not a threat. Tn addition to the U.S. Chamber of 

Commerce's 105 American Chambers of Commerce abroad, an increasing number of members 

are engaged in the export and import of both goods and services and have ongoing investment 

activities. The Chamber favors strengthened international cOlnpetitiveness and opposes miificial 

U.S. and foreign barriers to international business. 

Positions on national issues arc devcloped by a cross-section of Chamber members 

serving on committees, subcommittees, and task forces. More than 1,000 business people 

participate in this process. 
83 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 37 here 77158.037

The Chamber thanks Chainnan Camp and Ranking Member Levin for the opportunity 

to comment on the tax proposals contained in the Administration's FY2013 budget (the 

"Greenbook"). The Chamber is disappointed with the proposals included in the Greenbook. 

These proposals are largely a rehash of prior year Greenbooks and once again offer no 

policies that make OUf tax code morc competitive, fair, simpler, compliance-friendly or morc 

pro-growth. Instead, we see the same policies of prior years and an even greater reliance on 

raising revenues through the tax code. 

The Chamber believes that as the Committee considers policies to drive job creation 

and economic gro",th and considers fundamental federal tax reform, it should tinnly reject the 

proposals contained in the Greenbook and seck to undertake comprehensive tax reform to 

foster growth, competitiveness, innovation, ease of compliance, and job creation. As other 

countries, and even individual states within our own borders, move to adopt tax policies that 

foster growth, competitiveness, and innovation, these proposals generally would move the 

federal tax code l in precisely the opposite, and wrong, direction. 

The Greenbook, in large part, repeats prior year tax proposals of this Administration, 

levying onerous tax increases on businesses of all sizes and picking winners and losers, while 

omitting pro-growth tax policy. It levies almost $2 trillion in new taxes, while providing only 

$146 billion2 of penn anent tax cuts for business, $108 billion of which is comprised of one 

incentive - making the research and development (R&D) tax credit permanent - which 

generally is already renewed on an annual basis. 

IAXINCREASES 

As in prior years, the Greenbook includes significant tax increases on upper income 

individuals, tOlaling over $1.5 tJillion. These proposals fail to recognize that these increases hit the 

most successful U.S. small businesses that pay taxes at individual tax rates, hindering their 

ability to grow and create jobs. 

While this year's budget calls for implementation of a "Buffett" rule that results in a 

minimum effective tax rate of30% on those making over $1 million, the nile appears nowhere 

in the Greenbook. Instead, the Greenbook once again targets those making over $200,000 or 

$250,000 jointly. The Greenbook ignores that our tax system is already highly progressive (in 

2009, according to the IRS, the top 1 % of the income distribution controlled about 17% of 

income and paid almost 37% of federal income taxes). It proposes an even more punitive system 

on those who save, invest, and create jobs. It proposes increasing the top marginal tax rates, 

reducing or eliminating itemized deductions, and limiting the rate at which the remaining 

1 All references to the "code" are to the Internal Revenue Code of 1986, as amended. 

1 All rcvenu(: estimates are for 10 year periods and arc provided hy OMS. 
84 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 38 here 77158.038

deductions can be taken. Further, it proposes raising taxes on investment - taxing long tenn 

capital gains at 20%, up from 15%, and dividends at marginal rates as high as 39,6%, up from 

150/0. These increased investment taxes are compounded by the Medicare hospital insurance 

(HI) tax of3,8% that kicks in next year. Additionally, the failure to maintain lower, 

synchronized capital gains and dividends rates, a departure from prior year proposals, 

discourages efficient capital allocation and decreases fairness, 

Quite simply, the Committee cannot ignore the negative impacts of these tax increases 

and must reject such policies in both the near and long term. Over the past 30 years, the number 

of pass-tbm businesses - sole proprietorships, S-corporations, LLCs and partnerships - has 

nearly tripled, In 20 I 0, the Joint Committee on Taxation detennined that a substantial share 

of new revenue (50% for the increase in the top two rates) was directly attributable to the 

income reported for pass-thru businesses by their owners. In other words, small businesses 

would bear a substantial portion of these higher taxes, 

Further, increased investment taxes have real and damaging ramifications. 3 Mil1ions 

of Americans of all income levels would be adversely impacted by these tax hikes, Further, 

older Americans and those saving for retirement would be disproportionately hurt by 

investment tax hikes, Raising capital gains and dividends taxes has real adverse eflects on the 

economy, Thus, the Chamber strongly opposes these tax hikes and the negative ramifications 

on investment, economic gro\Nth, and productivity that come with increased investment 

taxes. 

As the Committee considers fundamental tax retonn, it is critical to recognize the 

significant numbers of entities who remit taxes under the individual Code; thus, careful 

consideration mllst be given to any refonn that addresses the corporate tax rate without 

properly considering individual rates, Second, given the significant and increasing numbers 

of these pass-thru entities, the Chamber believes proposals, such as these tax increases, must be 

rejected, as they thwart the growth of the very businesses that are the backbone of our 

economy. 

Other Business Tax Increases 

Also as in prior years, the Greenbook includes tax increases on larger business entities, 

totaling almost half a trillion dollars, achieved by, among other things, double taxing the protits 

American worldwide companies eam overseas, levying punitive new taxes on traditional energy 

producers and reinstating Superfund taxes, repealing longstanding accounting practices, and 

taxing the carried interest in partnerships as ordinary income. 

~ ror more detailed information on the damaging lmpaet of raising investment taxes and the Chamber's opposition 

to increased investment taxes, please see our September 14, 2011 testimony to the Senate Finance Committee, 

available at h!lP.:!{:~:~Y.\:,._.~~~~hp_m.l;!!-?r..~~lQ!i~j\~.s[~k.j}I~!tl.~nl\')LU.U_~.L4.tt:.::..!il1!9!1Y.~.~!1~1J.~Li!l<.!Q~~,J2l!.r. For a recent detailed 

study on the international aspects of capital gains and di" idends and the adverse economic consequt"'l1ces of high tax 

rates on this investment income, see E& Y, "Dividend and Capital Gains Ta:'Cation: A comparison of the US to other 

developed nations," (February 2012), availahle at 

http)/\>;"\ \\ .tb~L2ra/Clssets!l...y_t._~.LJ2bj.d.flld and Capi..b!1 Gaj!lLln!~"!Jl<!1i2nal Cop1D8rison &T2IL20 l2-0~ 

OJ.pdf. 
85 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 39 here 77158.039

International Taxation 

The Greenbook once again proposes to double tax the profits American worldwide 

companies eam abroad, by curtailing deferral, limiting foreign tax credits, and attacking the tax 

treatment of intangibles. The President's own fiscal commission report states that our system of 

taxing foreign source income is against the norm, and H[t]he current system puts U.S. 

corporations at a competitive disadvantage against their foreign competitors." His Export 

Council recommends creation of an international tax system "in which U.S. corporations can 

compete well with those in other OECD countries," going on to state that a "competitive 

ten-itarial tax system far the United States should broadly follow the practice of our trading 

partners ... to make the U.S. tax system more competitive with its major trading partners." 

Despite this, the Greenbook moves in the opposite direction with $148 billion of international 

tax increases that threaten to put American companies at even greater competitive disadvantage. 

The Chamber urges the Committee to reject these proposals and, instead, as it considers 

fundamental reform, consider ways to level the playing field for American businesses, such as 

adopting a territorial tax system as recommended by the President's Deficit Commission and 

Export Council, and proposed by Chairman Camp. TI,e Chamber believes any changes to 

international tax policy should make American companies morc competitive, drive job creation, 

and stimulate overall economic growth. 

Pnnitive Energy Taxes 

The Greenbook also repeats its attack on oil and gas companies and coal companies 

from prior years, proposing large and onerous tax increases, totaling over $41 billion on 

these traditional energy producers. This represents continued attacks on oil and gas 

companies as well a'S coal companies. In addition to industry-specific punitive taxes, many 

of these companies also face tax hikes in the farm oflast-in, first-out (LIFO) repeal and 

changes to the dual capacity ades. All of these tax increases result in increased energy costs 

and decreased energy security. 

Once again, these proposals punish industries such as oil and gas, who already face 

some of the highest effective tax rates of any industry sector and who create millions of highpaying jobs. The Greenbookjustifies these increased taxes on traditional energy sources to pay 

for "'clean" energy and manufacturing incentives. The Chamber strongly urges the Committee 

to reject tax policies such as this, which preference one industry or sector to the detriment of 

another. Instead, the Chamber suggests the adoption of fundamental tax reronn that would 

benefit the entire business community. 

Changes to Longstanding Inventory Accounting Methods 

In addition to the above tax increases, the Greenbook once again proposes repeal of 

longstanding accounting methods, solely to raise tax revenues. For example, the Greenbook. 

as in prior years, would repeal LIFO to raise $74 billion. The Chamber opposes the repeal of 

LIFO accounting as it would result in a plmitive, retroactive tax increase for businesses. 

placing significant cash constraints on them and limiting their ability to manage inflation. 

Companies would have to record illusory profits on their books, when no economic activity 
86 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 40 here 77158.040

has occurred that would justify recording any profits. 

In addition to the repeal of UFO, the Greenbook once again proposes repeal ofthe 

lower-ot:cost-or-market (LCM) and subnonnal goods accounting methods to raise $13 billion. The 

Chamber opposes the repeal of these accounting methods as they provide an important cushion 

during economic downturns. Without these methods, businesses are precluded from recognizing 

real economic losses in the year of loss, and, rather, must wait until disposal of inventory. 

The repeal of these accounting methods originally was proposed as revenue offsets 

for unrelated initiatives. As the Committee considers Sh0l1 term policies and fundamental 

reform, the Chamber urges it to reject changes solely sought to raise revenue without 

consideration for the wide range of industries and businesses of all sizes that would be adversely 

impacted by these changes. 

Punitive Financial Service Sector Taxes 

The Greenbook once again proposes a financial crisis responsibility fee.' This $61 billion 

tax will impede economic recovery by constraining commercial lending and capital investment, 

including much needed lending to small businesses. This tax also creates situations that may lead 

to double and excessive taxation. In short, this will be a tax borne by America's job creators and 

is simply the wrong tax at the wrong time. 

TIle punitive financial service sector taxes do not stop there. To raise another $14 billion, 

the Greenbaok would tax "earned interest" - capital gains paid to managers of investment 

partnerships - a-; ordinary income. The Chamber believes that taxing carried interest as ordinaty 

income would deter economic activity, reduce credit tlow, and stifle job creation. Further, 

changing this longstanding law ignores the fact that state pension funds, charitable nest eggs, 

and universities rely on these partnerships and could face li.mding shortfalls if this tax hike 

drove talented management capital into other fields. 

Thus, as the Committee considers changes to tax p01icy, the Chamber urges it to seriously 

consider both the direct and indirect ramifications oftbese changes on the economy before 

adopting policies such as those described above. 

PRO-GROWTH TAX INCENTIVES 

While the Greenbook is full of tax increases, it provides little in the way of tax 

incentives to help businesses grow. As noted above, in contrast to the almost $2 trillion in new 

taxes businesses can expect to face, they would see only $146 billion of tax cuts, $108 

billion of which is attributable to making permanent the research and development 

(R&D) tax credit. The long touted incentives for manufacturing are minute in comparison 

to the tax hikes. 

~ For rurther inronnation on the adverse impacts orthe proposed financial crisis responsibility ree, please see the 

2010 study conducted for the Chamber by Ilal S. Scott, Nomura professor of international financial systems at 

Harvard Law School, "Financial Crisis Responsibility Fee: Issues ror Po!icymakers," that demonstrates the adverse 

Impacts this tax '.vauld have upon capital fonnation, available at htJI!://\\ \\-~\_.Il~~ba!lJbr:r-,_co!'Il;r~morts/tllWDcia]-ql.sl~~ 

rc<;pon"ihility. 
87 

f 

[Question for the Record follow:] 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 41 here 77158.041
88 

The Honorable Timothy Geithner, Responses 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 42 here 77158.042

MEMBER QUESTIONS SUBMITTED FOR THE RECORD 

HOUSE WAYS AND MEANS COMMITTEE 

PRESIDENT'S FY 2013 BUDGET 

SECRETARY GEITHNER 

FEBRUARY 15,2012 

Rep. Shelley Berkley 

1. Some state and local governments have raised concerns that the Administration's 

proposal to cap the amount of bond interest top income earners can deduct from their 

taxes may make it more difficult to fund capital projects. Is the administration open to 

working with states and municipalities to balance the need for income equality with the 

importance of investing in our infrastructure? 

The Administration is open to working with states and municipalities to improve investment 

in inirastructure. In fact. the Treasury Department, along with the President's Council of 

Economic Advisers recently issued a report titled, "A New Economic Analysis of 

Infrastructure Investment" focused on this very point, a copy of which is available on the 

Treasury website: http://\I'''·\\/\\' .treasury ,gov/resource-center/econom icpo Ii ey /Ooetlmen ts/2 0 I 203 231 n rrastruet ure Report. pd r 

One way to address the issue that you raise would be to enact the Administration's FY 2013 

Budget proposal to reinstate the Build America Bonds (BABs) program. The 

Administration's FY 2013 Budget proposal would make the BABs program permanent, with 

a borrowing subsidy rate of30 percent through 2013 and 28 percent thereafter. 

The BABs program was quite successful in expanding the market for state and local 

governmental debt. In 2009 and 20 I 0, more than $181 billion in BABs were issued in over 

2.275 separate transactions in aliSO states, plus the District of Columbia, Puerto Rico, and 

the Virgin Islands. BABs program benefits include: (I) a bigger and broader market for 

investors without regard to tax liability; (2) an efficient borrowing subsidy delivered through 

direct subsidy payments to state and local governmental issuers; (3) a potential streamlined 

compliance iramework; and (4) relief for supply pressures on traditional tax-exempt bonds 

and assistance in reducing interest rates on tax-exempt bonds. BABs save taxpayers money. 

Support is also widespread for reinstating BABs, particularly among state and local 

governments who were able to save their residents billions through lower borrowing costs as 

a result of using BABs. The National Association of State Treasurers, the U.S. Conference 

of Mayors. the National League of Cities. the National Association of Counties, the Council 

of State Governments, and the National Association of State Auditors, Comptrollers, and 

Treasurers have all endorsed bringing back BABs. 
89 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 43 here 77158.043

Rep. Diane Black 

Line of questioning regarding Argentina's bonds that the government defaulted on in 2001. 

The Treasury Department has heen helpful, and I am requesting an update from the 

Secretary on their current efforts. 

1. Evading Court Judgments 

Mr. Secretary, as yon know, the Repuhlic of Argentina defaulted on over $81 hillion in 

international honds in 2001, much of which were issued under U.S. law. Tn suhsequent 

litigation, over 100 judgments have heen entered against Argentina, none of which 

Argentina has paid. Ohviously, respect for the rule of law and the judgment of courts is 

essential for a healthy financial system. Please tell us what steps the Treasury 

Department is taking to urge Argentina to meet it ohligations. 

Mr. Secretary, I'd like you to address Argentina's financial mishehavior and its 

implications for the international system. As you know, in 200 I Argentina defaulted on 

billions of dollars in sovereign honds that it had issued under New York law. Despite 

having freely agreed to be bound hy New York law, it has repeatedly ignored over 100 

US court judgments against it, totaling more than $7 hillion. Do you agree that hy 

evading its legal obligations, Argentina is undermining the integrity of international 

hond contracts and the US legal system? What action is your Department taking to 

compel Argentina to meet its commitments? 

On the margins of the Cannes G-20 Summit in November, President Obama discussed with 

President Fernandez de Kirchner the need for Argentina to normalize its relationship with the 

international tinancial and investment community and urged Argentina to take concrete 

actions with respect to repayment of outstanding arrears and complying with final and 

binding arbitral awards. Administration omcials have followed up with Argentine omcials 

to reinforce the President's message. On March 26 of this year, President Obama announced 

the suspension of Argentina's eligibility under the Generalized System of Preferences 

because of Argentina's failure to pay two longstanding International Center for Settlement of 

Investment Disputes (ICSID) awards in favor of U.S. companies. 

Also, as you know, the Treasury Department continues to oppose multilateral development 

bank (MDB) lending to Argentina due to the government's failure to honor its international 

commitments. Our policy allows for a narrow exception when programs e!lectivcly target 

very poor and vulnerable populations. 

2. Paris Clu h 

There are reports that the Treasury Department is considering allowing Argentina to 

restructure its official debt through the Paris Club. I note that the portion of this deht 

owed to the US government (approximately $300 million) is relatively small compared 

to the over $3.5 billion Argentina owes private US creditors. Indeed, studies have 

shown that the if Argentina were to pay what it owes private Americans, the US 

Treasury would receive far more revenue from the taxes on those payments than it 

2 
90 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 44 here 77158.044

would from settling the government-to-government debt. Given these facts, could you 

assure the Committee that the Treasury Department will withhold approval of a Paris 

Club deal for Argentina until Argentina has satistied all awards under the USArgentine bilateral investment treaty and the outstanding US court judgments against 

it? 

Argentina's arrears to U.S. government agencies total about $550 million, and U.S. 

government efforts, including through the Paris Club, are appropriately focused on 

recovering full payment on these loans extended on behalf of American taxpayers. Imposing 

additional conditions that arc unrelated to the government's claims could undermine the 

government's recoveries, which would not be in the taxpayers' interest. 

We are not aware of any studies that show that more than the $550 million Argentina owes 

the U.S. government would be collected in taxes were Argentina to pay other creditors. In 

any case, Administration etforts to recover on loans extended on behalf of our taxpayers in 

no way diminishes our urging of Argentina to resolve the c1aims of private American 

investors. 

3. IMF 

Mr. Secretary, considering that the IMF may be asked to playa signiticant role in 

resolving the Eurozone crisis, it is critical that the US do all it can to maintain global 

respect for the IMF as an institution. In this regard, I note with dismay that Argentina 

is one of four countries that continues to reject a consultation under Article IV of the 

IMF Charter (the others being Somalia, Venezuela and Ecuador). In order to maintain 

contidence in the IMF, will the US continue to insist that Argentina submit to an Article 

IV consultation? Do you foresee any dilution ofthis requirement? 

The United States will continue to insist that Argentina submit to an Article IV consultation. 

The obligation to undergo IMF surveillance is enshrined in the IMF's Articles of Agreement, 

and we do not foresee any dilution of this requirement. 

Rep. Joseph Crowley 

I. Mr. Secretary, as you know, the Republic of Argentina defaulted on over $81 billion in 

international bonds in 2001, much of which were issued under U.S. law. In subsequent 

litigation, over 100 judgments have been entered against Argentina, none of which 

Argentina has paid. Respect for the rule of law and the judgment of courts is essential 

for a healthy financial system. Please tell what if any steps the Treasury Department is 

taking to urge Argentina to meet its obligations. 

Mr. Secretary, I'd like you to address Argentina's financial situation and its 

implications for the international system. As you know, in 2001 Argentina defaulted on 

billions of dollars in sovereign bonds that it had issued under New York law. Despite 
91 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 45 here 77158.045

having freely agreed to be bonnd by New York law, it has not addressed over 100 US 

court judgments against it, totaling more than $7 billion. By avoiding its legal 

obligations, could one argue that Argentina is undermining the integrity of 

international hond contracts and the US legal system? What action is your Department 

taking to ensure Argentina meets its commitments? 

On the margins of the Cannes G-20 Summit in November, President Obama discussed with 

President Fernandez de Kirchner the need for Argentina to normalize its relationship with the 

international financial and investment community and urged Argentina to take concrete 

actions with respect to repayment of outstanding arrears and complying with linal and 

binding arbitral awards. Administration officials have followed up with Argentine officials 

to reinforce the Presidcnfs message. 

Also, as you know, the Trcasury Department continues to oppose multilateral development 

bank (MOB) lending to Argentina due to the government's failure to honor its international 

commitments. Our policy allows for a narrow exception when programs effectively target 

very poor and vulnerable populations. On March 26 of this year, President Obama announced 

the suspension of Argentina's eligibility under the Generalized System of Preferences 

because of Argentina's failure to pay two longstanding International Center for Settlement of 

Investment Disputes (ICSID) awards in favor of U.S. companies. 

Rep. Richard Neal 

1. Secretary Geithner, I'd like to congratulate you and your staff for issuing proposed 

regulations that would help achieve the goals of the Foreign Account Tax Compliance 

Act (FATCA), which target Americans using foreign accounts to cheat on their taxes. 

One of my priorities on the Ways & Means committee has been taCkling the issue of tax 

cheats (whether they be individuals or corporations) who attempt to hide their income 

overseas to avoid paying taxes in the U.S. So I applaud your efforts in this area - I 

think it's an important step. When do you expect that we'll see final regulations? 

T also was pleased that the United States issued a joint statement with France, 

Germany, Italy, Spain and Britain stating that all of the countries will intensify their 

cooperation in combating international tax evasion - and the six countries intend to 

implement a government to government approach to FATCA implementation. Can 

financial institutions rely on this statement or will additional steps, including the 

passage of local laws, need to occur first? Are conversations occurring with other 

countries to implement a similar approach? Canada? Switzerland? China? 

The comment period on the proposed regulations, which were issued on Fehruary 8, 2012, 

ended on April 30, 2012, and a public hearing occurred May 15,2012. In order to provide 

guidance as timely as possible to financial institutions and other affected parties, Treasury 

and the IRS intend to finalize the regulations by the end of this summer. 

The joint statement issued by the Treasury Department and the five European Union 

countries was 110t a legal agreement and instead announced a framework for agreements that 

4 
92 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 46 here 77158.046

wou Id permit the implementation of FA TeA on a government -to-government basis. 

Accordingly, discussions between these countries and the Treasury Department and the IRS 

arc continuing with a goal of developing agreements consistent with the framework 

announced in the joint statement as expeditiously as possible. Treasury and the IRS are also 

engaged in discussions with a number of other foreign governments, and are open to 

exploring such an approach with other governments, where appropriate. 

2. In 2007, I introduced a bill to address the tax treatment of exchange trade notes 

(ETNs). Although these ETNs are issued by banks in the form of a debt instrument, 

they are not treated as debt for tax purposes. Instead, investors are told these ETNs 

will defer tax on investment income earned along the way, for as long as 30 years, and 

then turn all that income into long-term capital gain. This tax treatment is not the 

result of any legislation by Congress bnt instead results from a gap in the tax law. My 

bill was intended to IiIl that gap. 

I continue to be very concerned about this issue. As I consider next steps with respect 

to my legislation, conld you comment on whether Treasury will be issuing guidance on 

the tax treatment of ETNs? 

ETNs are part of a larger class of financial instruments commonly referred to as prepaid 

forward contracts. The Priority Guidance Plan, which describes the projects that are the 

highest priority for guidance from the Treasury Department and the IRS each year, includes 

guidance on prepaid forward contracts. It is anticipated that guidance will be issued on 

prepaid forward contracts by June 30, 2012. 

3. Secretary Ceithner, the National Defense Authorization Act inclndes langnage 

clarifying Custom and Border Protection's authority to disclose information to 

rightsholders whose trademarks appear on suspect dangerous counterfeit imports. 

Even so, I have been told that counterfeit chips have made their way into sensitive 

defense department systems and in critical civilian products like defibulators, 

automobile air bags and antiIock breaking systems. 

Congress' clear intent was for CBP to immediately return to its prior practice of 

sharing complete photographs of potentially dangerous counterfeit imports with the 

rightsholders and it was thought that this could be done with no further administrative 

action other than an email to the CBP Port Officers. 

About a month and a half have now passed since the enactment ofthe NDAA. Can yon 

please explain Treasury's position on the NDAA law? When will Treasury implement 

this law? 

I share your interest in expanding Customs and Border Protection's ability to share 

infonnation about and samples ofimp0l1ed goods suspected of being counterfeit with rights 

holders of the trademarks on those goods suspected of being counterfeited for purposes of 
93 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 47 here 77158.047

detennining whether the imports are counterfeit. To that end the Treasury and the 

Department of Homeland Security published an interim rule on April 24, 2012 that will 

enable information sharing. This matter is important both to our national security and to the 

strength of our nation's economy. 

Rep. Devin Nunes 

1. Mr. Secretary, on the issue of money market funds, there were some very constructive 

reforms that the SEC spearheaded in 2010 that improved the credit quality, maturity, 

liquidity, and transparency of money market funds. These reforms appear to be 

working very well. Now I'm reading about further proposals the SEC is developing 

that involve extreme measures, such as requiring these funds to noat their net asset 

value or to impose capital burdens and impose "redemption restrictions" that would 

deny investors full use of their cash. I'm concerned that these latest proposals would 

drive assets out of money market funds to the point of decimating the product, reduce 

liquidity in short term credit markets, and impose added costs on investors. Are you 

committed to safeguarding against such negative impacts'? 

We cannot comment on the specifics of any potential proposed rules that the SEC may be 

considering, but Treasury is supportive of the SEC's eft(Jrts to move forward with additional 

reforms. Money market funds contributed to instability during the financial crisis in 2008 

and at the time, the previous Administration and the Federal Reserve were forced to 

intervene to prevent a widespread run on money market funds. It is critical that taxpayers 

will never again be on the hook for Wall Street's failures. 

As you acknowledge, the SEC has already taken actions to reduce risks in the industry by 

strengthening the portfolio credit and liquidity requirements under Rule 2a-7 in February 

2010. We agree that money market funds arc more resilient today than they were in the leadup to the financial crisis, but further reform is needed to improve the stability of the industry. 

Both the President's Working Group Report in 2010 and the Financial Stability Oversight 

Council's 2011 Annual Report reiterated the need for additional structural refonns to reduce 

money market funds' susceptibility to runs. 

We look forward to your input on the proposed reform options when the SEC publishes a 

proposed rule. 

Rep. Adrian Smith. 

1. As a result of a bipartisan agreement, the estate tax is imposed at a top rate of 35 

percent, with a $5 million exemption for 2011 and 2012. Effective for 2013, President 

Obama proposes to make permanent the estate tax parameters which were in effect for 

2009 - a top rate of 45 percent and a $3.5 million exemption, which would not be 

indexed for inllation. By not including an automatic inllation adjustment, is it the 

Administration's intention to eventually impose this tax on more and more Americans 

6 
94 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 48 here 77158.048

each year, including the middle class'? Does the Presideut think he is otl'ering a 

permanent solution? 

The Budget's proposal on the estate tax contains an exemption amount that is substantially 

larger than the $1 million exemption scheduled to go into place in 2013 should the law not be 

changed. With a $3.5 million exemption amount, less than 0.5 percent of estates would be 

subject to any tax. That said, we are willing to work with Congress to develop an estate tax 

system that is fair and fiscally responsible. 

Rep, Mike Thompson 

L [Tax Policy] Secretary Geithner, many people who support the repeal of Last-In, FirstOut (LIFO) argue that such repeal is inevitable because ofthe poteutial adoption by the 

Securities and Exchange Commission (SEC) ofInternational Financial Reporting 

Standards (lFRS) on registered U.S. companies. As you know, IFRS does not allow the 

use of LIFO, so some proponents of LIFO repeal argue that Congress should repeal 

LIFO now and garner the purported budgetary savings before the SEC enacts IFRS 

and the chance to score LIFO repeal is diminished or eliminated. 

My understanding, however, is that the SEC has not yet made any decisions on the 

adoption of IFRS and there is some discussion that the SEC is not likely to impose IFRS 

in its entirety on SEC registered companies. I have been told that the trend 

internationally has been for countries that adopt IFRS to do so with "carve-outs" for 

difficult issues, and that the LIFO method could be preserved for U.S. registered 

companies under that approach, even if (FRS is otherwise required for those 

companies. Does the Administration support the "inevitability argument" described 

above in regard to LIFO repeal and, if so, how would the Administration deal with the 

counter argument that it is premature to assume that the SEC will come out in favor of 

LIFO repeal? 

The Securities and Exchange Commission (SEC), the Intemational Accounting Standards 

Board (lAS B), and the Financial Accounting Standards Board (FASB) are working together 

to address areas ofIFRS/U.S. GAAP (Generally Accepted Accounting Principles) divergence 

to achieve the overall goal of developing a single set of high-quality financial accounting 

standards that produce intemationally comparable financial information. It has been the 

policy of this Administration and prior Administrations to support financial accounting 

standards convergence. Until the IASB and F ASB complete their work converging 

accounting standards, however. it is unclear whether all current IFRS standards will be 

adopted for SEC registrants. 

Whether or not the SEC decides to adopt all current IFRS standards. the President's FY 2013 

Budget proposes to repeal the Last-In, First-Out (LIFO) method of accounting for tax 

purposes. The repeal of LIFO would eliminate a tax deferral opportunity tor taxpayers that 

hold inventories, the costs of which increase over time. In addition, LIFO repeal would 

7 
95 

Æ 


ccoleman on DSK8P6SHH1PROD with HEARINGInsert offset folio 49 here 77158.049