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

49–982 2009

THE PRESIDENT’S FISCAL YEAR 2009 BUDGET 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

FEBRUARY 7, 2008 

Serial No. 110–67 

Printed for the use of the Committee on Ways and Means 

( 

tjames on DSKG8SOYB1PROD with HEARING

ii 

COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

tjames on DSKG8SOYB1PROD with HEARING

iii 

C O N T E N T S 

Page 

Advisory of January 31, 2008 announcing the hearing ........................................ 2 

WITNESS 

The Honorable Henry Paulson, Secretary of the Treasury, United States 

Department of the Treasury ................................................................................ 5 

SUBMISSION FOR THE RECORD 

Joseph E. Powell, statement ................................................................................... 42 

tjames on DSKG8SOYB1PROD with HEARING

tjames on DSKG8SOYB1PROD with HEARING

(1) 

THE PRESIDENT’S FISCAL YEAR 2009 BUDGET 

THURSDAY, FEBRUARY 7, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to notice, at 9:35 a.m., in room 

1100, Longworth House Office Building, Hon. Charles B. Rangel 

(Chairman of the Committee) presiding. 

[The advisory announcing the hearing follows:] 

tjames on DSKG8SOYB1PROD with HEARING

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–5522 

January 31, 2008 

FC–18 

Chairman Rangel Announces a Hearing on the 

President’s Fiscal Year 2009 Budget with 

U.S. Department of the Treasury 

Secretary Henry Paulson 

House Ways and Means Committee Chairman Charles B. Rangel today announced the Committee will hold a hearing on President Bush’s budget proposals 

for fiscal year 2009. The hearing will take place on Thursday, February 7, 

2008, in the main Committee hearing room, 1100 Longworth House Office 

Building, beginning at 9:30 a.m. 

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

hearing will be limited to the invited witness, the Honorable Henry M. Paulson, Jr., 

Secretary 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. 

FOCUS OF THE HEARING: 

On February 4, 2008, President George W. Bush will submit his fiscal year 2009 

budget to Congress. The budget will detail his tax proposals for the coming year, 

as well as 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, including taxes and customs. 

In announcing the hearing, Chairman Rangel said, ‘‘I have enjoyed working 

with Secretary Paulson during his tenure as Treasury Secretary and look 

forward to hearing from him before the Committee as he presents the 

President’s budget. This year’s budget will be released at a time of growing 

concern about the economy. It will be very helpful for us to hear from the 

Administration’s top economic policy official as we seek further ways for 

Democrats and Republicans to work together to find solutions to the issues 

facing American families.’’ 

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 ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

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, email and ATTACH your submission as a Word or WordPerfect 

document to the email address provided, in compliance with the formatting requirements listed below, by close of business Thursday, February 21, 2008. 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. 

tjames on DSKG8SOYB1PROD 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 or WordPerfect 

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. 

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

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

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. 

f 

Chairman RANGEL. The Committee will come to order. We ask 

our guests to please take their seats. Of course, we welcome our 

distinguished Secretary of Treasury, Hank Paulson. First, we have 

had meetings where we all have agreed that you have made an 

outstanding contribution to attempting to bring a sense of bipartisanship between at least the House and the Administration—the 

President, that is—and we assume that you have done the same 

with the other body, but we will wait until we see how their votes 

come on this package before we overextend our congratulations to 

your efforts. 

We are a little disappointed—at least the majority side—that 

this budget has come to us without some type of an attempt to see 

what we could have worked out in the last year of this Administration, as opposed to a budget that really politically does not make 

any sense. Most all of the revenue saving provisions, especially as 

it relates to health provisions, have been rejected by the Congress. 

The idea that we would have in this budget an extension of the 

President’s tax cuts of 2001 and 2003, and the underfunding—at 

least the reporting of the underfunding—of the war provisions not 

being there, as though the war is going to stop, the whole idea that 

for 7 years we have not discussed tax reform at all—even though, 

in my projected tax bill, which is merely a talking point for the Administration—we bent over backward to bring corporate relief, because we know that any loophole closings we have, without bipartisan support, they are going to be listed as tax raises. 

Of course, what is most befuddling to me is how you handle the 

alternative minimum tax. You know, that is not the Congress’s 

tjames on DSKG8SOYB1PROD with HEARING

4 

fault. That is our government’s fault, that 23 million, 24 million 

people will have this burden moved off every year, temporarily, and 

continued additional expenses of billions of dollars, without just 

getting rid of the darn thing, especially after 8 years, that you include the revenues in the future in the budget, as though you never 

intend to get rid of it, and yet the rhetoric is that it’s just unfair 

for it to be here. 

So, I don’t mean to be offensive, but I kind of think this budget 

is a political statement, and that Congress has got to work and try 

desperately hard to see how we raise money to pay for provisions 

that neither Republicans or Democrats are prepared to accept, as 

relates to the cuts in programs that we think are essential to our 

constituents, and therefore, the country. 

I suspect that the die is cast, and that there is very little wiggle 

room for us to move away from your so-called balanced budget. But 

I’d like to believe that, to the best that we can in this election year, 

that we continue to enjoy your cooperation, and attempt to avoid 

confrontation where it does not help us as a Congress, it does not 

help this Committee. 

Quite frankly, I don’t think it helps our candidates, Republicans 

or Democrats, for President when this is the President’s last year. 

I know the dedication that you have given to the Administration, 

and what you have given up as a sacrifice, that we do hope that, 

after we get past this, that we can find some way to get back on 

track with the outstanding working relationship that we have enjoyed with you. 

I would like to yield to Mr. McCrery, who, without his support, 

I could not have enjoyed this working relationship with your office. 

Mr. McCrery? 

Mr. MCCRERY. Thank you, Mr. Chairman. Welcome, Mr. Secretary. It’s nice to have you with us today. I look forward to your 

remarks. I particularly look forward to hearing your comments on 

the state of the economy, and how Congress can respond, in the 

short term, to the real challenges facing our economy. 

Tuesday’s sharp drop in the Institute for Supply Management 

Index suggests real challenges in the months to come. 

Thank you, Mr. Secretary, for your work with Speaker Pelosi and 

Leader Boehner on crafting a stimulus package that we hope Congress will act on quickly. I believe the incentives to business to increase their purchases through bonus appreciation will be a real 

shot in the arm for our weakening economy, and the other provisions, I believe, will also be helpful. 

Our short-term economic challenges shouldn’t completely obscure 

the need, though, to pursue pro-growth policies that will pay dividends for our economy in the future. I, therefore, applaud you and 

the President for your long-term focus on economic growth and job 

creation, and your recognition that preventing a looming tax increase is critical to that effort. 

If we learned anything in 2007, it was that the majority’s allegiance to PayGo, as it’s currently constructed, demonstrated in 

their budget proposals, and in the Chairman’s own tax reform proposal, and in the December debate over the AMT patch has, unfortunately, set the cruise control for a $3.6 trillion tax increase over 

the next decade. 

tjames on DSKG8SOYB1PROD with HEARING

5 

Unless we tap the brakes and shirk the yoke of this particular 

PayGo, the issue for Congress next year won’t be whether revenues 

as a share of GDP will climb. The issue will be whether the revenues will come from higher marginal rates, a return of the marriage penalty, higher taxes on capital gains and dividends, smaller 

child tax credits, or whether the Congress will find some other 

taxes to raise, instead. 

It is true that we could avoid those tax increases by passing 

spending cuts. I would encourage my colleagues on this Committee 

to begin thinking seriously about using our jurisdiction to start the 

ball rolling on meaningful entitlement reform, which will create 

savings. To that point, I applaud the President for highlighting the 

fact that our entitlement system is in desperate need for reform. 

Only an ostrich with the longest neck could continue to ignore the 

fact that Medicare, Medicaid, and Social Security, if left unchecked, 

will impose massive costs on future generations of Americans. 

Congress must make some difficult choices on entitlement programs. This budget asks us to begin to meet those challenges. I 

hope the Congress takes the gravity of this situation to heart. 

Mr. Chairman, I thank you for your continued cooperation and 

working with me and the Members of the minority on this Committee to develop issues before our Committee’s jurisdiction. I am 

hopeful that we will have another fruitful year. 

Chairman RANGEL. Well, I am certain the Secretary will be 

doing the best that he can to see that we do the best that we can. 

We recognize that you have a time limitation, so I will ask the 

Members to keep the record open for any opening statement that 

they would want to have included. That would give you the maximum time after the Secretary’s statement to inquire. 

Mr. Secretary, welcome once again to our Committee. 

STATEMENT OF THE HONORABLE HENRY PAULSON, SECRETARY OF THE TREASURY, UNITED STATES DEPARTMENT 

OF THE TREASURY 

Secretary PAULSON. Mr. Chairman, Congressman McCrery, 

Members of the Committee, I will also keep my remarks quite 

brief. I am pleased to be here this morning to discuss the President’s budget for fiscal year 2009. 

My highest priority is a strong U.S. economy that will benefit our 

workers, our families, and our businesses through a measured approach that balances our Nation’s needs with our Nation’s resources. The President’s budget supports that priority. 

This is especially important now, as after years of unsustainable 

home price appreciation, the U.S. economy undergoes a significant 

and necessary housing correction. This correction, combined with 

high energy prices and capital market turmoil, caused economic 

growth to slow rather markedly at the end of 2007. 

The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy. I believe that our economy will continue to 

grow, although at a lesser pace than we have seen in recent years. 

Yet the risks are clearly to the downside, and President Bush 

knows that economic security is of the utmost importance to the 

American people. 

tjames on DSKG8SOYB1PROD with HEARING

6 

In recent weeks, the potential benefits of quick action to support 

our economy became clear, and the potential costs of doing nothing 

too great. So, we are gratified that Congress is advancing a growth 

package to support our economy as we weather the housing correction. We believe that a growth package must be enacted quickly, 

it must be robust, temporary, and broad-based, and it must get 

money into our economy quickly. 

The House has passed legislation that meets these principles. If 

we keep moving along a fast track, and Congress sends the President a bill that meets our shared principles, rebate payments can 

start in May and be completed this summer. Together, the payments to individuals and investment incentives for businesses will 

help create more than a half-million jobs by the end of this year. 

In addition to an economic growth plan to help us weather this 

housing correction, the Administration will continue to focus on aggressive action to try to provide alternative options to foreclosures. 

This includes encouraging the HOPE NOW alliance’s outreach to 

struggling homeowners. Congress can do its part by finalizing the 

FHA modernization and GSE regulatory reform bills, and by passing legislation that will allow states to issue tax-exempt bonds for 

innovative refinancing programs. 

We continue to monitor capital markets closely, and to advocate 

strong market discipline and robust risk management. Working 

through the current stress is our first concern. Through the President’s Working Group on Financial Markets, we are also reviewing 

underlying policy issues because it is just as important to get the 

long-term policy response right. 

While we are in a difficult transition period as markets reassess 

and re-price risk, I have great confidence in our markets. They 

have recovered from similar stressful periods in the past, and they 

will do so again. 

The Administration will also continue to press for long-term economic policies that are in our Nation’s best interest: a pro-growth 

tax system; entitlement reform; and a balanced budget. To that 

end, the President’s budget makes the 2001 and 2003 tax relief 

permanent, and keeps the Federal budget on track for a surplus in 

2012. 

In the future, as in the past, our long-term economic growth will 

also be enhanced by supporting international trade, by opening 

world markets to U.S. goods and services, and by keeping our markets open. Congress can help create jobs and economic opportunities by passing the pending free-trade agreements with Colombia, 

Panama, and South Korea. 

I appreciate the cooperative and bipartisan spirit that has 

brought the Congress and the Administration together to support 

our economy, and I look forward to that spirit continuing as we 

work through this period. Mr. Chairman, thank you very much. 

[The prepared statement of Mr. Paulson follows:] 

tjames on DSKG8SOYB1PROD with HEARING

7 

tjames on DSKG8SOYB1PROD with HEARING


Insert 49982A.001
8 

tjames on DSKG8SOYB1PROD with HEARING


Insert 49982A.002
9 

Chairman RANGEL. Thank you, Mr. Secretary. I think the 

record should be made perfectly clear that, as relates to Panama, 

the problem doesn’t exist in this Committee or in this House. 

I also have been under the impression that the Administration 

is trying to improve the agreement with Korea. So, those issues are 

not in front of us, legislatively or politically, at this time, even 

though Colombia does represent a problem. 

Since you are not a politician, maybe you can tell politicians how 

we can explain some of the President’s positions. I refer specifically 

to the extension of the President’s 2001, 2003 tax cuts. Politically, 

we do recognize that if they’re not extended in whole or in part, 

they could legitimately be perceived as a tax increase. It should be 

made clear it wasn’t the intention of the Congress to have them expire, but the President had them to expire. 

Yet, while we talk about extending this, there is no talk about 

removing the alternative minimum tax. There is no talk about tax 

reform. It seems to me, as a businessperson, this is totally inconsistent, especially when, originally, the Administration would put 

the expiration of these 2010 provisions into a stimulus bill, which 

economists say has to be timely, targeted, and temporary. 

Having said that, it seems to me that when we talk about the 

stimulus program, that once again we are talking about helping 

business. Because no one talks about the compassion of the hundreds of millions of people that can’t afford to put food on the table, 

clothes on their kids’ back, or get them an education or pay the 

rent. We are talking about finding hundreds of millions of Americans, most of whom work hard every darn day, some under the 

poverty line. But, at the end of the day, we have designated them— 

Republicans and Democrats—as people that are in dire need. If you 

give them some money, they’re going to spend it. 

I don’t know whether it’s in the budget, Mr. Secretary, but it 

seems to me that there is something bad with that picture, to believe that the only time we can find some equity in the tax system 

or equity in the support system is when we need these poor people 

out there to spend money to buy goods and services and to spur 

the economy. 

I am not asking for a do-good statement, because it is too late 

for compassion. We have to get something out fast. But I do hope 

that you can point out some place in your budget where you’re saying, ‘‘As soon as we get this economy back on its feet—and we 

will—that we will never be put into a position that we go into a 

recession, not because we’re not productive and competitive, but because our American, hardworking people can’t afford to buy.’’ 

I think that whether you are Republican or Democrat, that 

should be a painful experience that we are going through. So, if you 

can find any compassion along the line in response to anyone’s 

question, it would help us a great deal to be able to say why this 

document is before us, which deals with tax cuts and raises taxes 

on the people trying to get health care the most. 

So, I am not here to embarrass you, but I do ask for your help 

in trying to explain to me and others the questions that I have 

raised, and I do hope there is flexibility to see what we can do, before the year ends, to work some of these major differences out. I 

yield to Mr. McCrery for questions. 

tjames on DSKG8SOYB1PROD with HEARING

10 

Mr. MCCRERY. Well, Mr. Chairman, you raised a number of 

questions. You lost me on the raising taxes on people trying to get 

health care. I didn’t follow that one, because the only thing—— 

Chairman RANGEL. If you look at some of the Medicare provisions, you will see them. 

Mr. MCCRERY. Well, but the President’s—if you are talking 

about health insurance, the President’s budget proposes that we reallocate the tax expenditures from spending it on the wealthy, people like you and me, to people who don’t have insurance through 

their place of employment, and we will give them a tax expenditure 

for going out in the marketplace and purchasing insurance, which 

they can’t get today. 

So, I think that is compassionate. I think it is forward-looking. 

I think it is a very vital part of meaningful health care reform in 

this country, if you want to make the government’s expenditures 

more rational and more compassionate. So, I would hope you would 

look at that part of the budget, as well, and—— 

Chairman RANGEL. Well—— 

Mr. MCCRERY [continuing]. Commend the President for bringing forward some progressive reform in the area of health care. 

Chairman RANGEL. If the gentlemen will yield—— 

Mr. MCCRERY. Sure. 

Chairman RANGEL [continuing]. It is my understanding—and 

the Secretary could correct it—that employee-provided insurance 

would not be given the deduction in tax benefits. So, I thought that 

would kind of hurt the beneficiary, if the incentives for employers 

to provide health care was taken away. 

Mr. MCCRERY. Well, as I said, Mr. Chairman, those tax expenditures, through health insurance provided in the workplace, go to 

people who are relatively well off. 

Chairman RANGEL. Okay. 

Mr. MCCRERY. The President’s proposal more evenly distributes 

those tax expenditures throughout the income brackets, and gives 

it to people who don’t get insurance through their place of employment. It gives them a chance to go out in the marketplace and get 

some health care or health insurance for their families. It is a very 

progressive reform. 

I would prefer tax credits, frankly. But you—I would think the 

majority, and in their sense of compassion for people who need 

help, would be supporting a reallocation of those tax expenditures 

from the way they are today, which is very tipped toward upperincome, higher-income people. 

Chairman RANGEL. I hope these people aren’t eligible for a rebate, too, you know? 

Mr. MCCRERY. Mr. Chairman, in the House compromises, you 

know they are not. We are not eligible, with our incomes, and higher-income people are not. So, I think it was a good compromise that 

your staff worked on, and my staff worked on, and the speaker’s 

staff and Leader Boehner’s staff, and Secretary Paulson and his 

staff. 

So, I think the House compromise is pretty good, along those 

lines. You all got a lot of what you wanted, and we got some of 

what we wanted. So, that’s what this is all about. I was very 

pleased with the bipartisan cooperation that led to that agreement, 

tjames on DSKG8SOYB1PROD with HEARING

11 

and the very quick passage of the stimulus bill here in the House. 

We, of course, are waiting to see what the Senate does with that. 

But I think our package was very good, and represented a high 

mark in the cooperation between the majority and the minority in 

this house. 

Mr. Chairman, I am having copies made of a chart, a graph, and 

having it distributed, because I think it is instructive on the issue 

of tax reform, tax revenues, PayGo. So, I hope the Members will 

take a look at this graph, as it rather demonstrably shows the ills 

of the PayGo system that is in place currently. 

I don’t know if we can put it on the screen, did we ever get capability to put it on the screen? No? Okay. 

Well, if you just take a look at your graph, the top dotted line 

is the line that represents the percent of GDP of revenues to the 

Federal Government under the PayGo system. As you can see, the 

line rather quickly gets up to right at 20 percent of GDP for revenues. 

Mr. Chairman, it doesn’t matter how you get there, whether you 

let the 2001 and 2003 tax cuts expire, whether you continue to let 

the AMT kick in, whether you raise taxes on upper income people, 

or whatever else. The fact is, under your PayGo rules, you’re going 

to get us to over 20 percent of GDP and revenues. That’s a tax increase. No matter how you construct it, it’s a tax increase, compared to where we are today. 

The redline is basically what is in the President’s budget. Now, 

it is true that, in the President’s budget, he doesn’t describe what 

he would do to reform the Tax Code. Eventually, some president 

is going to have to work with the Members of this Committee, I 

think, to reform the Tax Code. 

But what the President does—I think wisely—in his budget, by 

saying, ‘‘Let’s extend the 2001 and 2003 tax cuts, but count the revenues from the AMT in the out-years’’—or at least passed this 

year—you get the red line, which keeps revenues—they spike in 

the first year up to 19 percent of GDP, but then it comes back 

down and levels off. In every year for the next 10 years, it’s above 

the historical average of revenues to the Federal Government. 

The dotted line with a dash and dotted line represents the historical average, which is about 18.3 percent of GDP and revenues. So, 

you can see in the President’s budget, with his construct, he keeps 

revenues, as a percent of GDP, above the historical average. 

Then, you can see the green line and block graph represents current law. So, if we just extended current law—which is to say, Mr. 

Chairman, if we extended all the tax cuts that are in place from 

2001 and 2003, if we extended all the expiring provisions, and if 

we kept the patch on the AMT, you would get that line. 

Yes, Mr. Chairman, I think that line may be too low, in terms 

of producing revenues to the Federal Government. So, does the 

President, evidently, because he keeps revenues above the historic 

average. 

So, I just thought the Members ought to see this very clear representation of the various views on revenues to the Federal Government and the PayGo rules would produce, Mr. Chairman. 

Frankly, your bill would produce that dotted line that is way, way 

tjames on DSKG8SOYB1PROD with HEARING

12 

up above everything else, and certainly way above the historic average. 

So, I just thought I would lay that groundwork before we get into 

listening to the Secretary. Thank you. 

Chairman RANGEL. Mr. Secretary, do you have any response to 

our positions here? 

Secretary PAULSON. Okay, you covered a lot of ground. In the 

interest of time, I will just go over some of the points you made 

quickly. 

First of all, I know AMT is on everyone’s mind here. I would just 

make the point that I think the budget is quite transparent. This 

year we would patch it. I think we are all in agreement—at least 

I sure hope we are—that we do not need to raise taxes, we should 

not raise taxes this year, and we should not subject so many Americans to added uncertainty. Let’s not wait any longer than we need 

to. Let’s patch it. 

Now, in the out-years, you are right. Those revenues are in the 

budget. What I think needs to be done—and I think Congressman 

McCrery really got to the point—is that it is going to need to be 

addressed in the context of several questions. 

First of all, we need to look at it, in the context of what we do 

with the major budget issues this country is facing over the intermediate term, which are entitlements. Second, it is going to need 

to be addressed in the context of what percentage of our economy 

do we want to be taken up by taxes. The tax—— 

Chairman RANGEL. When do we address this, the next Administration? I mean, it has been 8 years that we’ve been pushing it 

off and including it in the budget revenue. 

Secretary PAULSON. Mr. Chairman, I appreciate your frustration. I had a little frustration myself, and I just have to recognize 

what is doable. I started off really hoping that we could get people 

on both sides of the aisle to come to the table on a bipartisan basis 

with no preconditions, really look at the question of our entitlements, and look at all of these things. It did not work out. 

I understand the frustration. I feel the same. This is going to 

have to be worked out at some time. But, again, I will just say the 

budget is transparent. We have these revenues in the budget, we 

recognize that this has to be addressed. We feel strongly it should 

be patched this year. 

Now, just quickly on the other topics that you all talked about, 

I reacted very much the same way that Congressman McCrery did 

to the proposal on the standard deduction for health insurance. 

And here is the way I thought about it. When I looked at the Tax 

Code, and looked at tax preferences, the biggest tax preference is 

$3.3 billion, over a 10-year period, for employees of companies that 

provided health insurance. 

And so, this privileged group receives this big preference. It does 

not go to all of the people that do not have health insurance, those 

who work for companies without this benefit—waitresses, and construction workers. And then, even in the companies that provide 

insurance benefits are at the high end who received gold-plated insurance plans receive the greatest amount of the tax benefits. 

Now, when we put this idea out here, it wasn’t that this was the 

be-all or the end-all, or that this was the solution to all of the 

tjames on DSKG8SOYB1PROD with HEARING

13 

health care problems, or the solution to getting more insurance to 

those that are uninsured. But it was a step in the right direction. 

I was hopeful that people on both sides of the aisle would say, 

this is something we can work with, this is a benefit that is really 

quite regressive, this is unfair in many ways, and it could make a 

difference if we work together toward getting more insurance to 

more people who need it. 

It did not work that way, but I just make the point that this year 

and in the years ahead, when you grapple with this issue, there is 

a significant pot of money there that is being allocated in a way, 

that I think is not optimal. I think it is being misallocated, and we 

look at the revenues, this is something to work with. 

On your last point on stimulus, let me just say something there, 

because I too think the bipartisan agreement with the House was 

a very important step, and I think it does a lot for individuals and 

consumers. And I also need to say, making the tax cuts permanent, 

as important as that is to this President, our Administration, and 

all of us, was never part of a proposal on a stimulus package. From 

the day I first had conversations with the President, that was 

never in the package. That was on a separate track. 

But the starting point was what you did in 2001: was to make 

payments, the rebates, and have theme go to those who pay Federal income taxes. This was quickly broadened, and I think wisely 

so. But it was broadened to apply to working families, and with a 

big component of it going to children, through the child credit. 

And now, the Senate has been talking about extending it to lowincome seniors and disabled veterans, and our approach has been 

to say that we could work something out on that. So all of this is 

stimulus. It’s broad-based. 

And when you say, where is the compassion, I will tell you that for a working family that has $3,000 of earned income and several 

children, and that is going to be getting a check for at least $1,200. 

There is some stimulus, and I think there is real compassion. I 

think it is something that you all on this Committee can be proud 

of. 

Now, whenever you’re doing something on a bipartisan basis. 

And where there is compromises, there are going to be people on 

each side that aren’t entirely happy. Mr. Chairman, let me end on 

that note. Thank you. 

Chairman RANGEL. Mr. Levin? 

Mr. LEVIN. Thank you, Mr. Chairman. You are welcome, Mr. 

Secretary. We very much enjoyed working with you. You are here 

today, though, as spokesman, spokesperson, for the Administration, 

not as an individual. So, let me just say a few things that relate 

to the budget, and discuss a few issues. 

By the way, I think we should be careful in saying that those 

who have employer health coverage are privileged. They worked 

hard to get that coverage. If there hadn’t been a deduction, an exemption, there wouldn’t be health insurance today as extensive as 

it is. So, I don’t think they are privileged, and these policies aren’t 

gold-plated, in most cases. 

I am glad I read your testimony, that you don’t use the words 

that were in the State of the Union, that the ‘‘economic picture is 

uncertain.’’ That term was used by the President, ‘‘uncertain.’’ Betjames on DSKG8SOYB1PROD with HEARING

14 

cause I think there are certain things that are very certain. There 

are problems that are real. 

Also, I won’t ask you about some of the budget cuts, because 

they’re not really in your domain. Cutting out the manufacturing 

extension program, I don’t know how that fits into economic 

growth. Eliminating the COPS grants, cutting CDBG by over 30 

percent, cutting the water—the state water revolving fund by 20 

percent, safe and drug-free schools by two-thirds, I think those are 

essentially dissembling, and in some cases, disgraceful. 

But let me just—you are not here really to discuss that, the deficit—I don’t know of any economist who thinks that the President’s 

budget is going to lead to a surplus in the year 2012. But let me 

ask you about an item that is very much within your jurisdiction, 

or mention we have talked about China. 

I have read the latest report from the Treasury Department, and 

it says that the appreciation on a trade-weighted basis, the yuan 

has been 5.68 percent, trade-weighted, which I think is the accurate way to look at it. So, there is a long, long ways to go. I think 

you should expect this Committee to continue working on this, and 

working on this this year. 

Let me spend a couple of minutes, because you said in your testimony that the rebates can be—start in May and be completed this 

summer. If unemployment comp is extended, the payments would 

go out in February or March. You said before the Senate Finance 

Committee, I think, that there hasn’t been an extension when unemployment has been lower than 5 percent. 

Mr. Secretary, the number of people who have exhausted their 

benefits is twice what it was in the first month of the last recession. I read this, ‘‘The exhaustion rate for regular unemployment 

benefits today is higher than at the beginning of the last five recessions, going back to 1973.’’ 

So, I don’t know how you defend, simply by saying the unemployment rate is only 5 percent, when you have a basically historic 

level of exhaustion of benefits. A million and a half, or a million 

four hundred thousand people, it’s projected that another million 

four or five hundred thousand will exhaust their benefits in these 

6 months. 

So, how, as a spokesperson for the Administration, defend your 

adamant resistance to extending unemployment compensation benefits, when the exhaustion rate is at a historic high? At least in the 

last decades, with the last five recessions. I mean, speak as a 

spokesperson for the Administration. I don’t want to ask you how 

you feel, personally. A lot of us have come to know you, and I want 

to resist that, because you’re not here in that capacity. But how do 

you defend it? How do you defend that? 

Can you go to any state where a fifth or a quarter, a third of the 

people unemployed have exhausted their benefits and say, ‘‘We are 

not going to extend your benefits?’’ What would you say to them? 

Secretary PAULSON. Okay. Well, first of all, thank you Congressman. I guess you wanted me to comment on two things, you 

wanted me to comment on China and currency, and unemployment 

insurance? 

Mr. LEVIN. We can talk—yes, if there is time. The red light— 

we will talk more about the China currency. 

tjames on DSKG8SOYB1PROD with HEARING

15 

Secretary PAULSON. Oh, okay. 

Mr. LEVIN. I wanted just to point that out. 

Secretary PAULSON. Okay. On the unemployment insurance, I 

take your point. That there is a structural issue, and that there are 

more people that have been unemployed for an extended period of 

time. I understand that point. 

But, again, it is very simple. When you look at the current situation, not 5 percent, but 4.9 percent unemployment, we have a situation where unemployment in this country is low by any historical 

standard. I looked at 5.7 percent, that’s the lowest unemployment 

rate that it’s ever been when we have extended the benefits. 

Mr. LEVIN. Okay. Well, what do you say to this million-and-ahalf people now and a million-and-a-half people who have exhausted their benefits? What do you say to them when you strongly 

oppose the extension of—you say to them, ‘‘The national rate is 5 

percent?’’ What do you say to them? 

Secretary PAULSON. I understand there are different levels of 

unemployment in different states. We have a system in our country 

where there are people who have various programs aimed at dealing with their specific situation. 

I just think the signal we sending the wrong to the whole world, 

by extending unemployment benefits with the unemployment rate, 

at 4.9 percent. 

Mr. LEVIN. To the world? 

Secretary PAULSON. It is rather unusual, it is not to have unemployment of 4.9 percent? 

I am talking to a fair number of economists, who are giving me 

a hard time and saying, how is it we are moving too quickly with 

a stimulus package to throw money into the economy, and support 

the economy, at a time when it is not at all clear that we are going 

into a recession? 

They also say, Mr. Secretary, you have said you think the economy is going to continue to grow. So, my answer is that we are on 

this, we are going to have an aggressive stimulus plan that is going 

to give money to a lot of people who it will help. Again, in terms 

of the stimulus, I think rather than a few dollars a week, we are 

talking about giving people big checks, and giving it to them—— 

Mr. LEVIN. The unemployment check—my time is up—the unemployment check, in most states, would be considerably larger, 

and in many states, per month. So, you can’t say to the unemployed person who has exhausted their benefits, ‘‘We are going to 

give you $300, and that’s it.’’ 

Secretary PAULSON. The unemployed person is—it will be $300, 

unless that person has kids, in which case, he or she will receive 

more. 

Mr. LEVIN. Okay. 

Secretary PAULSON. The other thing I will say to you is that 

when this package was crafted, it did not have things that people 

on both sides wanted, but it came together with something that 

worked and would be stimulus. 

Mr. LEVIN. But we want an unemployment—— 

Secretary PAULSON. I am saying here that if the situation continues to deteriorate, as I hope it will not—and I do not expect the 

economy to get much worse—but if it does, then this will be a mattjames on DSKG8SOYB1PROD with HEARING

16 

ter that you will be discussing right here, and we will be discussing 

it with you. 

Chairman RANGEL. Mr. Burger? Mr. Herger, sorry. 

Mr. HERGER. Thank you, Mr. Chairman. Secretary Paulson, I 

want to thank you for appearing here today. I want to also thank 

you for your strong advocacy of free trade. 

As you know, we are the world’s number one trading nation. 

Some 4 out of 10 American employees, Americans, are affected or 

involved in trade, some 42 percent. Again, I thank you for your 

work in this area. 

With our current economic situation, I would like to ask you 

the—your opinion on some proposals that are before Congress. Last 

week, the Fed stated that our financial markets remain under considerable stress. Credit is tight, and inflation has been rising. 

Would it be in the U.S. interest to further upset the apple cart by 

applying anti-dumping, or counter-veiling duty laws to industrial, 

agricultural, or consumer goods to China to address any of our 

undervaluation of Chinese currency? 

We are all aware that the RMB needs to appreciate. But, given 

our economic uncertainty, would piling on additional economic 

shocks by raising tariffs on imports through dumping and countervailing duty laws by helpful or harmful to our economic interests? 

Secretary PAULSON. Congressman, I think a simple answer is 

it will be harmful, but it is more than a simple answer. Because, 

obviously, Congressman Levin has said—we all are focused on this. 

We all realize that we would like the Chinese to move quicker in 

appreciating their currency. We have been working hard to that 

end. 

They have recently begun to appreciate it much more quickly 

over the last year. In the last 3 months, it’s appreciated 4 percent. 

So, there is movement there, and important movement. Again, I 

think that although our objective is the same, the idea of putting 

tariffs on to deal with another country’s currency, as sovereign nations, would not be a wise thing to do, given what’s going on in the 

markets. I just think it is a dangerous course. 

Mr. HERGER. You have raised concerns about the unintended 

consequences of legislation that proposes significant changes to our 

trade remedy laws, particularly to address currency concerns. As 

you pointed out, such bills could lead to WTO problems and retaliations by our trading partners against U.S. exports. 

I am also concerned about copy-cat legislation that targets the 

recent weakness in the U.S. dollar. Given that our continued and 

strong export growth is crucially important to our economic growth, 

what kind of threat does retaliation and copy-cat legislation pose 

to our exports? 

Secretary PAULSON. Congressman, today, of course, we are 

more reliant on exports than I can remember at any time in the 

recent past. It is very important to us to keep markets open. So, 

I am a big proponent for trade. Again, when we look at how to deal 

with trade differences, I would say one route is negotiation, and we 

pursue that aggressively. Another is the dispute resolution procedures that the WTO has, and we pursue that very aggressively. 

I think it would be counterproductive for one nation to try to legislate another’s macro-economic policies, or currency policies. We 

tjames on DSKG8SOYB1PROD with HEARING

17 

are making progress, though. I would just simply say that in the 

IMF right now is much more active. I think the G–7 has also come 

together, and has taken a strong position on China’s currency. 

So, I think there will be more productive ways of moving ahead. 

But I just about everybody shares a common objective. So, going 

back to what we are just talking about, I would agree with you, 

that legislation is dangerous, and I think it could be counter-productive course. 

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

Chairman RANGEL. McDermott is recognized. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Paulson, it’s 

good to have you here. As I sit out there looking at you, I couldn’t 

help thinking of Colin Powell, going up to the general assembly, 

trying to sell the justification for the Iraq War. 

This budget, I look at it, and I try and figure out where is the 

war in all this. I see very little. So, I went back and did a little 

historical research. You look on the monitors, and you will see 

what revenue did during the Civil War. It went up to almost 14 

percent of gross domestic product. You look at the first world war, 

and the revenue went up to almost 24 percent of gross domestic 

product. Then, in the second world war, we went up to almost 45 

percent of gross domestic product. 

So, we were—in wars, we taxed. But then, if you look at the line 

for Iraq, all you see is it’s going down. I don’t understand how you 

could come up here with a budget—I mean, I try to imagine if you 

were Goldman Sachs and a company came in with their budget, 

and they left out a huge element of their operation, how you 

would—how you could evaluate them, when you leave out the war 

in the budget here. 

What is the reason? I mean, give us the explanation for the 

thinking that is going on in the White House that says, ‘‘We can 

leave the budget out of the war, just do that on the side,’’ and not 

have the revenue. I—explain that to me. 

Secretary PAULSON. I will give you a couple of explanations. 

First of all, to those who say there is no transparency, I disagree, 

because the number you see in 2009, the $70 billion, is a 

placeholder. That is all it is. We have been very transparent, by 

saying that that number is yet to be determined, and we are going 

to wait to hear what General Petraeus says, what the other advisors are going to recommend. Everyone knows that number is 

going to be substantially bigger. 

I read where Secretary Gates gave a very, very rough estimate 

yesterday in his testimony, so I would—— 

Mr. MCDERMOTT. But the Republican candidate leading for 

President says we’re going to be in Iraq for 100 years. 

Secretary PAULSON. Okay. 

Mr. MCDERMOTT. So, you’re telling me about 1 year, there is 

a placeholder for 2009. What about the long-term layout of that? 

Secretary PAULSON. Well, I think that is something we all have 

to expect that there will be a number there for a while. That is an 

uncertainty. But that is—there is no mystery. I mean, there is no 

hiding the ball. It’s just a number that hasn’t been determined yet. 

So, again, here is how I think about the budget question. The one 

thing we can all take some comfort in is that, despite the cost of 

tjames on DSKG8SOYB1PROD with HEARING

18 

this war and despite some of the other unforseen costs like hurricanes and so on, people on both sides of the aisle—all of us—have 

been surprised on the upside with the rate at which revenues have 

been coming in. 

Even last year, when I thought maybe for the first time it would 

not beat our estimate, revenues came in quicker. So, the short-term 

deficit, the deficit we closed the year with, was, as a percentage of 

GDP, a very small number. It was 1.2 percent. 

So, the questions we are dealing with are really—the longer-term 

questions, or the entitlement questions, which are very serious 

questions—and I appreciate your frustration at not being able to 

pin down the cost of the war, but you know what it is this year—— 

Mr. MCDERMOTT. I just want to—let me just—my time is escaping here. 

Secretary PAULSON. Right. 

Mr. MCDERMOTT. I want to say one other thing. What I don’t 

understand about Republican fiscal policy is I arrived in Congress 

at 1988, at the end of the glory years of Reagan. I sat through the 

mess of the Banking Committee of the savings and loan crisis. 

Now, 20 years later, we’ve got the great Bush Administration 

practically out the door with the housing crisis. If you can believe 

these business magazines, this is ‘‘Business Week,’’ and it says 

there is a meltdown, worse to come, a 25 percent drop in housing 

prices. What is it about a Republican ability to manage the economy, that they always leave a problem on the doorstep when they 

leave? What is that? 

Secretary PAULSON. I don’t know if that’s a rhetorical question. 

If you want an answer, I—— 

Mr. MCDERMOTT. I would like an answer. 

Secretary PAULSON. I would essentially say that what we see 

going on here, in my judgment, has been building for a long time. 

For years we have seen housing prices appreciate at levels that are 

unsustainable. So, you are getting a necessary correction. 

Now, I read very carefully. I got that magazine, I read it, read 

the article. There are all kinds of projections, in terms of what may 

or may not happen. But there is no doubt that this housing correction is the biggest risk to our economy right now, and it is something we are very much focused on. 

Mr. MCDERMOTT. Thank you. 

Chairman RANGEL. Mr. Camp? 

Mr. CAMP. Thank you, Mr. Chairman. I want to thank you, Mr. 

Secretary, for being here to talk about the revenue proposals and 

the President’s budget, and I just wanted to get back to that for 

a minute. 

As one who supported the stimulus bill, I want to commend you 

for working with us in the House in a bipartisan way. This bill received the support of virtually everyone on this Committee—nearly 

everyone—but I think it will quickly deliver relief to American families and job providers, and I just want to wish you good luck with 

the Senate on that. 

As one who supported the stimulus, I worry, though, that if we 

only focus on the next quarter, and risk ignoring economic trends 

for the next decade, how we continue to get the U.S. economy to 

tjames on DSKG8SOYB1PROD with HEARING

19 

grow and to be competitive and create jobs, I think we need to examine the Tax Code’s fundamental flaws. 

In 1960, America was home to 20 of the largest corporations in 

the world; 30 years later, we were only home to 8 of those companies. I think the reason being partly that virtually every industrialized nation has reduced tax rates, leaving the United States with 

the second highest corporate rate in the world. 

I commend the President for calling on Congress to make permanent the 2001 and 2003 tax cuts. Those reduced rates provided 

marriage penalty relief, relieved us of the death tax, lowered taxes 

on savings and investment. Revenue to the treasury flowed, and 

the economy grew. 

But in addition to those permanent reductions, I think we need 

to reduce the corporate tax rate, say to the average of the OECD, 

at 31 percent. Then the U.S. can really compete for jobs. With that 

increased investment, we would see job growth. 

Since it has been 20 years since Congress really looked at comprehensive tax reform, really a comprehensive plan to lower taxes 

and streamline the Code and lower the tax burden, I wish that I 

had seen the Administration take a chance to really push for fundamental reform. 

But I have two questions for you. One, what are the Administration’s views for achieving long-term economic growth? Two, using 

the power of the Tax Code to increase the number of people with 

health insurance is critically important. I think those ideas are essential, that—not just for those that already have employer-provided insurance. 

So, under the President’s plan, how many more Americans do 

you estimate would have insurance? 

Secretary PAULSON. Congressman, we estimated 8 million 

Americans would have insurance under the President’s plan. I 

would also say, going back to what Congressman Levin said about 

all of those who have health insurance, who are working for corporations, that they are not just privileged, and that they have 

earned this, and I could not agree more. I am all for employer 

health insurance plans. I think they’re good things, and they’re important. 

I am just saying that this is a big pot of revenues we have to 

work with, and we think about doing things more equitably and 

getting some of the things that we would all like to achieve. Yes, 

you are right, this would, we think, add at least 8 million people 

who are uninsured to the insured rolls. 

Mr. CAMP. Then, what do you think about economic growth in 

the long term? I appreciate the short-term work on the stimulus, 

and—— 

Secretary PAULSON. The long-term is what is important, and I 

am going to just build off what you said, because we at the Treasury Department have done, and are doing, a lot of work to document something, which I think this Committee has to increasingly 

be focused on, and that is economic growth and corporate taxation. 

Of course, we need taxes, you need tax dollars, everybody knows 

we need revenues. So, the questions with taxes are really what percentage, how big should taxes be, as a percent of our overall econtjames on DSKG8SOYB1PROD with HEARING

20 

omy, and then what form of taxes will give us the most growth, 

will give us the most jobs? 

The corporate taxes, I believe, are among the most expensive revenues we raise, in terms of what they do to jobs and growth, and 

to inhibit them. What we’re finding is that other countries are reducing their rates below ours. We are becoming a relatively high 

taxer. 

But even more important to me is that their form of taxation is 

changing in ways in which it is more conducive to growth, while 

ours is antiquated. And, the trend is going in the way those countries that are continuing to reduce their taxes. 

So, how do we think about this? Although I do believe that reducing the headline rate for corporates will make a difference, I do 

not believe it is as simple as just reducing it by a few percentage 

points. I think we need to take a really fundamental look at all of 

this. 

Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman. 

Chairman RANGEL. The chair recognizes Mr. John Lewis, of 

Georgia. 

Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. Mr. Secretary, thank you for being here today, and thank you 

for your service. 

You said in your testimony that working through the current 

stress on the economy is your top concern. I don’t think it takes 

much for us to know and realize that the economy is tanking. It 

is not good. 

The American people are scared. They are worried. They are 

hurting. They are losing their jobs, their health care. They cannot 

afford to send their young people to college. I want to know, do you 

think that this budget, with the same, old, worn-out ideas is the 

best medicine right now? Is this the best prescription for our economy? Will extending the 2001 and the 2003 tax cut help the thousands of our citizens in a city like Atlanta that are losing jobs? 

Just a few days ago, a company opened a store in Atlanta for 400 

jobs. More than 7,500 people showed up. Another major company 

headquartered in Atlanta laid off 500 individuals out of its headquarters. 

Where do we go? I do not see the sense of urgency. 

Secretary PAULSON. Congressman—— 

Mr. LEWIS OF GEORGIA. Another thing, Mr. Secretary. You 

know, the budget should be a reflection of our values. I just don’t 

see it. I don’t feel it here. I would like for you to sort of—— 

Secretary PAULSON. Okay. 

Mr. LEWIS OF GEORGIA [continuing]. Give me some sense that 

I can feel a little bit better. 

Secretary PAULSON. Okay. Well. First of all, Congressman, let 

me say that you are right, the economy is slowing. I would—— 

Mr. LEWIS OF GEORGIA. Are we in a recession right now? 

Secretary PAULSON. I don’t believe we are, no sir. I think we 

are slowing, and I hoped you would have sensed a sense of urgency 

with the stimulus plan. 

Mr. LEWIS OF GEORGIA. But some people saying that the 

stimulus package is good. 

Secretary PAULSON. Right. 

tjames on DSKG8SOYB1PROD with HEARING

21 

Mr. LEWIS OF GEORGIA. But it’s a little too little too late. 

Secretary PAULSON. Well. Again, I appreciate your view on 

that. I would say there are plenty of people on the other side that 

say boy, this is almost unprecedented, getting here as soon as it 

slows down, while we are still growing. It is unprecedented to move 

quickly with that. 

Then, I would say, in terms of the budget, these are complex, 

comprehensive issues, and there are many tradeoffs. There are programs in the budget that I am sure you like, there are others you 

would like to be bigger. 

Even on the tax issues, because there has been a lot of conversation about the Tax Code and making the tax relief permanent, as 

I look at it—and, again, I was not here to participate in that—I 

think those were great actions. 

But as you look at this, as you look at lower-income people, I see a family of four making up to $42,000 and not paying Federal income taxes. I look at what has happened with the child credit and 

earned income tax credit. 

So, in terms of tax relief at the low end, I see that as being very 

meaningful. Five or six million people who are not paying Federal 

income taxes right now as a result of what has been done, which 

I think is something that we can all be pleased about, and be proud 

of. 

Mr. LEWIS OF GEORGIA. But, Mr. Secretary, something went 

wrong. The previous Administration created more than 23 million 

new jobs. People were doing very well. Now people are losing their 

jobs, people are not doing very well. People are owning and buying 

homes, especially minorities—Spanish, African Americans, and others. Something went wrong with this Administration, and with the 

previous budget and this budget that you’re proposing now. 

Again, I ask you, is this good medicine? Is this a good prescription for our economy? 

Secretary PAULSON. I think the best thing we can do for our 

economy is everything we can to keep it growing, because for those 

people who are struggling, and struggling to make ends meet, their 

situation becomes worse if our economy is not growing and we are 

not creating jobs. 

We have created jobs for 52 straight months. Last month, for the 

first time, we had a slight decrease in jobs. Who knows whether 

that will be restated or not; December’s numbers were restated up. 

Overall we are increasing jobs. We need to keep the economy growing, and I think that is very important to the economy. 

Again, I am hoping that the stimulus package will help. I am 

working very hard on this to prevent avoidable foreclosures, and 

working very hard with our HOPE NOW alliance to help all those 

homeowners, many of them in inner cities who were put into mortgages that were not explained properly, and who were in danger 

of not being able to keep their mortgage if their rates move up. I 

think we have a program that is going to be more effective than 

many people believe in dealing with that, in fast-tracking those 

mortgages into modifications that will often result in interest rate 

freezes. 

So, we are doing what we can to deal with the problems that you 

see out there. 

tjames on DSKG8SOYB1PROD with HEARING

22 

Mr. LEWIS OF GEORGIA. Well, thank you, Mr. Secretary. My 

time has expired. Thank you. 

Chairman RANGEL. Mr. Johnson from Texas. 

Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate it. I appreciate you being here, Mr. Secretary. I would like to talk to you 

about a problem in the Tax Code that has come to my attention, 

and see if it is something that you agree we ought to try to fix. 

Back in 1989, a section of the law was written to require cell 

phones to be used more than 50 percent for business purposes. If 

you remember, in 1989 cell phones had a battery the size of a car 

battery, and the phone itself was about as big as this thing here. 

Air time was expensive. 

Clearly, time and technology have marched on, and companies 

have given employees cell phones and Blackberries with unlimited 

minutes, and these communication devices are really just an extension of the business day and place to anywhere, anytime. Because 

air time minutes are often unlimited and are free after certain 

hours—and free, sometimes, during the day—employers generally 

have no interest in keeping track of employees’ cell phone or Blackberry use. 

Yet, the IRS is at it again. They’re after us. The dadgum auditors 

are questioning employers’ normal and ordinary business deductions for cell phones and Blackberries, because employers have not 

been keeping records on employee cell phone or Blackberry use. 

The IRS wants employers to track employees, or be forced to give 

up the normal deduction. 

Right now, the law does not require employers to track use of the 

phone at an employee’s desk, or the use of e-mail or computers for 

personal purposes. I think the law needs to be changed to bring it 

up to date, with the fact that their office, cell, and Blackberry is 

just an extension of their desk phone and computer. 

Secretary Paulson, don’t you think it’s time to modernize our tax 

laws, so that employers are not required, for tax purposes, to track 

personal cell phone use of their employees when there isn’t any 

charge involved anyway, generally speaking? I will be introducing 

a bill on this point in the next couple of days, and I would appreciate help from you guys on the Committee, if you want to join with 

me. Would you comment on that, please? 

Secretary PAULSON. Congressman Johnson, it sounds like the 

right idea to me, and I appreciate your leadership on that. 

Mr. JOHNSON. Well, you know, we’ve been after the IRS for as 

long as I have been up here. They keep harassing people. That’s 

their only job, it seems like, and we need to stop them if we can. 

I would like to ask you also, we saw an increase in Federal receipts, a 6.9 increase, to a total of $2.5 trillion, and this is on top 

of fiscal year 2006, 11.7 increase. Over that 2-year span, spending 

grew by 5.2 percent per year. 

I would like to know if we can continue rapid spending increases, 

given the future demands represented by the aging of the Baby 

Boomers, and to Social Security/Medicare eligibility, and still expect our revenues to cover our costs. 

Secretary PAULSON. The answer to that, as you know, is of 

course not. We have been surprised for some time at the rate at 

which revenues have been growing. That is a very good thing. 

tjames on DSKG8SOYB1PROD with HEARING

23 

But when you look at what we have staring us in the face, there 

is a huge issue coming. It is one that I know every Member of this 

Committee understands, and I know the Chairman and the Ranking Member would like to do something about it. And, I hope at 

some time in the not-too-distant future, it will get worked out. 

Mr. JOHNSON. Yes. I can tell you for sure the Chairman is interested in fixing Medicare, Medicaid, and Social Security. Thank 

you so much. I yield back. 

Chairman RANGEL. I would like to recognize Mr. Richard Neal. 

If he hears anything at all from the White House of how we can 

reform the corporate tax legislation, you let me know. 

Mr. NEAL. Thank you. 

Chairman RANGEL. Mr. Neal. 

Mr. NEAL. Thank you very much, Mr. Chairman. Mr. Secretary, 

I’ve listened to Secretary O’Neill, and Secretary Snow, and Secretary Paulson tell this Committee, and tell the American people, 

what a serious problem alternative minimum tax is, and how we 

have to deal with it. We always get the same answer, as the clock 

runs down. ‘‘Let’s borrow the money.’’ How much have we borrowed 

now to patch AMT since 2001? 

Secretary PAULSON. I do not have the numbers here, in front of me, but I know the cost this year is roughly $60 billion, and—— 

Mr. NEAL. What was it last year? 

Secretary PAULSON. It was much the same, I think it was $56 

billion. 

Mr. NEAL. Okay. What is the interest on that, over a 10-year period? Does $29 billion sound as though it might be in the ballpark? 

Secretary PAULSON. You would have to tell me if it is in the 

ballpark. I can get the number for you. 

Mr. NEAL. We rely upon you to give us that sort of an answer, 

Mr. Secretary. 

Secretary PAULSON. I think we have been pretty clear with you 

in saying—— 

Mr. NEAL. You’ve been clear about the fact there is a problem, 

you haven’t been clear about the fact that we need to get an answer. 

Secretary PAULSON. We have been clear about the answer. The 

answer was, patch it quickly, don’t raise taxes. You ultimately did 

it. It took throughout the year to do it, but it got done. There was 

a lot of uncertainty that was inflicted on the American people. I 

think this year we should all get together and agree we are going 

to patch it quickly, and then deal with the bigger issue. 

I really do think the bigger issue is one you would agree with. 

This needs to be looked at in the context of the bigger question of 

entitlements. 

Mr. NEAL. If I might interpret what you’ve said, then you’re 

suggesting that we all ought to get together early on and borrow 

the money. 

Secretary PAULSON. It is in the budget, right. 

Mr. NEAL. Well, I just want to get that part of it correct. We 

should get together and borrow the money to fix AMT. 

Secretary PAULSON. I wouldn’t say it exactly that way. You 

can—— 

tjames on DSKG8SOYB1PROD with HEARING

24 

Mr. NEAL. Well, is there another way to say it? 

Secretary PAULSON. I would say that the AMT is an unintended tax. It is unexpected by many taxpayers. There would be a 

lot of Americans who would have been hit hard, and would have 

been surprised by that tax had it not been patched. So, I think we 

have been pretty transparent, and Congress and the Administration together have passed a patch one year at a time. 

Mr. NEAL. Mr. Secretary, I have great personal regard for you. 

Secretary PAULSON. Thank you. 

Mr. NEAL. There are only two options here. One, to pay for it, 

or two, to borrow the money. Which one are you suggesting. 

Secretary PAULSON. I do not think it is that simple, to pick one 

area out of the budget. But there is no doubt, though, that we do 

not want to raise taxes to pay for it this year, and we want to be 

very clear on that. 

Mr. NEAL. Well, you will forgive me for suggesting that I don’t 

think you were very clear on it. 

Secretary PAULSON. Well—— 

Mr. NEAL. Now, let me ask you another question. 

Secretary PAULSON. You do not think it is clearly in the budget, that—— 

Mr. NEAL. I think it’s clearly in the budget, but you’re suggesting we borrow the money, Mr. Secretary. 

Secretary PAULSON. We borrow the money to pay for a whole 

range of things, and we have revenues coming in. 

Mr. NEAL. All I need you to say is you’re suggesting we borrow 

the money. 

Secretary PAULSON. I am suggesting that we are going to have 

a deficit this coming year, and that the deficit will be larger than 

the cost of AMT. 

Mr. NEAL. Well, my sense is that when you were running a 

major company in the boardroom, you were much more direct than 

you’ve been today. 

Now, let me ask you this, Mr. Secretary. As a percentage of the 

$410 billion projected deficit this year, could you inform the Members of this Committee what percentage of those deficits are due 

to the Bush tax cuts? 

Secretary PAULSON. I think that would be a very difficult thing 

to do, and I will tell you why, that—— 

Mr. NEAL. Well, one third. Does that sound good? 

Secretary PAULSON. No. I will tell you why I think it would be 

difficult, because I think all of us have been surprised at the rate 

at which revenues have been coming into the economy. 

And so, I do not think static economic analysis paints the whole 

picture. I would never argue to you that the tax cuts entire pay for 

themselves. But I would say to you that economists struggle to understand why the revenue growth has been so significant, leaving 

us with a deficit of only 1.2 percent of GDP at the end of this last 

year. 

Mr. NEAL. Mr. Secretary, Mr. McCain’s chief economic advisor, 

who was well regarded in this Congress for his clarity and for his 

integrity, has suggested that tax cuts don’t pay for themselves. Are 

you in agreement with that? 

tjames on DSKG8SOYB1PROD with HEARING

25 

Secretary PAULSON. I would say that they don’t pay for themselves entirely, that’s right. 

Chairman RANGEL. Thank you, Mr. Secretary. Mr. Secretary, 

former Chairman Greenspan said the only reason he supported the 

tax cuts is because he assumed—and that’s what he said—that we 

would cut programs by the same amount. 

Do you agree with that statement that he had in his recent book? 

Secretary PAULSON. I have no idea what he was assuming, and 

what he supported or did not support. I would just simply say to 

you that when I was in the private sector, I watched the economy 

respond to the tax relief. I watched the economy respond, I watched 

the markets respond. 

All I can say to you is that revenues have poured in faster than 

CBO projected, faster than Democrats or Republicans projected 

they would have come in, and it is remarkable. It is remarkable 

that we could be paying for the cost of the war, funding the recovery from the hurricanes, and have the deficit at only 1.2 percent 

of GDP at the end of—— 

Mr. NEAL. Mr. Chairman? 

Chairman RANGEL. Yes? 

Mr. NEAL. Would you yield? 

Chairman RANGEL. Yes. 

Mr. NEAL. Are we paying for the cost of the war, or are we borrowing the money for the cost of the war? 

Secretary PAULSON. I would say to you that the cost—— 

Mr. NEAL. Mr. Secretary, are we going to be asked again to borrow money before the year is out for the war in Iraq? 

Secretary PAULSON. We are going to be asked to borrow money, 

and I would say—— 

Mr. NEAL. That’s my point, Mr. Chairman. 

Secretary PAULSON. But are you surprised that the deficit is 

1.2 percent of GDP? 

Mr. NEAL. If you consider how the American economy has grown 

for the last 20 years, no, I am not. What I am arguing is that the 

theology that is frequently purported to be fact doesn’t square with 

the numbers when we project a $410 billion deficit for next year. 

When the Administration came to authority in 2001, we were 

projecting trillions of dollars of surplus. Granted, the events of 9/ 

11 set us back, but the failure to acknowledge the role that the tax 

cuts have played with those deficits doesn’t stand up under the 

magnifying glass, Mr. Secretary, that’s my point. 

To say that—to say here that we’re paying for the war, when the 

truth is we’re not paying for the war, we’re borrowing the money 

to pay for the war. 

Secretary PAULSON. Well, I think you understood my point, 

that despite that cost, the deficit, as a percentage of GDP, is relatively low. 

Now, I think the thing that you are in agreement with, and everyone on this Committee is in agreement with, is that we have a 

serious budget issue staring us in the face, and I am not making 

light of that. I think it is a very significant one, and I think it is 

one that has to be dealt with, and that’s entitlements. 

Mr. MCCRERY. Mr. Chairman? 

Chairman RANGEL. Mr. McCrery? 

tjames on DSKG8SOYB1PROD with HEARING

26 

Mr. MCCRERY. Will you yield? 

Chairman RANGEL. Yes. 

Mr. MCCRERY. Thank you. In response to Mr. Neal’s question 

about how much the tax cuts represent, as a share of the deficit 

this year, I have a fact that is very interesting. It doesn’t necessarily answer your question completely, but it is relevant. 

Back in the year 2000, in January of 2000—this is before George 

W. Bush was President, before the tax cuts—CBO, in their estimates, said that in the year 2007, revenues would be $2.572 trillion. That was their projection before the tax cuts. The actual revenues for 2007, last year, came in at $2.568 trillion. That is a difference of $4 billion. 

So, if you just look at the revenues that were projected, and the revenues that actually came in, only $4 billion of last year’s deficit 

was due to the tax cuts. It’s a fact. I mean, those are facts. 

Mr. NEAL. Would the gentleman yield? 

Mr. MCCRERY. Sure. It’s not my time, but I’m sure the Chairman would. 

Chairman RANGEL. It’s Mr. Weller’s time. 

Mr. WELLER. May I claim my time? 

[Laughter.] 

Mr. MCCRERY. We will talk. 

Chairman RANGEL. Mr. English is recognized for 5 minutes. 

Mr. ENGLISH. Thank you, Mr. Secretary. Mr. Secretary, thank 

you so much for coming forward. We appreciate the Administration 

has put together a difficult budget. It’s one where I disagree with 

some of the particulars. But I recognize that you have been attempting to deal with broad parameters, including dealing with a 

broader fiscal situation, tackling our deficit, and, at the same time, 

providing the right fiscal mix to deal with our current economic circumstances. 

Now, Mr. Secretary, you were instrumental in the development 

of a stimulus bill which has come through. The premise of that 

stimulus bill, which most of the House supported, was that right 

now we need a fiscal stimulus to provide a tonic against a potential 

recession. 

Now, one of the main features of your budget, I think, is a natural follow-on of that stimulus policy, which is to say you have 

made an effort to extend, from the immediate future, a massive tax 

increase that was accepted for the future, as part of the budget 

that passed the House last year. 

We have heard, on the Joint Economic Committee, testimony to 

the effect that this looming, large tax increase has played a significant role in creating the environment where, clearly, there is a falling off of growth, and a legitimate concern about a recession. The 

looming tax increase has contributed to the environment that may 

be creating a recession. 

You are a long-time observer of the economy and of Wall Street. 

Can you comment on the importance of making it a priority in the 

budget to push into the future tax increases that were incorporated 

into the last budget, as a consistent policy to provide confidence 

that we’re not going to do the wrong thing, and allow the last decade’s tax rates to be imposed on an economy that may be softening? 

Your comment, Mr. Secretary? 

tjames on DSKG8SOYB1PROD with HEARING

27 

Secretary PAULSON. Yes. Congressman, clearly I believe that 

certainty is something that is valuable. And certainty helps businesses plan, it helps them make the decisions they need to make. 

I clearly believe that when you look at the intermediate term and 

the longer term, the most important thing is our long-term tax policy, making that relief permanent. 

But we were able to separate that track, because that is on a different track from the stimulus, which we are very much focused on 

this year. 

Mr. ENGLISH. I understand that also, as part of your budget, 

the Administration has made a concerted effort to identify programs that no longer represent the priorities or the function that 

they were originally designed for, that the Administration has done 

something unusual in Washington, and that is, try to weed out programs that may still have political constituencies, but no longer 

represent the spending priorities that Congress originally embraced. 

Would you care to comment on that, and the importance of 

prioritizing and cutting spending, as part of our overall budget 

strategy? 

Secretary PAULSON. I think that is a very, very important 

point. There are two sides of any budget. There is the revenue side, 

and there is the outlay side. They are equally important, and it is, 

I think, very important to focus on outlays, and focus on spending. 

Again, there is discretionary spending and non-discretionary. 

One thing that hits any observer who looks at the budget for the 

first time is the increasingly smaller portion of the budget that is 

discretionary, and how much of it is mandatory. This again brings 

you to the need to deal with some of the entitlement outlays that 

are baked into our fiscal picture. 

Mr. ENGLISH. Mr. Secretary, I am running out of time, but, 

again, I want to thank you for the effort that you have made to 

bring a blueprint to the House that can form at least the basis of 

our kick-off of deliberations on what I think could be perhaps the 

most important budget in a decade. Thank you, Mr. Chairman. 

Chairman RANGEL. Thank you. The chair would like to recognize Mr. Becerra, from California. 

Mr. BECERRA. Thank you, Mr. Chairman. Mr. Secretary, good 

to have you with us. Let me focus on these—on the tax side of 

things here a bit. We all have to make our choices, delineate our 

priorities. 

I know the President, in his budget, calls for the permanent extension of his 2001 and 2003 tax cuts. My understanding is that 

if you were to calculate those into a 10-year budget window, we are 

looking at about $2.2 trillion for the cost of those tax cuts. When 

you add in the debt service—in other words, the interest that you 

would have to pay because we would have to borrow the money to 

do those tax cuts that go mostly to wealthy folks, it would be about 

$2.6 trillion over the next 10 years, if we did nothing to the AMT. 

So, in other words, if we allow 20-some-odd million Americans to 

get hit by the alternative minimum tax, those would be the costs 

of the Bush tax cuts to be extended. 

Now, I think most of us believe—and you just had a conversation 

with Congressmen Neal about the President’s proposal to provide 

tjames on DSKG8SOYB1PROD with HEARING

28 

a patch, a safe harbor for tens of millions of Americans from being 

hit by the alternative minimum tax. 

So, that, if we were to continue to do that over the next 10 years, 

the cost of the Bush tax cuts that go principally to wealthy folks 

would actually go beyond the $2.2 trillion, or the $2.6 trillion over 

10 years, to actually over $3.5 trillion in cost to the treasury to extend the Bush tax cuts that are principally geared toward wealthy 

folks over the next 10 years. 

My question to you is in the President’s budget, which you are 

defending, it seems you have made a choice. You provide for a permanent extension of the President’s tax cuts that are aimed principally toward wealthy folks. More than a third of those tax cuts, 

for example, will go to just the top 1 percent of America’s wealthy 

people. 

Whereas, in the President’s budget, the President, over this next 

5 or 10 years, doesn’t call for a permanent fix to alternative minimum tax that hits middle-income families, it calls for just a 1-year 

patch. 

So, a decision was made in the President’s budget—I suspect 

with his advisors all talking about priorities—and a priority, I 

guess, was made. It was more important to provide tax relief to the 

wealthiest Americans at the cost of $2.5 trillion to $3.5 trillion, depending on how you calculate it, as opposed to providing tax relief 

to the tens of millions of Americans in the middle, who will get hit 

by the alternative minimum tax, so that relief for them would be 

provided for only 1 year, but relief for our wealthiest citizens would 

be provided permanently. Did I misstate that? 

Secretary PAULSON. Yes, sir. I think you did. So, let me—— 

Mr. BECERRA. As quickly as you can, because I want to go on 

to something else. 

Secretary PAULSON. Okay. I will then say pretty clearly that I 

think when you look at the tax relief that we would like to make 

permanent is and at the Tax Code right now, I don’t think the Tax 

Code has ever been more progressive. 

Mr. BECERRA. Okay, Mr. Secretary, let me stop you. Tell me— 

let me just—because I know we could have a philosophical disagreement, but let me ask this. The budget, the President’s budget, 

does call for the extension of the 2001 and 2003 Bush tax cuts. 

Secretary PAULSON. You bet it does. 

Mr. BECERRA. Okay. 

Secretary PAULSON. And—— 

Mr. BECERRA. The President’s budget only calls for a 1-year 

patch to the alternative minimum tax. 

Secretary PAULSON. Yes. What the President’s budget says is 

let us fix the AMT this year—— 

Mr. BECERRA. Okay. But let me—— 

Secretary PAULSON. Okay. 

Mr. BECERRA. Rather than we get into philosophical—— 

Secretary PAULSON. Okay. 

Mr. BECERRA [continuing]. Let’s just talk facts. 

Secretary PAULSON. Okay. 

Mr. BECERRA. So, the President’s budget provides for a permanent extension of the Bush tax cuts. I won’t categorize them as for 

the wealthy. Just facts. 

tjames on DSKG8SOYB1PROD with HEARING

29 

Secretary PAULSON. Yes. Okay. 

Mr. BECERRA. The Bush tax cuts of 2001 and 2003 would be 

permanently extended. 

Secretary PAULSON. Right. 

Mr. BECERRA. The relief for middle-class families that are going 

to get hit by the alternative minimum tax would be provided—extended for 1 year, the relief, in the President’s budget. 

Secretary PAULSON. It is for 1 year—— 

Mr. BECERRA. Okay. 

Secretary PAULSON [continuing]. The AMT patch, and then 

we—— 

Mr. BECERRA. Okay. So, those facts are correct. 

Secretary PAULSON. But we—— 

Mr. BECERRA. Now, how you characterize them could be differently portrayed by the two of us. So, rather than get into that 

with you, we can let others, then, decide what that means—— 

Secretary PAULSON. Okay. 

Mr. BECERRA [continuing]. In terms of extending the Bush tax 

cuts, versus extending, permanent relief under AMT. 

Let me go to another issue. Do you—I know that this isn’t within 

your sphere, as a Secretary in Treasury, but do you believe that, 

by the end of this year, that the President will have removed all 

of our troops from Iraq? 

Secretary PAULSON. I am not going to speculate how many 

troops will be in Iraq—— 

Mr. BECERRA. Okay. Well—— 

Secretary PAULSON [continuing]. But I think the President has 

been pretty clear, and I think all knowledgeable observers are pretty clear that we are going to need a presence in Iraq for some time. 

Mr. BECERRA. Well, since my time has expired, I won’t ask the 

question, but just make the final point. We are spending about $10 

billion a month right now in Iraq, Afghanistan. The President 

clearly says he’s not going to try to remove the troops any time 

soon. 

Your budget calls—or the President’s budget—provides $70 billion—that’s 7 months of spending—for Iraq, total, for all of fiscal 

2009, and does nothing over the 5 or 10 years to account for any 

cost for Iraq, Afghanistan, or anything else. 

So, I was going to ask, but I will just make the point it seems 

to me that not only did you low-ball the estimates, but you’re playing hide and seek with the American public on this. Because to not 

account for the cost of a war which the President doesn’t seem to 

want to end is to mask the out-year cost to the American people 

of the President’s proposal. 

So, there is no way you balance your budget in 2012, if you don’t 

even account for the cost of the war in Iraq, Afghanistan, and anywhere else we may go in. So, again, rather than try to characterize 

politically and otherwise, I thank you for your time. Mr. Chairman, 

I thank you for yielding me the time. 

Chairman RANGEL. I thought you would want to have a chance 

to respond. 

Secretary PAULSON. I will say what I said the last time the war 

came up, which is, again, I do not think there is a lack of transtjames on DSKG8SOYB1PROD with HEARING

30 

parency. We know that the number next year is going to be greater 

than $70 billion. 

Mr. BECERRA. So, why isn’t it in the budget? 

Secretary PAULSON. That is because we don’t know what the 

number is. And—— 

Mr. BECERRA. But you know it’s going to be—— 

Secretary PAULSON. It will be greater. So it is pretty clear, that is a challenge. The number will be greater than $70 billion, and it 

will get filled in this spring. 

Mr. BECERRA. Mr. Secretary, I have never seen a family have 

to budget the way that the President is budgeting for America. 

Chairman RANGEL. It’s my understanding, Mr. Secretary, that 

the views expressed by you are not necessarily your views, but 

those of the Administration. 

I would like to recognize Mr. Weller. We got to get back together 

in New York next year, you know. 

Mr. WELLER. Thank you, Mr. Chairman. Mr. Secretary, welcome. It’s good to have you before the Committee again. I have a 

couple of questions I want to ask you. 

But before I ask my questions, I do want to make a comment, 

and I want to begin by commending you and the President and others in the Administration for your leadership on moving forward 

the Colombian free trade agreement, our agreement with—between 

the United States and Colombia. 

You know, in Latin America, President Uribe is perceived to be 

the United States’s most reliable and strongest partner. He is the 

most popular political figure in Latin America. I think any president that has approval ratings of 60 to 70 percent, continuously, 

demonstrates that the people appreciate the progress he has made 

on reducing violence and extending the presence of a democratically-elected government to every municipality in the country. 

You have led congressional delegations, you have done a tremendous amount of work, and I want to commend you for that. I also 

want to note that that agreement is good for Illinois manufacturers, good for Illinois workers, good for Illinois farmers. I believe 

that we should ratify that agreement. So, I want to urge you to 

continue your efforts. 

All Latin America is watching how this Congress handles the Colombia and U.S. free trade agreement. I, for one, believe the consequences of failure to ratify this agreement will be a very longterm consequence, because of the perception and role that President Uribe plays in relationship to the United States. So, I want 

to urge you to continue that effort. 

My question here, Mr. Secretary—and my friend, Mr. Levin, 

talked about unemployment levels. You noted that our economy 

today is not in a recession, it’s in a—you know, the economic 

growth is slowing. You noted that unemployment this past month 

was 4.9 percent, which is less than the average rate of unemployment during the Clinton Administration, which I believe was, like, 

5.2 percent. You noted that Congress had never created an unemployment benefits program when the unemployment rate was this 

low. In fact, in 2002 it was 5.7 percent. 

My question for you, Mr. Secretary, do you believe that the existing extended benefits program that we have in place, which is trigtjames on DSKG8SOYB1PROD with HEARING

31 

gered according to the unemployment situation in each state which 

has a trigger, which provides more benefits, do you believe that 

that’s more adequate, if there is a slow-down in certain parts of 

this country that would cause unemployment to rise in certain 

parts of the country? 

Secretary PAULSON. I believe it is adequate today. I think that, 

as I have said earlier, if the situation worsens to the point which 

we are not projecting or expecting it to, it is something we should 

discuss and take up at that time. 

Mr. WELLER. But do you believe that the existing program is 

adequate? Do you think that we should look at the existing extended benefits program, and see what we can do to fine-tune the 

existing extended benefits program, rather than creating an additional extended benefit program on top of the one we already have? 

Secretary PAULSON. Yes. I would say if there were to be some 

action, that would be the way to go at this time. 

Mr. WELLER. Okay. I wouldn’t—you know, with the role I play 

on the Subcommittee with jurisdiction over unemployment insurance, I would welcome the ideas from the Administration that 

you—and I realize you’re not the Secretary of Labor—— 

Secretary PAULSON. Right. 

Mr. WELLER. But your compatriots within the Administration, 

if they can share ideas of how we can fine-tune the existing program to make it work better when there is an economic slowdown—again, today’s unemployment rate is 4.9 percent, and during 

the glorious years of the 1990s, it was, on average, 5.2 percent— 

so I would welcome those initiatives, and hope that you would 

share them. Thank you, Mr. Chairman. 

Chairman RANGEL. Thank you. Mr. Lloyd Doggett, of Texas. 

Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for your testimony. Though I disagree with many aspects of the policy, I do believe that this budget is an excellent reflection of the Administration’s true priorities. 

When it comes to energy policy, while the President did discover 

that America was addicted to oil, I think that this budget speaks 

much louder than any of his words. The budget embraces every single tax subsidy, tax preference, tax benefit for fossil fuels currently 

in our Tax Code, but it totally rejects even a 1-year extension of 

the tax credits for wind energy, or for biodiesel, or for solar energy. 

Of course, all of those would be in place and in law today, had 

it not been for the fact that, with the determined opposition of the 

Administration, you were able to hold us to 59 votes in the Senate, 

1 vote short of the super-majority necessary to move America in 

the direction of a sound, new, renewable energy policy, and rejected 

all of the work of this Committee in that area. 

I want to ask you, first, in contrast, the position that you have 

taken on the initiative that Mr. McCrery applauded that you and 

I had a bit of a disagreement on last year when you testified, and 

that is your health insurance tax proposal. 

If I understand that proposal—and I disagree with it on its merits—but one thing that I do applaud you on, as proposed in this 

budget, just as last year, is that it is a revenue-neutral proposal. 

It does not add anything to the national debt, does it, if we adopted 

your proposal in full? Is that correct? 

tjames on DSKG8SOYB1PROD with HEARING

32 

Secretary PAULSON. I think it sure is intended to—— 

Mr. DOGGETT. Right. 

Secretary PAULSON [continuing]. To be revenue-neutral. 

Mr. DOGGETT. The way you achieve that revenue neutrality— 

and this is what you and I got in a debate on last year, and you 

finally conceded the point—that in order to do what you think is 

a benefit, a positive step for 80 percent of the people that have 

these health insurance policies, and maintain revenue neutrality, 

you, as you said in your testimony, 20 percent of the people, about 

30 million or 38 million Americans, ‘‘will have the opportunity to 

restructure their insurance’’—and these are your words—‘‘or they 

will pay more taxes.’’ 

So, in order to get this health insurance program that Mr. 

McCrery and you applaud, and the Administration has endorsed, 

now 2 years in a row, you raise taxes on 30 million or 38 million 

people in order to maintain revenue neutrality. You tell them that 

their tax bill will be higher if they—or they can restructure their 

policy. They cannot follow that conduct. 

My question to you is, is there any offset that the Administration 

will accept for renewable energy, so we can comply with our PayGo 

rules and get renewable energy tax incentives? I understand you 

don’t want to do anything to the fossil fuel industry. Or, is the only 

renewable energy tax incentive policy that you will support, as an 

Administration, one that requires us to go out and borrow more 

money and incur more national debt? 

Secretary PAULSON. Congressman, first of all, thank you for 

your comments. There is no doubt that energy security is as big an 

issue as we have in this country. It ranks right up there with the 

entitlements issues we were talking about. So, that’s number one. 

Number two, I felt—and I think a lot of people did—that the energy bill that was done last year was a big step forward. So, you 

know—— 

Mr. DOGGETT. Well, we just couldn’t get your votes for it, 

though. 

Secretary PAULSON. Well, I have to tell you—— 

Mr. DOGGETT. I think the President applauds the objectives, he 

just doesn’t want to pay the cost of getting them. 

Secretary PAULSON. The other thing I would say to you is it is 

quite natural that people look to the Tax Code as a way to achieve 

certain objectives. But that runs counter to some of the things we 

would like to do to keep it simple. 

Mr. DOGGETT. I understand that. 

Secretary PAULSON. So—— 

Mr. DOGGETT. Just given that—of course, my 5 minutes is 

about to expire—let me rephrase the question again. 

Is there any way that this Administration will embrace these renewable energy tax credits, extending them without requiring us to 

go out and borrow the money to do it? 

Secretary PAULSON. I do not think what we should be doing 

right now is looking to raise taxes. So, I—— 

Mr. DOGGETT. So, you think the—so the answer is, in fact, that 

the only renewable energy tax credits this Administration will support—unlike your health insurance program, where you pay for it— 

tjames on DSKG8SOYB1PROD with HEARING

33 

the only ones you will support is if we borrow the money to provide 

those tax credits. 

Secretary PAULSON. I would say in health insurance we are 

going to be paying for it—— 

Mr. DOGGETT. But you don’t want to pay—you comply with 

PayGo on your health care, health insurance. 

Secretary PAULSON. Well—— 

Mr. DOGGETT. But you refuse to do it here. 

Secretary PAULSON. Well, let me say—— 

Mr. DOGGETT. If I might, Mr. Chairman, ask him one other 

very important point, because you have embraced the general approach in your legislation of what Secretary Paulson has done, in 

what I think was a remarkable conference about corporate tax 

changes. 

You said, in your background paper that you came and briefed 

our Committee on, that the resources, in terms of revenue foregone, 

spent providing narrowly tax provisions could be used instead, to 

provide sector-wide incentives for economic growth. 

It is unfortunate that this budget that you have to defend today 

totally forgot and rejected your approach. In fact, they not only rejected it and ignored it, they did just the opposite, because they 

proposed to extend at least one of the tax credits, permanently, 

that you said you would rely on to lower corporate tax rates. 

You were in favor of responsible PayGo—pay as you go—but this 

Administration has rejected it, not only for energy tax incentives, 

but for anything else. The only kind of tax relief it will support is 

relief done on borrowed money. I suppose there is no limit to how 

much money this Administration is willing to borrow and get the 

nation in hock for. Thank you very much. 

Chairman RANGEL. Mr. Brady is recognized for 5 minutes. 

Mr. BRADY. Thank you, Mr. Chairman. Good to see you, Mr. 

Secretary. 

I am not so sure that we should be jumping on this Administration about the alternative minimum tax. I know serving here in 

1999, a Republican Congress repealed the alternative minimum 

tax. Unfortunately, President Clinton vetoed that bill, saying it was 

tax relief for the wealthy. As we all know, it’s a real tax burden 

on more and more middle-class Americans. We would not be in this 

mess today, but for that veto. 

I also don’t think we ought to be jumping you about the war 

costs. 

Chairman RANGEL [continuing]. Impeachment—— 

Mr. BRADY. If I recall, this new Congress came in—do I need 

to yield to you, Chairman? 

If I recall, this new Congress came into office, promising to pay 

for the war. Yet, last year, I think we did $80 billion or more to 

support our troops, and not a dime was paid for. My guess is this 

year we will do the same. So, we ought to probably be looking in 

the mirror on both of those issues, and dealing with it together, 

both parties in this Congress, rather than blaming you. 

Here is my question. What if I told you there was a sector of the 

American economy that’s growing so fast that last year it represented one quarter of all our growth? This year it continues to 

tjames on DSKG8SOYB1PROD with HEARING

34 

grow so quickly that it will be almost 40 percent of our economic 

growth here, in America. 

This sector is growing across the country. It accounts for one of 

every three acres that we grow. It accounts for one of every manufacturing job we have in America, two out of every five technology 

jobs. What would you guess that sector of the economy is? 

Secretary PAULSON. Trade. 

Mr. BRADY. It is. It is exports. Mr. Secretary, given the growing 

consensus that it’s not enough to just buy American, we have to 

sell American products and services all throughout the world, and 

that when we have free trade agreements, our sales to those countries are twice as fast and twice as large as they are for countries 

we don’t have agreements with, given the economy we have today, 

and the fact that that is a sector that continues to create jobs and 

opportunity here in America, how important is it for Congress to 

pass, this year, the free trade agreements that are pending with 

Colombia, South Korea—which is a huge market—and Panama? 

Secretary PAULSON. Very important. And I agree with the 

Chairman. We have more work to do to get Korea in shape. But 

Colombia we could get done right away. Of course, Korea is very, 

very important, in terms of the economic impact. Colombia is very 

important, in terms of the economic impact and the geopolitical impact. 

So, again, it has been one of my frustrations, not just in Congress, but looking at the perception that the American people have, 

that we need to understand how important trade is to our economic 

well-being, now and in the future. 

Mr. BRADY. Well, we are not the only ones out there doing trade 

agreements. Obviously, our competitors are, as well. We find that 

when U.S. companies go out to compete around the world, that almost three times as much of the world is tilted against us—— 

Secretary PAULSON. Yes. 

Mr. BRADY [continuing]. As give us a level playing field. So, 

don’t these free trade agreements not only create two-way trade to 

these countries, they give our U.S. companies and our states an 

equal chance to sell our products, which is all we’re asking to do? 

Secretary PAULSON. Absolutely. You’ve got it. 

Mr. BRADY. Thank you, Chairman. I yield back. 

Chairman RANGEL. Ms. Tubbs Jones, from Ohio? 

Ms. JONES. Mr. Chairman, thank you for the opportunity. Good 

morning, Mr. Secretary. 

Secretary PAULSON. Good morning. 

Ms. JONES. How are you? I recall prior Secretary Snow coming 

before this Committee, having a discussion about the budget. Early 

on, nowhere in the budget was there any money included for the 

war. I asked him why there was no money in the budget for the 

war, and his statement to me was that the President didn’t want 

to go to war, and so, therefore, there was no money in the budget. 

Yet, he couldn’t explain the number of tankers that were out there 

in the ocean, the soldiers that were on the tankers, the cost of the 

military expenditures, such as clothing, et cetera, et cetera. 

Tell me, how long have you been the Secretary now, Sir? 

Secretary PAULSON. About a year-and-a-half. 

tjames on DSKG8SOYB1PROD with HEARING

35 

Ms. JONES. About a year-and-a-half? In that year-and-a-half, we 

have been doing supplementals on the war. Is that correct? 

Secretary PAULSON. That is correct. 

Ms. JONES. So, when you look at a budget, a supplemental is 

not included in the budget. So, therefore, there is no pay-for for the 

cost of the war, when it’s not in the budget. Is that correct, Sir? 

Secretary PAULSON. You are right, we have been using a supplemental, which, again, I think is right there for everyone to see. 

Ms. JONES. Well, that’s not my question. I said there is no payfor required on a supplemental. Is that correct? 

Secretary PAULSON. I am—in terms of the way—— 

Ms. JONES. You are the Secretary of—excuse me? Is there a 

pay-for required on a supplemental? 

Secretary PAULSON. In terms of your rules, and how you apply 

them, clearly, everything that is done is going to be ultimately paid 

for by the American people. 

Ms. JONES. Mr. Secretary? 

Secretary PAULSON. Yes? 

Ms. JONES. Don’t play words with me. 

Secretary PAULSON. Right. 

Ms. JONES. With regard to a supplemental, there is no required 

pay-for, is there, Sir? 

Secretary PAULSON. Under your rules, you’re correct. 

Ms. JONES. So, how much money is there not required to be 

paid for that has been expended on the war since you have been 

Secretary? 

Secretary PAULSON. I do not have that number for you. 

Ms. JONES. Could you get it for me? 

Secretary PAULSON. I can get it for you, yes. 

Ms. JONES. Can you get it quickly, so the American people know 

what that number is? 

Secretary PAULSON. We will—— 

Ms. JONES. It’s not about—you are trying to play words with me 

about transparency. My question is, if it’s supplemental, it’s not in 

the budget. So, therefore, it’s not required to be paid for. There is 

a deficit operating out here on this war. Correct? 

Secretary PAULSON. I—— 

Ms. JONES. Yes or no, Sir. 

Secretary PAULSON. Those are your words, Madam. 

Ms. JONES. No, I’m asking the question. They should be my 

words. What is your answer? 

Secretary PAULSON. I will get you your answer. 

Ms. JONES. Thank you. Now, before you became Secretary, in 

fact, there was some amount of money that was spent on the war 

as a supplemental, that was not included in the budget. Is that correct, Sir? 

Secretary PAULSON. Apparently. 

Ms. JONES. Yes or no, Mr. Secretary. 

Secretary PAULSON. I will tell you, I will say everything that 

has been spent on the war to date has been in a budget or supplemental request. 

Ms. JONES. It’s not been in the budget, it’s been spent as a supplemental, not required for a pay-for. 

Secretary PAULSON. Okay, it’s—— 

tjames on DSKG8SOYB1PROD with HEARING

36 

Ms. JONES. Is that correct? 

Secretary PAULSON. It has been spent through a regular appropriation or through a supplemental. The—— 

Ms. JONES. So, therefore, it’s not required to be paid for, like 

in a family budget, where if you spend $10, and you have $10, it’s 

accounted for. But under—the way we do it, with a supplemental, 

it is not accounted for. Is that correct? 

Secretary PAULSON. Well, I would say this. To me, whether it 

is a supplemental, whether it is in the budget, whether it is a payfor or not, Madam, it’s all in the budget, and it’s ultimately all paid 

for. 

Ms. JONES. It’s not all in the budget, Mr. Secretary. Would you 

run a business like you’re running the government, with a supplemental that is not paid for? 

Secretary PAULSON. I have to tell you I would not run a business like we are running the government. I mean, the budget is a 

budget in business. You have got all kinds of rules and pay-fors. 

But I would say to you that—— 

Ms. JONES. When you say ‘‘you’ve got all kinds of rules,’’ you 

mean the President has all kinds of rules, and has the ability to 

have a supplemental. I don’t have that ability, do I, Mr. Secretary? 

Secretary PAULSON. The pay-for rules are congressional rules. 

Ms. JONES. Which makes sense, don’t they? They should be paid 

for. What we spend should be paid for. 

Secretary PAULSON. Everything we do spend is paid for, 

Madam. 

Ms. JONES. Oh, you know what, Mr. Secretary? Let’s go on to 

something else, because I don’t want to play words with you. You 

actually recognize the problem we face, as the United States of 

America, is the fact that the war is not paid for, and you continue 

to have it offline, and that creates some of the dilemma we’re facing right now, yes? 

Secretary PAULSON. They’re your words. 

Ms. JONES. Boy, oh boy, Mr. Secretary, I thought you would be 

straight with me, instead of playing games. But let me go on to 

something else, seeing how I know the answer to those questions. 

Let’s go to the housing problem that we’re facing right now, Mr. 

Secretary. In the budget, there are several things that you or the 

President has put forth with regard to the housing problem. 

They’re really not going to fix the problem that generation after 

generation—you know, in minority families and working families, 

a house is usually the greatest asset we pass from one generation 

to the next. 

So, in fact, the housing problem that we face right now is not 

only going to affect this generation, it’s going to affect generations 

moving forward, correct? 

Secretary PAULSON. Housing is one of the most important assets that any family owns. So, it is very, very important. 

Ms. JONES. So, the problem is not only going to affect this generation, it’s going to affect generations moving forward. 

Secretary PAULSON. It will certainly have a long-term impact. 

As we go through this housing correction and are very focused on 

this. This is a serious issue, and it is one—— 

tjames on DSKG8SOYB1PROD with HEARING

37 

Ms. JONES. But your focus is only on a certain year with a certain group of families, not all of them, correct? 

Secretary PAULSON. We need to deal with this year, and this 

group of families. We are dealing with the problems where we are 

finding them. And—— 

Ms. JONES. Thank you, Mr. Secretary, for not answering my 

question. 

Chairman RANGEL. Mr. Thompson of California? 

Mr. THOMPSON. Mr. Secretary, thank you for—down here. 

Secretary PAULSON. Oh, sorry. 

Mr. THOMPSON. Kind of hidden on the end. Thank you for 

being here. 

Secretary Paulson, how much money does the budget contain to 

fund the wars in Iraq and Afghanistan? 

Secretary PAULSON. How much does the budget contain? There is, obviously, another $108 billion supplemental this year that 

hasn’t—— 

Mr. THOMPSON. Well, no, that’s supplemental. In the budget. 

Secretary PAULSON. Oh, in the budget? 

Mr. THOMPSON. I understand there is $70 billion? 

Secretary PAULSON. $70 billion, which is—— 

Mr. THOMPSON. $70 billion. 

Secretary PAULSON. Right. 

Mr. THOMPSON. Does that mean that the President thinks that 

that’s what it’s going to cost, $70 billion, to conclude our operation 

in Iraq, and to bring our troops home? 

Secretary PAULSON. I think everyone has been pretty clear that 

is not what he thinks that is going to include. That is a 

placeholder, and that number will be filled in later this year, when 

we have a more precise estimate. 

Mr. THOMPSON. It’s a placeholder. Tell me why it is that the budget just came out, and there is $70 billion in it, yet the Secretary of the Army is saying that we’re going to need approximately $170 billion to conduct our operations in Iraq and Afghanistan? 

Secretary PAULSON. Well, I read in the paper this morning that 

the Secretary of Defense Gates had put that out as a very rough 

estimate, and said that it would become more precise as he had 

more information. 

Mr. THOMPSON. Well, if—everybody recognizes it’s going to cost 

more than $70 billion—even you say it’s a placeholder. The Secretary of Defense said his best guesstimate would be $170 billion. 

With that kind of disparity, how is it that the American people can 

believe that there is any credibility in this budget at all? Just on 

that point, alone. 

Secretary PAULSON. That was a question, or a statement? 

Mr. THOMPSON. It’s a question. How do you expect the American people to believe that this is a credible document? 

Secretary PAULSON. As I said, this is a complex document. I 

think it is just as credible to put out a number as a placeholder 

and say it’s going to be above that, and as soon as we get the number—— 

Mr. THOMPSON. Well, I guess that—— 

Secretary PAULSON [continuing]. We will fill it in. 

tjames on DSKG8SOYB1PROD with HEARING

38 

Mr. THOMPSON. I guess that it is even less credibility when 

there is a statement by the Administration that this budget is expected to be balanced, I think, by 2012 or something, whatever that 

date was, when there is not even an accurate number for the war 

funding. 

I find it very troubling that this same document—and this document is not just a fiscal document, but this is the priorities, as— 

for this country, and the people of this country, as seen by the 

President of the United States, and by his Administration. 

To add insult to injury on the war funding issue, you’re asking 

in this document to come back to veterans, veterans who have sacrificed, veterans who have put their life on the line, veterans who 

have been injured in this war, and asking them to pay more for the 

medical services that they are going to receive. I find that very, 

very troubling. There is a substantial increase on the cost that veterans will pay for their medical benefits in your document. 

Let me ask also, shifting gears, there is no mention of extending 

the renewable energy incentives, or the qualified tuition deduction 

in this document. Does that mean that the President’s position on 

extending these provisions is that he does not support that, he 

wants to see these taxes increased? 

Secretary PAULSON. It does not necessarily mean that. Some of 

them are clearly extended, and others we are quite prepared to talk 

about. And—— 

Mr. THOMPSON. But it’s not in the document. 

Secretary PAULSON. It is not in the document, you are right. 

Mr. THOMPSON. So, is extending these provisions built into the 

baseline? 

Secretary PAULSON. It is not built into the baseline. 

Mr. THOMPSON. I couldn’t hear you. 

Secretary PAULSON. If they’re not extended, they’re not built 

into the baseline. 

Mr. THOMPSON. Okay. The other thing I wanted to ask, you 

also are a Medicare trustee, and I would like to just quickly get 

your comment on how the 45 percent number was selected, in regard to the revenue limit for the trigger. Do you know? 

Secretary PAULSON. I do not know the history of that, as to 

how it was selected, but it is clearly something we are focused on. 

Mr. THOMPSON. Mr. Secretary, I just have a little bit of time 

left, but you have been very helpful—or you’ve shown a willingness 

to work with me regarding some American viticulture issues, and 

it’s really damaging to the U.S. wine industry. I appreciate your 

help. 

But this thing has been dragging on forever. TTB has not concluded their work. It’s a major threat to the industry, not only in 

my district, but in wine growing regions across the country. I have 

had a lot of trouble getting answers to specific questions. I have 

some questions here that I would like to submit to you, and ask 

you to answer me in writing, and ask that you do it within the next 

couple of weeks, because this has been dragging on, and it’s hurting a pretty important industry in our country. 

Secretary PAULSON. Yes. You and I have talked about it several 

times. We will keep working with you. As you know, we are still 

getting comments on these regulations. 

tjames on DSKG8SOYB1PROD with HEARING

39 

Mr. THOMPSON. Right. 

Secretary PAULSON. I appreciate how much you care about this. 

Mr. THOMPSON. So, Mr. Chairman, could I submit this for the 

record, and ask that the Secretary respond in the next couple of 

weeks? Thank you. 

[The information follows:] 

[The information was not received by the time of publication.] 

Chairman RANGEL. We have four votes on, and the Secretary 

has to leave at 12:30. Suppose we have the remaining Members 

take 2 minutes and ask their questions, and then see whether or 

not the Secretary can give some broad response? 

We will start with Rahm Emanuel, Mr. Blumenauer, Mr. Kind, 

Mr. Pascrell, Ms. Berkley, Mr. Crowley—— 

Mr. EMANUEL. Mr. Chairman, although you called me first, 

why don’t you let Mr. Larson go first, and then I will go after him? 

Chairman RANGEL. Sure. 

Mr. LARSON. Thank you, Mr. Chairman. Mr. Secretary, thank 

you for your great cooperation with the Chairman and our leadership, with respect to putting this very important fiscal package for 

relief that we needed in a very timely and targeted fashion. 

Just a couple of—three quick questions for you. One of them has 

to deal with what this Committee has taken up, as it relates to alternative energy, and—— 

Chairman RANGEL. Yes. 

Mr. LARSON. I noticed that nowhere in the Bush budget are 

there provisions for alternative energy tax credits. 

In light of—my question, my first one is, in light of the incredible 

profits by Exxon and Mobil, and the fact that this Committee last 

year suggested that we pay for the alternative energy tax credits 

by ending tax subsidies for oil and gas, do you think that that’s the 

right way to proceed? If so, why wasn’t it included in the Bush 

budget? 

Second one has to deal with getting the stimulus package out, a 

number of—I visited the volunteer income tax assistance clinic in 

Hartford, in my district. These clinics are crucial to the outreach 

program, to make sure that the money gets into the hands of these 

hardworking people that, of course, will impact the stimulus. Yet, 

the Administration proposes cutting funding for taxpayer assistance centers. 

Is this consistent with the IRS’ goal for earned income tax credit 

outreach? What would you suggest here, in terms of making sure 

that they get their—we expedite this process, so that we can, in 

fact, provide the stimulus that we’re seeking to do within the process? 

Secretary PAULSON. Let me start with the last question first, 

because I do think that this has got to be a very high priority. I 

have done a number of events, I did one recently, and I know many 

of you do similar events. The earned income tax credit is hugely 

important. I think we are doing a better job, but there is still 

maybe up to a quarter of the people that qualify for the earned income tax credit, who do not know about it, do not get it. 

So, there is a big outreach effort that is necessary, and I will 

pledge to you that I am just going to keep the IRS focused on that. 

That is very important. 

tjames on DSKG8SOYB1PROD with HEARING

40 

In terms of your question about the different renewable energy 

tax credits, and again, I would like to come back to something I 

tried to say earlier to Congressman Doggett, that there is a natural 

tendency to want to do some things through the Tax Code. I understand that. That tends to make the Tax Code more complex. I 

think, often, we are better off just doing it through other measures, 

other than the Tax Code. 

One of the disadvantages that we have in doing these things 

through the Tax Code is the IRS and the Treasury Department are 

not energy experts, as opposed to the Department of Energy as we 

administer some of these things. So, again, I would just make that 

general comment. 

Chairman RANGEL. This is not going to work, so let’s cut it 

down to a minute. 

Secretary PAULSON. Okay. 

Chairman RANGEL. We can—what you can’t cover, you can send 

a response for. 

Secretary PAULSON. I will get it. 

Chairman RANGEL. Mr. Emanuel. 

Mr. EMANUEL. Thank you, Mr. Chairman. You know, there is— 

I do have—I will try to be really quick, and run through this. Given 

that you referred to the war, the $70 billion, as a placeholder, Mr. 

Secretary, somehow Secretary Gates, the Defense Secretary, knew 

it cost $170 billion, but somehow you and Chairman Nussle did not 

know it was $170 billion. 

In all due respect, since the budget was just out this week, and 

Secretary Gates testified $170 billion, you’re off by $100 billion, because you’re playing—either one concludes you’re playing fast and 

loose with the numbers, A, or B, the right hand and the left hand 

are not talking around the cabinet table when you draft budgets. 

I have been around the cabinet table drafting a budget. Somehow 

the Defense Secretary knows a number that neither you nor the 

head of OMB know. 

I am not asking you to answer it, because it’s not a pleasant answer. 

Second, you said that the 2001 and 2003 Tax Codes were unbelievably progressive. I would like to borrow your glasses, if I could. 

In 2001, 36 percent of the entire tax revenue went to people earning over $200,000. In 2003, over 60 percent—close to 63 percent— 

of the tax revenues went to people earning over $200,000. There 

was no way, by any estimation, they could be called progressive. 

Then, lastly, the President, in the State of the Union, said the 

budget has to show constraint. You said don’t use the Tax Code for 

support on energy. We are supporting Exxon, Mobil, and other 

companies, to the tune of $15 billion in tax subsidies, and yet not 

providing that to wind, solar, and power. We are tying ourselves 

in our Tax Code to the energy sources of the 20th century, and 

strangling those that are going to be the energy sources of the 21st 

century. 

I know enough about your record in the past, and your commitment in environmental policy and energy policy, that there is no 

way the Hank Paulson who was head of—Chairman of Goldman 

Sachs, who is involved in NRDC and other entities, would believe 

tjames on DSKG8SOYB1PROD with HEARING

41 

that the Tax Code should be supplying an energy source of the 

20th century, and strangling those of the 21st century. 

I think that was done within a minute and 30 seconds, Mr. 

Chairman. 

Chairman RANGEL. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. Mr. Secretary, 

in my 1 minute I will just frame something that I will forward to 

you in writing. 

One of the areas that I am deeply concerned about deals with the 

funding for infrastructure, the highway trust fund. For the first 

time in history, it’s going into deficit. 

The Administration proposes not to deal with it, not to work with 

us to move it forward. Even the Chamber of Commerce agrees that 

we ought to raise the gas tax for the first time since 1993. 

I am concerned that, instead of borrowing from mass transit, 

which just shoves that into the red, that there ought to be some 

way to work together to figure out, as you’re leaving office, to help 

lay the foundation so we can deal with long-term infrastructure 

needs of the country. 

With your permission, I will just submit something in writing, 

your direction. 

Secretary PAULSON. Good. I will also share that with Mary Peters. 

Mr. BLUMENAUER. Thank you very much. Appreciate it. 

Chairman RANGEL. Mr. Pascrell. 

Mr. PASCRELL. Mr. Secretary, just a couple of questions, and 

then you can respond. If you don’t have time, please get back to 

us in writing. I would appreciate that. 

Do deficits matter, in your view? 

Secretary PAULSON. Of course they do. 

Mr. PASCRELL. You don’t have to answer now. I would like to 

finish the questions. I want to get these on the record. But would 

you answer the first one? If you insist, go ahead. 

Secretary PAULSON. Of course they do. 

Mr. PASCRELL. Now, what are the long-term consequences for 

our economy, if we are to maintain deficits for the foreseeable future? 

Secretary PAULSON. It’s unsustainable. That’s why we need to 

solve the entitlements—— 

Mr. PASCRELL. Third question is, what is the annual average 

income for people in the top 1 percent of the tax bracket? 

The 2001 and 2003 tax cuts plus the AMT relief are permanently 

extended. If that happens, the top 1 percent of households would 

receive more than $1.1 trillion in tax benefits over the next decade. 

Why should Congress provide $1.1 trillion to the wealthiest 1 percent, instead of using this $1.1 trillion to pay down the national 

debt? 

Chairman RANGEL. Mr. Van Hollen. 

Mr. PASCRELL. Chairman, can the Secretary get back to us on 

the answers? Thank you. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. Mr. Secretary, 

thank you for your testimony. Obviously, we will be quick here. 

My understanding is, if you look at the 10-year cost of an extension of the President’s tax cuts, you’re talking about roughly $2.2 

tjames on DSKG8SOYB1PROD with HEARING

42 

trillion over 10 years. An extension of the AMT, if you do not provide AMT relief for that period of time, we’re talking roughly $800 

billion. If you could, get back to me on whether or not, number one, 

those figures are consistent with yours, as well. 

I heard, in response to Mr. English’s question, that you said this 

kind of predictability is important, this kind of certainty for the 

taxpayer and the Tax Code. The question is, doesn’t that also apply 

to AMT taxpayers? 

My question is this. Given that you were trying to hit a certain— 

a balanced budget within a 5-year period, why didn’t you take some 

of the revenue that’s lost for—in extending the Bush tax cuts, just 

the portion that goes to the highest income earners, and use some 

of that money in your budget to provide AMT relief for more middle-income Americans? Why didn’t you make that choice? 

Secretary PAULSON. Would you like me to answer that now? 

Mr. VAN HOLLEN. Yes. 

Secretary PAULSON. I—— 

Chairman RANGEL. I want to thank you very much for staying 

here, and it’s just a question of time for the votes, and I think 

we’ve got 2 minutes. So, Mr. Secretary, thank you. And—— 

Mr. POMEROY. May I tee up an issue? I have yet to speak. 

Chairman RANGEL. What is it? 

Mr. POMEROY. I have yet to speak. In 1 minute, I would just 

like to put an issue before the Secretary. 

Chairman RANGEL. Yes. If you need it on the record, or do you 

want to stay here with the Secretary? 

Mr. POMEROY. Well, I would love to stay, but I hate to miss the 

vote. But I would just like to put an issue before the Secretary. 

Chairman RANGEL. Go ahead. 

Mr. POMEROY. Mr. Secretary, I am very concerned about—in 

this time of economic challenge—we are going to have pension 

plans being canceled. Mark-to-market accounting on long-term liabilities is going to be extremely punishing, relative to employers 

that want to keep their defined benefit pension plans in place. 

The plan assets will reflect the downturn in the market. The forward casting of assets matched to liabilities will reflect lower interest rates. So, fully funded plans last year are going to look underfunded this year, simply by a feature of this mark-to-market accounting. 

We need to enact smoothing legislation to ease the hit to employers on funding requirements, and I would just very much appreciate Treasury comment on that, going forward. Thank you. 

Chairman RANGEL. Adjourned, and we look forward to getting 

responses for Mr. Pomeroy’s question. Thank you.[Whereupon, at 

11:44 a.m., the hearing was adjourned.] 

[Submission for the Record follows:] 

Statement of Joseph E. Powell 

Let me start by writing that I appreciate the opportunity to submit this letter regarding the FY 2009 Executive Budget Proposal and be heard. 

However, and truthfully, I cannot believe what I have learned about it. To me, 

it does not seem at all rational to say the least. As we are staring into the teeth 

of a domestic recession, our Chief Executive Officer puts together a so-called budget 

that increases deficit spending and totals 3.1 trillion dollars. This is totally unbelievable. This should be stopped dead and a new rational budget be formulated. 

tjames on DSKG8SOYB1PROD with HEARING

43 

We are told that the Administration wants to make up the deficit spending by 

cutting domestic programs. Which to me (and many others like me) is not acceptable 

and also not the least bit rational. 

A temporary tax rebate measure made up of more borrowed money? Devaluing 

our own currency to the enjoyment of all of our competitors in the marketplace. 

Spending out of control in Iraq. Billions of dollars missing/unaccounted for. No 

clue where it is. And the war dragging on for five (5) years. 

Just allow me a word on the war please. If this country is involved in a life or 

death ideological struggle of the age—then use the nuclear weapons in our arsenal 

and put an end to the struggle a positive winner—do not drag it out for generations/ 

forever spending the priceless blood of our youth as if it were saltwater and bankrupting our country’s treasury. The subprime mortgage debacle—another great injustice allowed to happen by deregulation. 

Adding 1100 Diplomats to the Federal payroll. Just what we need—more overhead. 

I should say this spending is anything but Conservative. It appears FAR RIGHT 

WING RADICAL EXTREME NEO-LIBERAL to me. 

Stop spending all of our money overseas attempting to build nations and markets 

for only those who are already rich beyond belief. 

Spend our money here at home. Our domestic programs need to be bolstered and 

made solvent. Social Security Solvency and Universal Health Care For All Citizens 

(Medicare For All) needs to happen NOW. Every other major country in the world 

has it and knows it is the right thing for a government to do for its general population. Our money buys $3.00 a gallon gasoline/expensive fossil fuels to heat our 

homes and enriches and provides cradle to grave domestic care for those we are purchasing from. That in itself is mad. 

The way I see it we should install Trade Regulations that level the field in the 

world market. Doing so will create incentive to produce more here at home. Domestic business will prosper. When the appropriate Trade Regulations take affect and 

we purchase fewer products from overseas, our overseas trading partners will lose 

market share and will increase the cost of their products to consumers within their 

borders to fund their corporations—further leveling the field. They will then borrow 

from us to keep their corporations in business. 

Stop selling out our country by making it more profitable for business (including 

manufacturing) to move out of country. 

People living in this country have a much higher cost of living than those people 

in 3rd world overseas economies. People cannot earn a living in this country being 

paid $1.00 to $3.00 per hour—they need a good job that pays a good wage and at 

least a living wage as opposed to a minimum wage. 

Here in Northeast Ohio the economy (especially my economy) is horrible. Last 

year was the worst year in business that I can remember. Fifty percent down from 

the year previous. 

It seems every measure taken by every segment of our government is another attempt (greater than the previous) to euthanize our private sector domestic economy. 

This needs to be fixed and it’s going to take a government that is responsive to 

the people to fix it. 

This Administration and it’s policies cannot end quickly enough to suit me. 

Æ 

tjames on DSKG8SOYB1PROD with HEARING