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THE PRESIDENT’S FISCAL YEAR 2014 

REVENUE AND ECONOMIC POLICY PROPOSALS 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, APRIL 16, 2013 

Serial No. 113–4 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=budget 
(II) 

COMMITTEE ON THE BUDGET 

PAUL RYAN, Wisconsin, Chairman 

TOM PRICE, Georgia 

SCOTT GARRETT, New Jersey 

JOHN CAMPBELL, California 

KEN CALVERT, California 

TOM COLE, Oklahoma 

TOM MCCLINTOCK, California 

JAMES LANKFORD, Oklahoma 

DIANE BLACK, Tennessee 

REID J. RIBBLE, Wisconsin 

BILL FLORES, Texas 

TODD ROKITA, Indiana 

ROB WOODALL, Georgia 

MARSHA BLACKBURN, Tennessee 

ALAN NUNNELEE, Mississippi 

E. SCOTT RIGELL, Virginia 

VICKY HARTZLER, Missouri 

JACKIE WALORSKI, Indiana 

LUKE MESSER, Indiana 

TOM RICE, South Carolina 

ROGER WILLIAMS, Texas 

SEAN P. DUFFY, Wisconsin 

CHRIS VAN HOLLEN, Maryland, 

Ranking Minority Member 

ALLYSON Y. SCHWARTZ, Pennsylvania 

JOHN A. YARMUTH, Kentucky 

BILL PASCRELL, JR., New Jersey 

TIM RYAN, Ohio 

GWEN MOORE, Wisconsin 

KATHY CASTOR, Florida 

JIM MCDERMOTT, Washington 

BARBARA LEE, California 

DAVID N. CICILLINE, Rhode Island 

HAKEEM S. JEFFRIES, New York 

MARK POCAN, Wisconsin 

MICHELLE LUJAN GRISHAM, New Mexico 

JARED HUFFMAN, California 

TONY CA ́ RDENAS, California 

EARL BLUMENAUER, Oregon 

KURT SCHRADER, Oregon 

PROFESSIONAL STAFF

AUSTIN SMYTHE, Staff Director 

THOMAS S. KAHN, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

Hearing held in Washington, DC, April 16, 2013 ................................................. 1 

Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1 

Prepared statement of ............................................................................... 3 

Questions submitted for the record ......................................................... 55 

Hon. Chris Van Hollen, ranking member, Committee on the Budget ......... 4 

Prepared statement of ............................................................................... 5 

Hon. Jacob J. Lew, Secretary, U.S. Department of the Treasury ................ 7 

Prepared statement of ............................................................................... 8 

Response to questions submitted for the record ..................................... 58 

Questions submitted for the record by: 

Hon. Diane Black, a Representative in Congress from the State of 

Tennessee ............................................................................................... 55 

Hon. Bill Flores, a Representative in Congress from the State of 

Texas ....................................................................................................... 56 

Hon. Tom Rice, a Representative in Congress from the State of 

South Carolina ....................................................................................... 56 

Hon. Barbara Lee, a Representative in Congress from the State 

of California ............................................................................................ 57 

(1) 

THE PRESIDENT’S FISCAL YEAR 2014 

REVENUE AND ECONOMIC POLICY PROPOSALS 

TUESDAY, APRIL 16, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in room 210, 

Cannon House Office Building, Hon. Paul Ryan, [chairman of the 

Committee] presiding. 

Present: Representatives Ryan, Price, Garrett, Campbell, Calvert, McClintock, Lankford, Black, Flores, Rokita, Woodall, 

Nunnelee, Hartzler, Walorski, Messer, Williams, Van Hollen, 

Schwartz, Yarmuth, Pascrell, Castor, McDermott, Lee, Cicilline, 

Jeffries, Pocan, Lujan Grisham, Huffman, Cardenas, Blumenauer, 

Schrader. 

Chairman RYAN. All right. The hearing will come to order. First, 

I would like to start on a somber note, Just to say that our hearts 

and our prayers go out to the victims of the terrorist attack in Boston. And we have some colleagues here from that neck of the 

woods, and we think about them at this time. And this is a moment where those of us who have kids, hug them a little tighter. 

And those of us who attend these Intel briefings and vote on these 

issues see the human side of it. So, it goes without saying but it 

needs to be repeated that, you know, our hearts and minds go out 

to those who were the victims of the explosion in Boston yesterday. 

Secretary LEW. It is nice to call you Secretary. You have been 

here a number of times as OMB director. Congratulations on your 

new post. I hope that your signature has improved since before. 

You and I have had some good jokes about that. It is nice to have 

you here in your new capacity as treasury secretary. I know that 

despite our agreements, we appreciate you taking the time to join 

with us today. You have four budgeting hearings as treasury secretary, and we appreciate you giving us this morning of your time. 

Yesterday was tax day. And tax season was a lot more stressful 

than it needed to be. Our tax code is a Rubik’s cube that Americans 

spend six billion hours each year trying to crack. Today the code 

is four million words long, enough to fill 70,000 pages. In fact, it 

is so long, that roughly 90 percent of Americans pay for professional help to file their tax returns. This costs them $160 billion 

each year, $160 billion spent by Americans each year just filling 

out their taxes. And then after all that trouble, the process leaves 

them, as our colleague Todd Young put it the other day, feeling like 

either a crook or a sucker. 
2 

We also have the highest corporate tax rate in the industrialized 

world, which hurts workers most of all. A high corporate tax rate 

means that they will take home less pay than they otherwise 

would. So I am glad that the president’s budget calls for corporate 

tax reform. And we agree on the problem. A complex code does not 

help anybody but the well-connected. Now, we need to work on a 

solution because we cannot simply stop at the corporate rate. 

Under the president’s budget, the big companies would pay no 

more than 28 percent of their income in taxes. But small businesses would pay up to 39.6 percent of their income in taxes. That, 

in our opinion, is unfair. It hurts jobs. 

We need to reform the individual tax code as well. The Administration wants to limit deductions at the individual level but they 

do not want to use the money to lower the rates to spur economic 

growth. Instead, they want to use it to pay for more spending. In 

fact, the president’s budget, which just was released last week calls 

for $1.1 trillion tax hike to pay for a nearly $1 trillion in new 

spending. In short, the president’s plan is to take more from families to spend more in Washington. We think that is the wrong approach, and we do not think that is going to help the economy. And 

we have seen this movie before. Under this budget, we will have 

to run deficits at or close to $1 trillion for five straight years. Yet 

millions of Americans are out of work or are living in poverty, the 

highest rates we have seen in a generation. This Administration’s 

response seems to be more of the same: more spending, higher 

taxes, and record debt. 

Well, we cannot keep spending money we just do not have. We 

need a new approach. We need an approach that encourages economic growth. The longer we delay fundamental reform, the longer 

we delay a real recovery, because our national debt is weighing 

down our country like an anchor. It is weighing down our economy. 

It is making it harder for us to get ahead. The Administration 

claims that if we approve this budget, we will have reduced the 

deficit by $4.3 trillion. This is not true. But I want to break this 

down, and Chart 1 will show me how. 

The Administration says that we have reduced the deficit by $2.6 

trillion since Republicans took control of the House in 2010. They 

start their clock a little late. The president is responsible for all the 

policies that were enacted before then when he was in office for the 

first two years. And if you add back the money for stimulus, for the 

payroll tax holidays, for the extension of unemployment benefits, 

for the 24 percent increase in domestic discretionary spending, 

then total deficit reduction, when you net it all out, comes to only 

about $500 billion that has already been achieved, not the higher 

$2.6 trillion number. You see, you have to add both sides of the 

ledger book. And all those savings have already been signed into 

law. So, that $500 billion is really kind of irrelevant to this new 

budget. So this budget claims that the deficit is going to be reduced 

by $1.8 trillion. That is the second line on the chart. But once you 

take out all the baseline games and add back all the nearly $1 trillion in spending increases in this budget, when the gimmicks are 

removed, when the spending is counted, the total deficit reduction 

comes to a paltry $119 billion. 
3 

So we see this budget as a disappointment because it is a missed 

opportunity. We need a new approach in Washington to meet the 

country’s most pressing challenges. And that is what we are offering. We offered a plan to balance the budget. We offered a plan 

that balances it in 10 years, which we think is critical to growing 

a healthy economy. We extend opportunity for the young. We guarantee a secure retirement for the seniors. And we think that we 

need to get back to work to repair the safety net so that it is there 

in a reliable, responsible, sustainable way for the most vulnerable. 

But we cannot simply dwell on our differences. We have to move 

forward. We have got three plans on the table, which is something 

we have not been able to say for a number of years. So even if we 

cannot agree on everything, we need to agree on something. We 

need to have a down payment on our debt. 

So I would like to learn more about the president’s proposals 

today. I would like to explore where are those areas we can finally, 

maybe, find some common ground with you, Secretary Lew. And I 

am hoping that at the end of the day, we can make a down payment for the country, and make this divided government work in 

any way we can. And with that, I would like to yield to Mr. Van 

Hollen. 

[The prepared statement of Chairman Paul Ryan follows:] 

PREPARED STATMENT OF HON. PAUL RYAN, CHAIRMAN, 

COMMITTEE ON THE BUDGET

Welcome, everybody. To start, I want to thank Secretary Lew. Mr. Secretary, I 

want you to know that despite our disagreements, we appreciate your taking the 

time to join us today. 

Well, yesterday was Tax Day. And tax season was a lot more stressful than it 

should have been. Our tax code is a Rubik’s Cube that Americans spend 6 billion 

hours each year trying to crack. Today, the code is about 4 million words long— 

enough to fill 70,000 pages. In fact, it’s so long that roughly 90 percent of Americans 

pay for professional help to file their returns. That costs them $160 billion each 

year. And after all that trouble, the process leaves them—as my colleague Todd 

Young put it—feeling like either a crook or a sucker. 

We also have the highest corporate tax rate in the industrialized world—which 

hurts workers most of all. A high corporate tax means they will take home less pay 

than they otherwise would. So I’m glad this budget calls for corporate tax reform. 

We agree on the problem. A complex code doesn’t help anyone but the well-connected. Now, we need to work on a solution—because we can’t stop at the corporate 

rate. Under the President’s budget, the big companies would pay no more than 28 

percent of their income in taxes. But small businesses would pay up to 39.6 percent. 

That’s unfair. That hurts jobs. We need to reform the individual code too. 

The administration wants to limit deductions at the individual level. But they 

don’t want to use that money to lower rates and spur economic growth. Instead, 

they want to use it to pay for more spending. Their budget calls for a $1.1 trillion 

tax hike to pay for nearly $1 trillion in new spending. In short, the President’s plan 

is to take more from families to spend more in Washington. 

We’ve seen this movie before. Under this budget, we will have run deficits at or 

close to $1 trillion for five years straight. Yet millions of Americans are out of work 

or living in poverty. This administration’s response is more of the same: more 

spending, higher taxes, record debt. We can’t keep spending money we don’t have. 

We need a new approach—one that encourages economic growth. The longer we 

delay fundamental reform, the longer we delay a real recovery—because our national debt is weighing down our economy like an anchor. 

The administration claims that if we approve this budget, we will have reduced 

the deficit by $4.3 trillion. But that’s not true. Let’s break this number down: 

• The administration says we’ve reduced the deficit by $2.6 trillion since Republicans took control of the House. They start the clock a little late. The President is 

responsible for all the policies he enacted before then. Add back the money for the 

stimulus, for the payroll-tax holidays, for the extensions of unemployment benefits, 
4 

for the 24 percent increase in discretionary spending, and total deficit reduction 

comes to only about $500 billion. • And all those savings have already been signed into law. So that $500 billion 

is irrelevant to this new budget. • So the President then claims that this budget reduces the deficit by $1.8 tril- lion. But once you take out all the baseline games and add in the nearly $1 trillion 

spending increase in this budget, the total deficit reduction comes to a paltry $119 

billion. 

So the President’s budget is a disappointment—because it’s a missed opportunity. 

We need a new approach in Washington to meet our country’s most pressing challenges. That’s what our side is offering. Our plan balances the budget in ten years 

to foster a healthier economy and to help create jobs. Our plan expands opportunity 

for the young. It guarantees a secure retirement for seniors. And it repairs the safety net for the most vulnerable. 

We can’t simply dwell on our differences. We’ve got to move forward. We’ve got 

to find common ground. Even if we can’t agree on everything, we need to make a 

down payment on our debt—now. So I want to learn more about the President’s proposal today—and see where we can find common ground. 

With that, I yield to the ranking member. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. I want to start by 

joining the Chairman by keeping in our thoughts and prayers the 

people of Boston, especially the victims and their families. And I 

would also to join you, Mr. Chairman, in welcoming Mr. Lew to 

this Committee, the first time as secretary of the Treasury. Congratulations to you, Mr. Lew, and thank you for your service, and 

thank you for being here to talk about the president’s budget. And 

I believe the president’s budget accomplishes two important objectives. One, and foremost, it focuses on job growth now. We all know 

that we have seen job growth in our economy over the last 30-plus 

months. But we also know that it is still not where we want it to 

be. Second, the president’s budget reduces the deficit in a steady, 

credible, and balanced way, such that it is under 2 percent of GDP 

at the end of the two-year window. 

Now, I saw, Mr. Secretary, that one of your first visits overseas 

was to talk to some of our European partners, and that trip generated headlines like these: ‘‘Treasury Secretary Jack Lew Pushes 

Europeans to Focus on Growth over Austerity.’’ And I think that 

is good advice in Europe. It is also good advice right here at home. 

And while the president’s budget does focus on growth over austerity, unfortunately, the House Republican budget does not, because the House Republican budget would keep in place the very 

immediate and deep sequester cuts which the non-partisan independent Congressional Budget Office says will result in 750,000 

fewer jobs by the end of this year alone. And the Congressional 

Budget Office projects that three-quarters of the fiscal year 2014 

deficit is due to slow employment levels, underemployment in the 

economy. So we need to be focused on that right now rather than 

pursuing European-style austerity in the budget as our Republican 

colleagues’ budget does. 

You also had a visit to China. I think your first visit, Mr. Secretary, was to China. And I mentioned in the last budget hearing 

we had that I have a major biotech company in our district, that 

last year, laid off more than 1,000 people because of ‘‘the uncertain 

budget environment here at home with respect to investment in 

science and research.’’ And this year, because of the sequester, they 

have a hiring freeze in place. The one place they point out they are 

hiring is in China. It says, ‘‘We have instituted a hiring freeze 

across the company with China being the only exception.’’ And they 
5 

point out, ‘‘It is not because of lower wages paid in China. It is because the Chinese are copying what has historically been a very 

successful U.S. model of investing in science and research.’’ And it 

would be very shortsighted if we pursue the austerity approach to 

cut those investments at a time when many of our major international competitors are following that successful model. So I appreciate the fact that the president’s budget focuses on those investments and shows that we can continue to make important investments at the same time that we reduce our deficit in a steady 

way. And for some of our members who are new to this Committee, 

the last time we had a balanced budget in this country was when 

Jack Lew was the head of OMB during the Clinton Administration. 

Chairman RYAN. That was the last time he was the head of 

OMB. 

Mr. VAN HOLLEN. When he was the head of what now? You are 

right. When he was head of OMB during the Clinton Administration, and, of course, when he left that post, we had projected surpluses. That was before two wars on the credit card. That was before we put a new prescription drug plan on the credit card, and, 

of course, it was before two back-to-back tax cuts that disproportionately benefitted the very wealthy. 

So, Mr. Lew, it is good to continue to have you on the president’s 

economic team, and I would just point out that the approach you 

have taken here to reducing the deficit is a balanced one; meaning 

you continue to build on the cuts that have been made, $2.5 trillion 

in deficit reduction already, but you do it in a targeted way, and 

you do it in part by closing some of those tax loopholes that the 

Chairman mentioned. The difference is that the Republican budget 

does not close one single tax loophole for the purpose of reducing 

the deficit, whereas the president’s budget does close those tax 

breaks for folks at the very high end for the purpose of reducing 

the deficit in a balanced way. 

Let me just close, Mr. Chairman, by urging us to try and come 

together as soon as possible to bridge the differences between these 

budgets. The Chairman said we need to get together and move forward; I agree. And that is why we call upon the Speaker to immediately appoint conferees to a budget conference. There has been a 

lot of discussion in this Committee about how to president’s budget 

was somewhat late. In the law, in the budget law, the conference 

committees are supposed to have completed action by April 15. So 

as right now, the Congress is out of compliance with the Budget 

Act. The fastest way to try and come into compliance as fast as possible is to appoint conferees and follow the regular order, something our Republican colleagues have been calling for. So let’s get 

on with this. Mr. Speaker, you should appoint conferees to a budget 

conference right now so we can begin to bridge those differences 

and move forward. Thank you, Mr. Chairman, thank you Mr. Secretary. 

[The prepared statement of Chris Van Hollen follows:] 

PREPARED STATMENT OF HON. CHRIS VAN HOLLEN, RANKING MEMBER, 

COMMITTEE ON THE COMMITTEE

Thank you Mr. Chairman, I want to start by joining the Chairman in keeping in 

our thoughts and prayers the people of Boston, especially the victims and their families. And I’d also like to join you, Mr. Chairman, in welcoming Mr. Lew to this 
6 

Committee—the first time as Secretary of the Treasury. Congratulations to you, Mr. 

Lew, and thank you for your service, and thank you for being here to talk about 

the President’s budget. 

And I believe the President’s budget accomplishes two important objectives. One, 

and foremost, it focuses on job growth now. We all know that we’ve seen job growth 

in our economy in the last 30-plus months, but we also know that it’s still not where 

we want it to be. Second, the President’s budget reduces the deficit in a steady, 

credible, and balanced way, such that it’s under 2 percent of GDP at the end of the 

two year window. 

Now, I saw, Mr. Secretary, that one of your first visits overseas was to talk to 

some of our European partners, and that trip generated headlines like these: ‘Treasury Secretary Jack Lew Pushes Europeans to Focus on Growth over Austerity.’ And 

I think that’s good advice in Europe, it’s also good advice right here at home. 

And while the President’s budget does focus on growth over austerity, unfortunately the House Republican budget does not, because the House Republican budget 

would keep in place the very immediate and deep sequester cuts, which the nonpartisan, independent Congressional Budget Office says will result in 750,000 fewer 

jobs by the end of this year alone. And the Congressional Budget Office projects that 

three quarters of the fiscal year 2014 deficit is due to slow employment levels, 

underemployment in the economy. So we need to be focused on that right now rather than pursuing European-style austerity in the budget, as our Republican colleagues’ budget does. 

You also had a visit to China. I think your first visit, Mr. Secretary, was to China. 

And I mentioned in the last budget hearing we had that I have a major biotech company in our district that last year laid off more than 1,000 people because of ‘the 

uncertain budget environment here at home with respect to investments in science 

and research.’ And this year, because of the sequester, they have a hiring freeze in 

place. 

The one place they point out they are hiring is in China. It says, ‘we have instituted a hiring freeze across the company with China being the only exception.’ And 

they point out it’s not because of lower wages paid in China, it’s because the Chinese are copying what has historically been a very successful U.S. model of investing in science and research. And it would be very shortsighted if we pursue the austerity approach to cut those investments at a time when many of our major international competitors are following that successful model. 

So I appreciate the fact that the President’s budget focuses on those investments 

and shows that we can continue to make important investments at the same time 

that we reduce our deficit in a steady way. For some our members who are new 

to this committee, the last time we had a balanced budget in this country was when 

Jack Lew was the head of OMB during the Clinton administration. And, of course, 

when he left that post we had projected surpluses. 

That was before we put two wars on the credit card; that was before we put a 

new prescription drug plan on the credit card; and, of course, it was before two 

back-to-back tax cuts that disproportionately benefited the very wealthy. 

So, Mr. Lew, it’s good to continue to have you on the President’s economic team. 

And I would just point out that the approach you have taken here to reducing the 

deficit is a balanced one—meaning you continue to build on the cuts that have been 

made, $2.5 trillion of deficit reduction already, but you do it in a targeted way. And 

you do it, in part, by closing some of those tax loopholes that the Chairman mentioned. The difference is that the Republican budget does not close one single tax 

loophole for the purpose of reducing the deficit, whereas the President’s budget does 

close those tax breaks for folks at the very high end for the purpose of reducing the 

deficit in a balanced way. 

Let me just close, Mr. Chairman, by urging us to try and come together as soon 

as possible to bridge the differences between these budgets. The Chairman said we 

need to get together and move forward. I agree, and that’s why we call upon the 

Speaker to immediately appoint conferees to a budget conference. 

There’s been a lot of discussion in this Committee about how the President’s budget was somewhat late. In the law, in the budget law, the conference committees are 

supposed to have completed action by April 15th—so as right now the Congress is 

out of compliance with the Budget Act. The fastest way to try and come into compliance, as fast as possible, is to appoint conferees and follow the regular order—something our Republican colleagues have been calling for. So let’s get on with this. Mr. 

Speaker, you should appoint conferees to a budget conference right now so we can 

begin to bridge those differences and move forward. 

Thank you, Mr. Chairman, and thank you, Mr. Secretary. 

Chairman RYAN. Mr. Lew, the floor is yours. 
7 

STATEMENT OF HON. JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you, Mr. Chairman, Ranking Member Van 

Hollen. I also would like to begin by expressing sympathy for the 

people of Boston. Our thoughts and prayers are with them. And as 

the president said yesterday, we are sparing no effort as the investigation goes on into this horrible act. 

It is a pleasure to be here with you today to testify on the president’s budget. I would like to begin by kind of reviewing where we 

are in our economy. Our economy is stronger today than it was four 

years ago. But we must continue to pursue policies that help create 

jobs and accelerate growth. Since 2009, the economy has expanded 

for 14 consecutive quarters. Private employers have added nearly 

6.5 million jobs over the past 37 months. The housing market has 

improved, consumer spending and business investment have been 

solid, and experts have expanded. But very tough challenges remain. While we have removed much of the wreckage from the 

worst economic crisis since the Great Depression, the damage left 

in its wake is not fully repaired. Families across the country are 

still struggling, unemployment remains high. Economic growth 

needs to be faster. And while we have made progress, we must do 

more to put our fiscal house in order. At the same time, political 

gridlock in Washington continues to generate a separate set of 

headwinds, including harsh indiscriminate spending cuts from the 

sequester that will be a drag on our economy in the months ahead 

if they are not replaced with sensible deficit reduction policies like 

the ones we are proposing. 

This budget is animated by the simple notion that we can and 

must do two things at once: strengthen the recovery in the near 

term while reducing the deficit and debt over the medium and long 

term. This has been the president’s longstanding approach to fiscal 

policy, and when you compare the trajectory of our economic recovery with those of other developed economies in recent years, it is 

clear why the president remains committed to this path. It is important to bear in mind that our deficits are already falling. In the 

last few years, the president and Congress have come together to 

hammer out historic agreements that substantially cut spending 

and modestly raise revenue. When you combine these changes with 

savings from interest, we have locked in more than $2.5 trillion of 

deficit reduction over the next 10 years. And now we are putting 

forth policies that will lower the budget deficit to below 2 percent 

of GDP, and bring down national debt relative to the size of the 

economy in 10 years. 

We restore the nation’s long term fiscal health by cutting spending and closing tax loopholes, taking a fair and balanced approach. 

At the same time, the budget incorporates all elements in the Administration’s offer to Speaker Boehner last December, demonstrating the president’s readiness to stay at the table and make 

the difficult choices to find common ground. Consistent with that 

offer, the budget includes things the president would not normally 

put forward, such as means testing, Medicare through income-related premiums, and adopting a more accurate but less generous 

measure of inflation, known as chained CPI. It includes these proposals only so we can come together around a complete and com-
8 

prehensive package to shrink the deficit by an additional $1.8 trillion over 10 years, and to remove the fiscal uncertainty that hampers economic growth and job creation. This framework does not 

represent the starting point for negotiations. What it represents is 

a fair balance between tough entitlement savings and additional 

revenues from those with the greatest incomes. The two cannot be 

separated and were not separated last December when we were 

close to a bipartisan agreement. 

This budget provides achievable solutions to our fiscal problems, 

but as crucial as these solutions are, we have to do more than just 

focus on our deficit and debt. The significance of balancing the 

budget is clear. As Ranking Member Van Hollen noted, during the 

Clinton Administration I helped negotiate the groundbreaking 

agreement with Congress to do just that. And as budget director, 

I oversaw three budget surpluses in a row, and worked with many 

on the left and right on a plan to pay off our debt. But that does 

not mean we should only make deficit reduction our one and only 

priority. In addition to ensuring that we have sound fiscal footing, 

this budget lays out initiatives to fuel our economy now and well 

into the future. Every one of these initiatives is paid for in our deficit reduction package, meaning they do not add a dime to the deficit. 

As the president explained in his state of the union address, the 

surest path to long-term prosperity is to strengthen the middle 

class. His budget does that by zeroing in on three things: bringing 

more jobs to our shores, equipping American workers with the 

skills that they need for the United States to be more competitive, 

and making sure hard work amounts to a decent living. We will 

strengthen manufacturing and domestic energy production, invest 

in infrastructure and worker training, and expand opportunities for 

children and those hardest hit by the recession. The president has 

provided a detailed blueprint for growing our economy and cutting 

our deficits, and, as his budget shows, we do not have to choose between the two, and indeed, we must not. We can adopt a powerful 

jobs and growth plan even as we embrace tough reforms to stabilize our finances. 

The debate we are engaged in is very important. It is part of a 

complex sorting-out process that will determine our nation’s future. 

But as everyone on this Committee knows, the path before us is 

going to be a struggle. It will require difficult decisions that will 

directly affect the daily lives of millions of Americans, and it matters that we get this right. I thank you and look forward to answering your questions. 

[The prepared statement of Jacob Lew follows:] 

PREPARED STATMENT OF HON. JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY

Chairman Ryan, Ranking Member Van Hollen, and members of the committee, 

thank you for the opportunity to appear before you today to discuss the President’s 

Fiscal Year 2014 Budget. 

The President’s Budget is based on a belief that an agreement to achieve balanced 

deficit reduction is consistent with making—and fully paying for—targeted investments critical to continued economic growth and job creation. The Budget includes 

the President’s compromise offer to Speaker Boehner to reduce the deficit by an additional $1.8 trillion, in addition to the more than $2.5 trillion already enacted, and 

fully pays for all new initiatives to ensure that they do not add to our deficit burden. 
9 

I. INTRODUCTION

The United States economy has made substantial progress toward recovering from 

the worst financial crisis since the Great Depression. Despite significant 

headwinds—both as a result of the crisis and from other temporary shocks—the 

economy has grown at an average annual rate of just over 2 percent over the last 

three and a half years. We have seen steady improvement in the labor market, 

where private sector employers have added nearly 6.5 million jobs since the trough 

of the labor market in February 2010. The housing market, which had been a significant drag on economic growth throughout the recession and into the early stages 

of the recovery, is now gaining upward momentum. 

While our economy is stronger today, more work must be done to help create jobs 

and accelerate growth. Even though the unemployment rate, at 7.6 percent, is at 

its lowest level in four years, it is still too high. Too many Americans are still struggling to find work. Despite recent improvements in the housing market, many families remain underwater on their mortgages and credit-worthy borrowers continue to 

have trouble getting the financing they need to buy a home or refinance existing 

mortgages. Although corporate profits are at an all-time high, America’s middle 

class continues to struggle. 

The President’s Budget addresses these challenges in a way that builds on the 

momentum of the economic recovery. It takes a credible approach to bringing our 

deficits down to a sustainable level; at the same time, it makes important investments to help build a foundation for sustainable economic growth. These proposals 

are based on the conviction that an agreement is within our reach, and that it is 

also possible to achieve both our fiscal goals and our long-term priorities. 

While deficit reduction is necessary to put our nation on a sound fiscal course, 

we have to bear in mind that the recovery remains fragile. Cutting spending too 

deeply or too soon would harm the recovery in the near term, undermining our 

shared fiscal goals and our ability to make necessary investments for growth over 

the long term. 

The proposals in the Budget are targeted at growth and opportunity—cutting 

where we can and investing where we will see the strongest return, both now and 

into the future. Specifically, the Budget calls for increased investment in innovation 

and infrastructure to make the United States a more attractive place for job creation. It introduces initiatives to bolster education and worker training so Americans have the necessary skills to compete in a global economy. And it puts forward 

policies that are designed to give all Americans the opportunity to share in the benefits of economic growth. These measures will help grow and strengthen the middle 

class, which has been the key engine of prosperity in the United States. Additionally, they are fully paid for, so they will not add to the deficit. 

Ultimately, the central challenges addressed in the President’s Budget—strengthening growth now, investing in our future, and putting our nation on a sound fiscal 

footing—complement and depend on each other. Investing in our economy today will 

help us grow in the future and that, in turn, makes our fiscal challenges considerably more manageable. Committing to a credible path for deficit reduction today allows for investments that enhance our long-term growth. 

II. BALANCED DEFICIT REDUCTION

When the President came into office four years ago, he inherited a large fiscal deficit—projected to be more than 9 percent measured as a share of the economy before 

any of his policies were enacted. As the economy has been healing, both the expiration of cyclical spending and a pickup in economic growth have contributed to a 

more sustainable path for the country’s finances. 

Over the past two and a half years, we have made considerable progress in reducing the size of the deficit, which fell to about 7 percent of GDP in FY 2012—the 

fastest pace of deficit reduction over a similar time frame since just after WWII. 

Moreover, following current policy, the deficit will continue to decline over the next 

10 years, owing to a mix of spending cuts and tax reforms including $1.4 trillion 

in spending cuts to discretionary programs (as a result of both the Budget Control 

Act of 2011 and other appropriations bills enacted since 2011), as well as over $600 

billion in revenue from the American Taxpayer Relief Act of 2012. Taking into account interest savings, this amounts to more than $2.5 trillion in deficit reduction 

over the 10-year window, not including savings from winding down the wars in Iraq 

and Afghanistan. But we need to do more to ensure that our long-term fiscal outlook 

continues to improve. 

We must continue to achieve deficit reduction in a balanced way. It must include 

entitlement reform and spending reductions. We must also pursue tax reform that 

closes loopholes and addresses deductions and exclusions that allow the wealthy to 
10 

pay less in taxes as a percentage of income than many middle-class families. Individual tax reform must be coupled with reform of the U.S. business tax system to 

enhance American competitiveness, lower rates, broaden the tax base, and level the 

playing field for companies without losing any revenue. All told, these initiatives 

constitute a balanced approach to deficit reduction. Such a balanced approach does 

not force unnecessary cuts to education, energy, and medical research and does not 

endanger Medicare and Social Security. 

The President’s Budget takes this balanced approach with additional spending 

cuts and increased revenues through tax reform. These policies will reduce the deficit to roughly 1.7 percent of GDP by the end of the budget window and put the 

nation’s debt on a declining path, reaching 73.0 percent of GDP by 2023. The additional $1.8 trillion in deficit reduction proposed in this Budget comes 

from closing tax loopholes and reducing tax benefits for those who need them least; 

continued health care reform; savings from mandatory programs; additional cuts to 

discretionary spending; and savings from using a more accurate measure of inflation, plus the reduced interest payments resulting from lower borrowing. 

The most important pieces of the compromise offer made by the President include: 

• Tax Reform: $580 billion in additional revenue from tax reform that closes tax 

loopholes and reduces tax benefits for those who need them least and that will support the creation and retention of high-quality jobs. • Health Savings: $400 billion in health savings that build on the health reform 

law and strengthen Medicare. • Other Mandatory Savings: $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to federal retirement contributions. • Discretionary Savings: $200 billion in additional discretionary savings, with equal amounts from defense and non-defense programs—that is $200 billion below 

the Budget Control Act spending caps that were lowered even further by the American Taxpayer Relief Act of 2012. • Consumer Price Index: $230 billion in savings from switching to the use of 

chained-CPI. • Interest Payments: Almost $200 billion in savings from reduced interest payments on the debt and other adjustments. 

I will address each of the key elements of the President’s compromise offer, all 

of which are in the Budget. 

COMPONENTS OF BALANCED DEFICIT REDUCTION

Tax Reform 

As a first step toward balanced deficit reduction and tax reform, the President proposes enacting two individual tax reform measures that would raise $580 billion 

by broadening the tax base for high-income taxpayers, and ensuring that the very 

wealthy pay federal tax rates at least equal to those paid by middle-class Americans. The first measure sets a 28 percent maximum rate at which upper-income taxpayers could benefit from itemized deductions and certain other tax preferences to 

reduce their tax liability. The second puts in place the Buffet rule, which requires 

those individuals with incomes over $1 million to pay no less than 30 percent of income after charitable contributions in taxes. At the same time, the Budget includes 

business tax reform that will provide greater certainty and improve global competitiveness while preserving the revenue collected today. 

Health Care Reform Savings 

The President’s Budget builds on the health care cost savings driven by the Affordable Care Act by reducing excess payments for health care services and supporting reforms that boost the quality of care. The Budget also includes structural 

changes that will help encourage Medicare beneficiaries to seek high-value health 

care services, while preserving the basic structure and promise of the program. 

These actions would save an additional $400 billion. 

Other Spending Cuts and Savings 

The Budget calls for a total of $400 billion in additional discretionary and nonhealth mandatory spending cuts over the next 10 years. Savings in mandatory programs outside of health care include reforms to agricultural subsidies and federal 

retirement benefits as well as from a variety of smaller savings initiatives across 

the agencies. 

The budget includes an additional $200 billion in spending cuts, split evenly between defense and nondefense spending. On its current trajectory, discretionary 

spending is projected to decline to its lowest level as a share of the economy since 

the end of the 1950s; the discretionary cuts included in the President’s offer to 
11 

Speaker Boehner would push discretionary spending even lower. The President’s 

cuts are coupled with targeted investments that are imperative to growth and opportunity, such as early childhood education. 

In addition, the Budget includes additional savings of $230 billion by changing the 

standard measure of inflation used to adjust spending programs and the tax code 

from the standard CPI to a chained CPI, coupled with protections for the most vulnerable. The chained CPI is a more accurate measure of inflation in that it does 

a better job of reflecting the substitution of goods in response to relative price 

changes. 

III. STRENGTHENING THE MIDDLE CLASS BY INVESTING IN THE U.S. ECONOMY

In addition to the proposals to stabilize our finances, the President’s Budget offers 

a number of policies aimed at making targeted investments to promote long term 

growth. These policies make domestic job creation more attractive by increasing investment in innovation, infrastructure, and manufacturing. The Budget also offers 

policies to increase access to and the affordability of education and job training programs. At the same time, it includes proposals so that the gains from these policies 

can be shared by all Americans. 

Promote Greater Competitiveness in Global Markets 

A number of proposed initiatives are designed to enhance our ability to sell American-made goods and services to the rest of the world. The Budget increases funding 

for agencies involved in trade promotion and trade financing so that these agencies 

can help the United States achieve the goal set in 2010 by the National Export Initiative (NEI) to double U.S. exports over a five-year period. In addition to the NEI, 

the Budget prioritizes completing ongoing trade negotiations—such as the Trans-Pacific Partnership—and opening new negotiations—like the Transatlantic Trade and 

Investment Partnership with the European Union—to help strengthen trade ties 

with the Asia-Pacific region and the European Union, respectively. In addition, more 

resources for trade enforcement will help make sure that our workers and businesses exporting their products and services overseas are operating on a level playing field. 

Currently, the U.S. corporate tax system provides incentives for companies to relocate operations abroad by allowing them to reduce their tax liability. The President’s Budget changes that by reforming the corporate tax system to encourage domestic job creation without losing any revenue. Part of that effort will include removing deductions for moving production overseas and providing a new tax credit 

for firms that bring foreign operations back to U.S. soil. 

Investing in Innovation, Infrastructure, and Manufacturing 

As global markets become more open and as economic activity abroad continues 

to strengthen, it is crucial that U.S. firms and workers remain on the technological 

frontier. That is why we need to invest in Research and Development (R&D), infrastructure, and our manufacturing base. These investments will help foster job creation, raise living standards, and keep our nation competitive in a global economy. 

The President’s Budget increases funding for non-defense R&D investment to $70 

billion, a roughly 9 percent increase over its 2012 level of $64 billion. These investments are targeted to areas most likely to unleash transformational technologies 

that will create the businesses and jobs of the future. History has shown that federal support for R&D has helped spur new technologies, including the internet, global positioning systems, and clean energy. 

Similarly, federal investments in public infrastructure projects, such as the national highway system, have led to significant gains in our nation’s productive capacity. In recent years, however, work to maintain and improve public infrastructure has failed to keep pace with the rate of deterioration and obsolescence. As 

CEOs tell me every time we meet, our aging infrastructure has become a detriment 

to our future growth prospects, and modernizing infrastructure must be a national 

priority. 

The President meets this obligation by directing $50 billion toward infrastructure 

upgrades and repairs. And to get started on the most urgent projects as quickly as 

possible, the Budget would create a ‘‘Fix it First’’ program that puts people on the 

job right away to clear out the backlog of deferred work on highways, roads, bridges, 

transit systems, and airports. But taxpayers need not shoulder the entire cost of 

these projects: the President’s Budget calls for a Partnership to Rebuild America. 

This program helps leverage private investment in infrastructure by starting a National Infrastructure Bank as well as by enacting America Fast Forward bonds, 

which help facilitate and reduce the cost of financing new projects. These initiatives 
12 

will help lay the foundation for long-term economic growth and also help generate 

new high-quality middle-class jobs today. 

Growing our manufacturing sector also generates new, high-quality middle-class jobs. The Budget makes a one-time down payment of $1 billion to establish manufacturing innovation hubs in various regions around the country. The Budget also 

includes funding to launch Manufacturing Technology Acceleration Centers oriented 

toward improving supply-chain efficiency. Finally, the Budget prioritizes investments and initiatives to make the United States a world leader in clean energy. 

Investing in the American Workforce 

If we want to make America more competitive in the global economy, we must 

equip America’s workers with the high-tech skills that the 21st century requires. 

The Budget takes a number of steps to help Americans acquire these skills. It proposes to work together with states to make high-quality preschool available to every 

four-year old in America. It rewards school districts that develop new partnerships 

with colleges and employers, and focus on science, technology, engineering, and 

mathematics (STEM) so that high school students are better prepared for the jobs 

of tomorrow. And it expands access to higher education by making college more affordable. The Budget makes the American Opportunity Tax Credit—which helps 

students pay for college expenses—permanent. At the same time, it reaffirms the 

Administration’s strong commitment to the Pell Grant program, which provides 

grant assistance to low- and moderate-income students and provides a mechanism 

to keep interest rates for student loans from rising—at a time when market rates 

are low. 

In addition to investing in education, the Budget strongly supports training and 

employment programs to help workers gain skills and find new jobs or careers. One 

specific focus is on modernizing, streamlining, and strengthening government delivery of job training services. The Budget proposes a Universal Displaced Worker program that would reach over 1 million workers per year with a set of core services, 

combining the best elements of two more narrowly targeted programs. In addition, 

starting in fiscal year 2015, the Budget provides $8 billion for the Community College to Career Fund; this Fund supports state and community college partnerships 

with businesses, thereby enhancing the skills of American workers. 

Strengthening the Middle Class 

Investing in U.S. firms and workers is critical to maintaining competitiveness, but 

it is also important to make sure that all Americans have an opportunity to benefit 

from the resulting economic gains. 

To this end, the President’s Budget includes tax proposals that are geared toward 

rebalancing the tax code in a way that eases the burden on the middle class, including closing specific loopholes that benefit only a small group of the wealthiest Americans. The Budget also contains a number of proposals designed to build ladders of 

opportunity so that hard work is rewarded and inequality and poverty are reduced. 

The Budget creates a Pathways Back to Work fund to make it easier for workers, 

particularly the long-term unemployed, to remain connected to the workforce and 

gain new skills for sustained employment. The Budget would also increase the minimum wage to $9.00 an hour by the end of 2015 and index it to inflation thereafter. 

Taken as whole, the policies put forth in the President’s Budget enhance America’s competitiveness and, in doing so, create a healthy environment for fostering a 

strong, growing middle class—a key engine for sustainable economic growth in 

which hard work is rewarded and every American has an opportunity to advance 

and succeed. At the same time, we maintain our commitment to our most vulnerable 

citizens and to our seniors. 

Moreover, these new policy initiatives are fully funded, so that the Budget is able 

to make essential investments in the nation’s future while also reducing the deficit. 

IV. CONCLUSION

In summary, the U.S. economy has made significant progress toward recovering 

from the worst financial crisis since the Great Depression. However, it is important 

to recognize that we should be doing more to secure the recovery, create jobs, and 

improve the future prospects of the nation. 

We have made significant gains in the labor market, but unemployment remains 

unacceptably high at 7.6 percent and too many Americans are still looking for work. 

Congress has already passed some parts of the American Jobs Act. We can further 

support the recovery in the private sector by passing the rest. Similarly, activity in 

the housing market appears to be gaining momentum, but we need to do more to 

support credit-constrained families who want to buy a house or refinance their existing mortgage. 
13 

The President’s FY 2014 Budget, by including the components of the President’s 

December compromise offer to Speaker Boehner, reiterates a commitment to coming 

together around a balanced plan to reach more than $4 trillion in total deficit reduction over the 10-year budget window. At the same time, it prioritizes growth-oriented policies that are designed to enhance U.S. competitiveness and strengthen the 

middle class, ensuring that the resulting economic gains can be shared broadly 

among all Americans. 

In conclusion, it is important to note that this framework does not represent the 

starting point for negotiations. It represents a fair balance between tough entitlement savings and additional revenues from those with the greatest incomes. The 

two cannot be separated, and were not separated last December when we were close 

to a bipartisan agreement. 

This is my first opportunity to appear before you as Treasury Secretary, but this 

is far from the first budget that I have worked on. There is no doubt that this is 

a serious proposal at a serious time. There is a path to a bipartisan agreement that 

moves the country forward. This budget deals with the world as it is now and as 

it will be in the future. It makes difficult choices. It includes a powerful jobs and 

growth plan. And it is the right course of action for our nation and our economy, 

and a path for bipartisan agreement to move the country forward. 

Thank you. I look forward to taking your questions. 

Chairman RYAN. Thank you. If you could bring up the first chart, 

please. 

I wanted to explore tax reform with you a bit. Your budget calls 

for lowering the corporate tax rate to 28 percent. Question one: Do 

you propose to do that on a static revenue-neutral basis? 

Secretary LEW. Mr. Chairman, do you mean do we plan to use 

traditional scoring? 

Chairman RYAN. Yeah. 

Secretary LEW. Yes, we do plan to use traditional scoring. 

Chairman RYAN. But the 28 percent lowering, you plan on offsetting that and paying for it within base broadening, is that correct? 

Secretary LEW. Well, Mr. Chairman, to be clear, we propose that 

business tax reform be done in the context of overall tax reform, 

and that the overall tax reform needs to fill a gap that we have 

to get our fiscal house in order of $580 billion of additional revenue. I think that the business piece, we have said, should be done 
14 

in a way where we broaden the base and lower the rates so that 

American can be more competitive. But the overall tax package is 

going to have to raise revenue. 

Chairman RYAN. Okay, but at least we agree in the first thing 

that you said, which is, lower rates, broaden the base in order to 

lower the rates. And you do not specify how to pay for lowering the 

rates, just that we should do it through base broadening to be determined through tax reform, correct? I am not trying to lay a trap. 

Secretary LEW. We have had a number of indicative provisions 

in there, but I think there will have to others, and the business of 

broadening the base is a difficult one. It is going to require a lot 

of bipartisan consensus because each of the provisions that we 

would consider base broadening, has, you know, zealous advocates 

saying that they need it desperately. 

Chairman RYAN. The point I am trying to make is some have 

been critical of our proposals, which were to lower the rates and 

the broaden base, and do it through tax reform. It sounds like you 

are basically saying do the same thing, but on the corporate rate. 

Well, the point is, it is tough to do. It is a lot of zealous advocates 

to certain tax expenditures, and so we need to do this together 

through broad based tax reform through base broadening. So all I 

am saying is there is an area of consensus on the proper approach. 

Secretary LEW. I think there is some agreement, but I do not 

want to exaggerate. To be clear, the president’s budget and the 

president’s policy is he needs to have raisers, and the raisers would 

come from high income taxpayers. 

Chairman RYAN. Well, I want to get to that in a second. 

Secretary LEW. Yeah, who are the people who benefit from when 

corporations do well. 

Chairman RYAN. I want to get to that in a second. Here is what 

is unique about us, us being the U.S. Among, I know this chart is 

kind of tough to see, among the OECD countries, the industrialized 

world, we have a unique disproportion of businesses that file as individuals. 

Most other countries do not do this. Most other countries tax 

their businesses all sort of the same as businesses. And so when 

you see the international corporate tax rate at 25 percent, that 

means most businesses in other nations are taxed at the average 

rate of 25 percent or lesser or higher based upon the average. The 

problem is, in America, most of our businesses file as what we call 

pass-throughs, subchapter S corporations, partnerships, LLCs. And 

what you see here is, the red bar, these are all businesses that 

make in excess of a million dollars in profits, so not even the small 

of the small businesses. Most of our companies in American are not 

corporations. They are pass-throughs. And eight out of 10 of our 

businesses according to your data, are pass-throughs; nine out of 

10 in states like Wisconsin. 
15 

And so here is the question. If we now have a 39.6 statutory tax 

rate on these pass-through businesses, but we go down to a 28 percent tax rate on corporations, do you not think that is kind of unfair? Do you not that that puts those successful small businesses 

at a competitive disadvantage where they are paying a tax rate 

that is 10 percentage points higher than their corporate competitor 

that is a C corp? 

Secretary LEW. Mr. Chairman, I think this Administration has 

had a very strong record of putting forward tax proposals to benefit 

small businesses. We have had 18 separate proposals. So we very 

much agree that there need to be incentives for small businesses. 

Chairman RYAN. But what I am asking you is the rate, their actual rate that they pay. First of all, we were at 35 for years. Now 

the top statutory rate is 39.6 for these businesses, 35 for corporations. You want corporations to go to 28, but keep the small businesses at 39.6. Do you not think that difference is discriminatory? 

Do you not think that puts them at a competitive disadvantage? 

Secretary LEW. One of the reasons that it is important, just as 

an intellectual matter, do individual and business tax reform at the 

same time, as those businesses make their decision how to organize, they need to know what the individual tax code is and what 

the business tax code is. There will be opportunities for small businesses to perhaps file as corporate taxpayers and get the benefit 

of lower rates when we have a statutory rate that is lower because 

we have eliminated a lot of the special provisions that keep the 

statutory rate high. I think as we all know, the average rate is 

much lower than the statutory rate. 

Chairman RYAN. So you are suggesting that we keep the statutory rate high, and if a business does not like it, they should become a corporation? Is that kind of what you are saying, the relief 

that the Administration envisions for them? 
16 

Secretary LEW. I think that we share the concern for small businesses. We have proposed, on 18 separate occasions, tax benefits to 

help small businesses. We would look forward to working on a bipartisan basis to make sure that there are strong incentives for 

small business. I think that the rate that you are describing is not, 

for the most part, raising revenue because it is hitting small businesses. It is hitting a lot of people with considerable income that 

comes from corporate income, that comes from financial services income, that comes from law firm income. So I think it is important 

that we not mix things up. If we want to encourage small business, 

we can work together. I think we agree we want to encourage small 

businesses. 

Chairman RYAN. Yes, see, there is the issue, which is we can add 

more loopholes to the code to try and alleviate pressure from taxes, 

but instead of having the loopholes, why do we not plug the loopholes and just lower the rates. That way, these businesses get to 

decide for themselves what to do with their capital, how to invest 

their capital, how to create jobs. There is where we are going to 

have an issue when it comes to tax reform. I do not want to dwell 

on this because I am putting myself on a clock as well so we can 

get to everybody else here. Has the president made any proposals 

since he has been president that raise taxes on families earning 

less than $200,000, or $250,000 for joint filers? 

Secretary LEW. The president’s pledge that his tax policies 

should not hit people below 250 have been borne out by the policies 

that we have enacted and by the policies we propose. I know there 

is some disagreement in categorizing certain things, but I would be 

happy to have that conversation with you. 

Chairman RYAN. Well, I am not trying to lay another trap, I am 

just trying to say, first of all, the Supreme Court says that the 

health insurance mandate is a tax that obviously hits everybody. 

The 2.3 percent tax on medical devices, that hits everybody, including people making less than $200,000. The cigarette tax, smokers 

do not just make about $250,000. But the new 28 percent tax rate 

limitation on deductions, that kicks in at families making $223,000. 

The point I am trying to make is, you are already kind of reneging 

on this promise, and the biggest tax increase proposal you have in 

your budget does that as well. It taxes families below your definition of middle-income thresholds. And the point I am trying to 

make here is, you cannot get all of this revenue you want to fuel 

all of the spending without taxing middle class people. There just 

are not enough high income earners there, the kind of money that 

you are looking for from taxes, to pay for all of this spending. And 

I think your budget acknowledges this by the fact that you are actually proposing to tax people below the threshold that you define 

as being middle income. 

Secretary LEW. Mr. Chairman, I would be happy to go and give 

you a quick answer on those issues. In terms of health care, it was 

designed as a responsibility fee to make sure that everyone had 

coverage, and that when people go to the hospital, they are carrying their own fair share of the burden. We designed it that way, 

Congress designed it that way. The fact that the Supreme Court 

chose to see it as something that fell under the taxing powers does 
17 

not make it a tax in terms of the way it was enacted, the way it 

was conceived, or what it does. 

Chairman RYAN. Irrespective of the fact that your lawyers argued it was a tax in order to maintain its constitutionality. 

Secretary LEW. You know, legal arguments can define categories 

that have different boundaries for different purposes. I think that 

the reality is that if you do not have health insurance and you go 

to the hospital, somebody else is paying the bill. And it is a way 

of making sure people pay their own way. On the cigarette tax, we 

dearly hope that people decide not to buy cigarettes, not to smoke, 

that fewer young people smoke. We will get more benefits to this 

country from lower health care costs and better health, and we will 

be net-net better off. So it is something that people make the choice 

on whether or not to smoke. It is designed to discourage smoking. 

Chairman RYAN. That is fine. Look, the fact is it hits people who 

are middle income. The point I am trying to make is, if you want 

to get all this kind of tax revenue you are talking about, it does 

not just come from the movie star or the hedge fund manager. It 

does, from your own budget’s acknowledgement, come from middle 

income people, lower income people. I have got a minute left. Secretary Lew, when do you project the X date to hit? This is on the 

debt limit. As you know, May 19 is the statutory date where the 

clock is so-called reset. You have extraordinary measures. What is 

your latest projection on when you think those extraordinary measures play out? 

Secretary LEW. Mr. Chairman, it is very challenging this year to 

make a precise prediction, and we do not have, at this moment, a 

precise prediction. It was a late filing season in the tax code this 

year because the law was enacted in January. So we do not have 

even a good sense of what the cash flow on revenues is. 

Chairman RYAN. What month do you think it is going to hit? 

Secretary LEW. I hate to answer when I do not know with clarity. 

You know, the sequester? We do not have a good sense of what the 

outlay impact month to month will be of the sequester, and there 

is some very uneven payments that we cannot schedule the timing 

of. So we could be plus or minus quite a considerable period of time 

if I were to give you an estimate today. So we are going to need 

to keep working on this. 

Chairman RYAN. Well, just keep us updated, all right? 

Secretary LEW. I think the important thing that we need to recognize is that May 19 was set as a statutory limit. It was a date 

that was set, not a number that was set. And the right thing to 

do is to extend the debt limit to remove any uncertainty so we are 

not in this place where people are wondering how many days or 

weeks do we have. May 19 was set as a date, and we certainly hope 

Congress will act accordingly. 

Chairman RYAN. Mr. Van Hollen. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. Again, Mr. Secretary, thank you for being with us. And I had not planned to raise 

it, but the Chairman once again raised the ObamaCare issues, including the fees, which he referred to as taxes, whatever you want 

to call them. I think it is important to point out that the Republican budget assumes that stream of revenues. In fact, they claim 

to balance their budget over 10 years, but as the chart up here will 
18 

show, at the 10-year mark, their budget is about $7 billion in surplus, but they count on two sources of savings from ObamaCare. 

One, the Medicare savings, which we achieve by ending overpayments to some of the insurance companies and modernizing the incentive structure, but also the revenue stream included in 

ObamaCare. Without those elements, or some substitute which 

they have not told us about, their budget would not be in balance. 

And I think that is an important point to make. 

Chairman RYAN. Gentleman care to yield on that? 

Mr. VAN HOLLEN. I am happy to yield with extra time. 

Chairman RYAN. See his explanation on corporate tax reform. 

Mr. VAN HOLLEN. So let’s now go to the issue of taxes because 

the Chairman suggested the president’s plan could have an impact 

on middle income taxpayers. As you pointed out, the president has 

been very clear on drawing the distinction between asking higher 

income individuals to pay their fair share of the burden and not 

put additional burdens on middle income taxpayers. I know you 

have had a chance to look at the math in the Republican budget 

where they would drop the top individual rate from 39 percent to 

25 percent, claim to do it in a manner that is deficit-neutral, and 

the analyses that I have seen, including those from the Administration, show that the only way to accomplish those two objectives is 

if you, in fact, increase the tax burden on middle income families 

by somewhere, on average, of $2,000 to $3,000. Could you comment 

on that? 

Secretary LEW. Congressman, first of all, I want to go back and 

agree with you on the question of how to think about the health 

care bill. The fact that people are paying for health insurance and 

getting health insurance is very different than leaving the payments there but not giving them the health insurance. And it is 

just they cannot be compared. On the question of the budget that 

the majority here has put forward, it has an enormous reduction 

in tax rates. It does not specify how to pay for it, and there are 
19 

not enough tax deductions at the top to pay for it. So if you are 

going to lower the top rate as much as that budget would do, it 

would put billions of dollars, trillions of dollars of burden on middle 

income taxpayers. How it was designed would have to be something that was worked out, but there is just not enough room at 

the top in order to pay for it. So if you are going to lower the rates 

at the top, even if you were to eliminate the benefits, you could not 

manage to pay for that rate reduction without raising taxes on people below. Whether it is $1,000 or $2,000, you would have to look 

at a specific design to know. I cannot comment at that level of specificity. But it would be a significant increase, I think, on middle income taxpayers. 

Mr. VAN HOLLEN. No, I appreciate that, and just to amplify on 

the earlier point you made where the Republican budget actually 

gets rid of the health care benefits but keeps the savings, including 

the revenue stream in the budget, is sort of giving people the 

toughest end of the bargain on both ends, right? And it would also 

create havoc in our health care system if you were to take away 

the new people who will now be covered by insurance going into 

the exchanges in that process. 

Could you just elaborate a little bit more on this distinction that 

you made? There is a lot of talk about how businesses that file as 

pass-through entities are small businesses. There is a lot of misconception about that. When you dig a little deeper, you find out 

that those so-called small businesses include businesses on the Fortune 100 list, they include a whole lot of Washington lobbyists who 

are making hundreds and hundreds of thousands of dollars, Washington attorneys, other folks. So as we talk about tax reform and 

this distinction between pass-through entities and corporate tax entities, I think it is important to remember that the Administration’s proposals have always protected true small businesses, mom 

and pops, but do believe that some of those very high income filers 

should pay more. Could you elaborate on that? 

Secretary LEW. Congressman, if you look at where the revenue 

at the top end of the spectrum comes from, it is mostly coming 

from very wealthy individuals and larger businesses. I think that 

when we had a bipartisan agreement at the beginning of this year 

to resolve the issue of the top rates, it was not raising taxes on 

small businesses, you know, in any kind of a broad way. I do not 

disagree with the notion that we need to encourage small business. 

That is why we have had a lot of specific incentives for small business. But we have to be very targeted in how we do. If we are going 

to try to help small businesses, we ought to make sure the benefits 

go to small business, not to the wealthiest individuals who really 

can afford to pay more. 

Mr. VAN HOLLEN. You are right, and there is a long list of corporations that I am sure most Americans would not consider small 

businesses, who filed as pass-through taxpayers. Let me just say 

word about the compromises. You pointed out the president included in his budget proposals that have been made by Speaker 

Boehner and Republican Senate Leader Mitch McConnell, including chained CPI, which creates concerns among many of us, many 

in the president’s party. And yet the House Republican budget does 

not include the provisions that they themselves asked for, nor do 
20 

they include any revenue from closing the tax breaks that we hear 

a lot of talk about on the Republican side. We know that Speaker 

Boehner during, those discussions with the president last winter, 

talked about a trillion dollars in revenue that could be generated 

from closing tax loopholes, and he specifically said by closing tax 

loopholes and breaks that disproportionately benefit very wealthy 

people. Early on in the process, he made a big announcement about 

how he could find $800 billion by closing tax breaks that disproportionately benefit very wealthy people. 

So you would have thought the in the spirit of compromise, that 

Speaker Boehner and the House Republicans would have included 

those things that the Speaker put on the table, and I hope that 

since the president has gone way out there and moved to meet the 

Republicans at least halfway, that in the coming weeks, we will see 

our Republican colleagues put back on the table the things the 

Speaker himself had called for. 

And we all know that one of the issues we are going to be confronting in the next weeks and months, as you and the Chairman 

pointed out, is the debt ceiling. And I hope we have all learned 

from our experience in the summer of 2011 that it is irresponsible 

and reckless for the United States to suggest that it will not meet 

its financial obligations, whether they are to bondholders, whether 

they are to Social Security recipients, whether they are due to 

other people who have contracted with the United States government. Now, in the House in the next couple weeks, we are expected 

to take up a bill that says, ‘‘You know what? We can prioritize our 

debts. You know, there are some debts that we will say come first, 

but other debts and obligations that the United States government, 

including this Congress, have taken on. You know what? They do 

not have as high a priority.’’ Could you, Mr. Secretary, as secretary 

of the Treasury now, comment on what impact it would have on 

our economy, and what signal it would send to the international 

economy, if the United States were to default on any of its obligations. 

Secretary LEW. Congressman, I have to say that the notion that 

you can prioritize which of the obligations that Congress has authorized should be paid is one that just does not work. It does not 

prevent default, it just shifts what obligation you are defaulting on. 

And we have never in the history of this country defaulted on our 

obligations, and we cannot even let that be considered as an option. 

I do not think there is any alternative but for Congress to pass an 

extension of the debt limit. It would be a mistake to repeat the 

kind of brinksmanship that we saw in 2011; it hurt confidence in 

our economy. And there is no alternative. Congress cannot reduce 

the spending that it has already obligated. Those are obligations, 

and the United States pays its bills. 

Mr. VAN HOLLEN. I am not sure lots of people recognize that the 

last point that you made very quickly, which is these are obligations which the United States Congress has already voted to undertake, right? 

Secretary LEW. Correct. 

Mr. VAN HOLLEN. The Congress has voted to take on these obligations. The United States has made commitments based on those 

commitments. Could you just amplify that point? 
21 

Secretary LEW. Congressman, there is no spending that has 

taken place that has been authorized by Congress. It has either 

been appropriated or it is provided for through permanent legislation. And when the United States undertakes an obligation, whether it is an obligation to pay rent, to pay for materials, to pay for 

labor, or to pay bondholders, they are all obligations that were authorized by Congress. Failing to pay an obligation that has been 

authorized would be unprecedented. It would be a form of default. 

And all the prioritization does would sequence which bills would be 

paid, but it would not leave you in a position to pay all your bills. 

Chairman RYAN. Thank you. Mr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. I want to welcome you, as 

well, Mr. Secretary. I think it is important as we work through this 

budget season to talk about the goals of budgets. And the goal of 

our budget on the Republican side was to create, is to create, the 

greatest amount of opportunity for the greatest amount of success 

for the greatest number of people to return and to expand the 

American dream. We believe that our budget would do that. Sadly, 

we do not believe that the president’s budget gets us moving in 

that direction as the president’s budget, your budget that you submitted, increases debt, increases dependency, increases spending, 

increases taxes, in fact, grows the government instead of growing 

the economy, with a budget that never, ever, ever gets to balance, 

unlike your experience in one of your periods at OMB. 

That being said, though, I am intrigued by a couple things that 

you said. One, I think I heard you say that the Administration is 

interested in moving forward with corporate and individual tax reform simultaneously. Is that correct? 

Secretary LEW. Correct, as part of an overall fiscal plan. 

Mr. PRICE. As part of an overall fiscal plan in order to lower the 

corporate rate; does the Administration contemplate removing deductions, credits, expenditures on the individual side to cover a decrease in corporate tax rates? 

Secretary LEW. Our notion has been that we cannot lose any revenue through corporate tax reform, and so I would think that we 

can only lower the rate on the business side as much as we are 

able to broaden the base on the business side. I think we have a 

pretty big hole to fill in terms of a fiscal plan, $580 billion. 

Mr. PRICE. If you go to silos. 

Secretary LEW. Well, I think if you view tax reform overall, it is 

going to have to raise $580 billion. If you did the corporate business side on a revenue-neutral basis, that means that the 580 

would come from the individual’s side, and we think it should come 

from the top end. 

Mr. PRICE. So there is some potential to utilize closure of expenditures on the individual’s side. 

Secretary LEW. No, I did not say that. We have not entertained 

the notion that there would be individual revenue raisers to pay for 

business rate cuts. 

Mr. PRICE. A couple other quick points. I know that you have recently met with some of the European officials, France and Germany, I believe, and you are certainly aware that the EU countries 

are contemplating a raising a new tax on U.S. retirees and other 

investors by taxing financial transactions here in the United 
22 

States. I know that last week in response to a question from Congressman Neal, you said that it was the Administration’s policy 

that it is not acceptable policy, from our perspective, for other 

countries to create a tax that has an extraterritorial reach and 

would levy a tax on a transaction in the United States. Would you 

support legislation that would prohibit that kind of tax from the 

EU? 

Secretary LEW. Congressman, I have delivered a very clear message to our European friends that it is unacceptable, and I think 

we need to work with the various institutions in Europe to make 

sure that they do not impose taxes here. I think we would have to 

look and see what the shape of it was before I could answer that 

question. So I do not know what the impact of the legislation would 

be. I think, from the question you are asking, I think we totally 

agree that it is unacceptable for a foreign government to levy a tax 

in the United States. 

Mr. PRICE. We have got a bipartisan group that is moving forward with a piece of legislation on that. 

Secretary LEW. I look forward to working with you on that. 

Mr. PRICE. I want to move to IRAs. You propose in your budget 

a cap to IRAs, and the White House has said, curiously, some individuals can accumulate substantially more than is needed to fund 

reasonable levels of retirement. Is it the Administration’s position 

that it is the role of the federal government to define what a reasonable level of retirement is, not from the governmental subsidy 

standpoint, but from what individuals are allowed to accumulate? 

Secretary LEW. No, to be clear, our policy does not limit what 

people can save for retirement, it just limits the availability of tax 

benefits. And we have said that $3 million is a limit that is where 

the tax benefit should no longer be available. But we have never 

said that people should not save as much as they choose to for their 

retirement. 

Mr. PRICE. So you do not believe that it is the federal government’s role to define a reasonable level of retirement? 

Secretary LEW. Well, our policy would have no impact on people’s 

decisions, you know, without regard to taxes. 

Mr. PRICE. But it does. The tax policy affects activity, does it not? 

Secretary LEW. Well, the tax benefit does not have to be there. 

If somebody sees the value of saving and the compounding over 

time, and they want to save more, they can do that. 

Mr. PRICE. But if you tax something, you get less of it, correct? 

Secretary LEW. Well, the special tax incentive for saving for retirement, the average American has on the order of $50,000 saved 

for retirement. I think our goal has to be to have more and more 

people participate in retirement savings to build that leg of the 

stool so that more Americans have it. And in a world of tough 

choices, the tradeoff between a $3 million-plus retirement and getting people into the system is clear. 

Mr. PRICE. We would suggest, Mr. Secretary, that it is not the 

federal government’s role to define what that reasonable level is, 

and that all individuals ought to be treated the same and equally 

so that greater opportunity, greater success, greater dreams being 

realized. 
23 

Secretary LEW. And to be clear, we do not discourage people from 

saving without the benefit of the special tax provision. 

Chairman RYAN. Ms. Schwartz. 

Ms. SCHWARTZ. Thank you. Just to be clear on that last point, 

I would say that I agree with you that people should be able to 

save all they want, but to understand that if we are actually creating a tax benefit to do that, that those middle class families and 

lower middle class families are subsidizing those who are then saving over $3 million. So it is really not a question of government. 

It is really a question of what do taxpayers, most of whom are middle income or lower middle income, subsidizing multi-millionaires. 

That is the question. 

So, what I wanted to ask you about was about economic growth, 

and the focus of the president’s budget on deficit reduction, on 

meeting our obligations but also on economic growth, and the role 

we could play in getting the tax policy right and the incentives 

right to stimulate and to engage with the private sector to build 

private sector jobs. I do want to ask specifically about manufacturing and advanced manufacturing, and as I do, I want to say that 

I believe very strongly, I think that Mr. Van Hollen said this, that 

we do need to do the basic research, and we do need to incentivize 

that by funding NIH and some of the energy work we do. But then 

we also want to be able to produce those products here in the 

United States. 

Now, so, three points I want to make, and then I would like you 

to respond to them. I very much appreciate the fact that, I am representing Pennsylvania, there are communities that have struggled 

after a loss of a major plant closing, base closing. So I wanted you 

to just take a moment to talk about the initiative that is in the 

budget that would encourage communities hard-hit by plant closings or changes in the economy, if you would define that better 

about what kind of incentives would be available to bring manufacturing back, particularly advanced manufacturing, a very skilled 

workforce. I recently visited with Acting Secretary Rebecca Blank 

at a training facility that is run by a union, a few new unions, 

about workers, new skills that are really quite high tech, I have to 

say. So I wanted you to talk about that. 

Also, I wanted to bring up the fact that I actually have, it is a 

bipartisan bill to incentivize manufacturing of innovative products, 

those products that are made off of a patent. Again, we are competing internationally. We have seen the EU interest, and Britain 

just reducing the tax rate for advanced manufacturing for products 

made off of patents. I wondered if you would speak to the possibility of doing something like that in the United States so that we 

do not do all the research, create the product, have the innovation, 

get the patent, and then go make it somewhere else. And so if you 

would speak to that. 

And third, just to follow-up on the conversation about the corporate tax rate and small business tax rate, the fact is that that 

is a choice that businesses are making. That is their choice to be 

treated as a pass-through, to use the individual rates, and, truthfully, they do it because it is cheaper for them. That is what they 

do. They could decide, and some of them have thousands of employees, Mr. Ryan talked about the fact that he is concerned about 
24 

those businesses that have profits of over a million. This is not 

your mom and pop cleaners on the corner, or a little store that has 

profits. This is not receipts. These are profits of over a million dollars, possibly considering themselves to be big business at this 

point in corporations. So I hope we get that right. I co-chair the 

working group on the Ways and Means Committee on small businesses, and we are deeply concerned about this very issue, about 

what kind of rate they receive or can make the choice for. 

So, long question, I apologize. But those three areas are a keen 

concern to us about how to incentivize manufacturing, make sure 

that not-such-small businesses pay the proper rate, and as we 

lower corporate rates, that you can take advantage of those, which 

they certainly can. So, Mr. Lew. 

Secretary LEW. Congresswoman, I will quickly try to answer all 

three pieces. In terms of our incentives for what we call the new 

manufacturing communities tax credit, it is really designed to be 

of assistance to communities that have been hit by the kinds of dislocations that you described. We have left open, a little bit, the design of it. It could either be designed like the new markets tax 

credit or more like the advanced energy credit. 

Ms. SCHWARTZ. Which would work very well. 

Secretary LEW. And we would look forward to working with Congress on a bipartisan basis to getting it right in terms of designing 

it. 

Ms. SCHWARTZ. I would be very interested, and also which kind 

of communities get hard-hit could be able to take advantage of this. 

Secretary LEW. On the question of corporate tax rate, you know, 

I think for any entity that chooses to go into a system with a top 

rate that is higher, they are doing it because the net tax burden 

is lower. So I think your fundamental point is correct. Our goal is, 

when we look at the business tax side, is answering this question 

of why are companies moving overseas. There are lower statutory 

rates overseas which are driving some companies to make the decision to relocate in other countries. That is not good. It is not good 

for headquarters jobs, it is not good for long-term job growth in 

America. So we view it as being part of our growth and jobs agenda 

to have the corporate business tax rate be more competitive in the 

world. 

Ms. SCHWARTZ. Which is why we are all interested in lowering 

those rates. 

Chairman RYAN. Thank you. Mr. Garrett. 

Mr. GARRETT. Thank you. Mr. Secretary, thank you. I want to 

talk about transparency from a practical and policy perspective, 

first of all with regard to your answers on the Affordable Health 

Care Act, since the term you are using is responsibility fee. Okay, 

I understand that. Would you support, then, if I dropped in a piece 

of legislation saying going forward that that is exactly what the 

ObamaCare or Affordable Health Care Act is, it is a responsibility 

fee. Will the Administration support legislation designating that 

since that is what you just said? 

Secretary LEW. I think that we have legislation, we are implementing legislation. 

Mr. GARRETT. No, no, no. Yes or no. I am going to give you a 

bunch of yes or no questions. 
25 

Secretary LEW. We are happy with the ACA as it stands. 

Mr. GARRETT. Okay, so you will not support what you just gave 

testimony to the Committee. With regard to transparency on practicality policy, is it true, I just want to get through this one quickly, 

that as you come here as secretary that you formerly worked on in 

the financial sector working for a firm that crafted a unique provision in your contract that you would be paid an extra bonus for 

taking a federal position like you have now? 

Secretary LEW. That is not what my employment agreement said. 

Mr. GARRETT. Anything close to that? 

Secretary LEW. I receive no extra compensation. I just did not 

lose my pay for the prior year. 

Mr. GARRETT. So the articles in the Wall Street Journal saying 

that there is a $400,000 payment, that you were able to keep that 

payment if you got a job. 

Secretary LEW. I went through all these issues at my confirmation hearing. 

Mr. GARRETT. I understand. But I am not a senator, I am a congressman. So is it yes or no? You were not able to keep that money 

because you took this Administration. I have never had anybody 

come before this Committee that ever had language in their contract. That is why I was just curious about that. 

Secretary LEW. I was paid for my work in the prior year. 

Mr. GARRETT. Okay. Regarding transparency, then, with regard 

to the GSEs, right now there are explicit guarantees for the GSEs 

that has cost American taxpayers $183 billion to bail them out. 

Would it not be appropriate, and honest, and transparent if we actually put the GSEs on budget? 

Secretary LEW. You know, we have moved to put all of the expenses that the federal government expects to take on budget. 

Mr. GARRETT. All of GSEs, their debt should all be on budget. 

Secretary LEW. We have put on budget the things that have an 

impact on budget. 

Mr. GARRETT. Well, obviously there is a continuing impact of the 

GSEs, and we are going to continue to pay out for them if they go 

the other way, so business, the private sector, where it used to be, 

is not allowed to have these things off budget anymore, so should 

that not be the way here on the federal government level, too? 

Secretary LEW. Well, Congressman, we are showing on the federal budget the impact on the federal budget. What we are also 

doing is we are winding down the assets that are in conservatorship and reducing the taxpayer’s exposure. 

Mr. GARRETT. The answer is no, you do not to be totally transparent and put the entire GSE obligation on budget. 

Secretary LEW. I am describing what we have chosen to do. 

Mr. GARRETT. Which is not to put it on. 

Secretary LEW. Which is put the burden that shows up on the 

federal government on the budget. 

Mr. GARRETT. Reclaiming my time. With regard to FHA, they 

originally, in their projection, showed a negative cost cohorts from 

1992 to 2011, which basically means that we were able to expend 

that money on our side. At the end of the day, the actual amount 

came out to be $18 billion on the upside, which means they were 

off by around $22 billion. In light of the fact that there is an auto-
26 

matic line of credit, does this concern you, and does it concern you 

that they are not treating the FHA with a fair value basis accounting? 

Secretary LEW. I think that we do treat the FHA properly. I 

think that the legislation that provided for the FHA provided a 

band within which they are functioning. 

Mr. GARRETT. Right. But, obviously, they have been wrong with 

their projections from 1992 to 2011 every single year, and so they 

have been wrong in part because they did not have to use fair 

value accounting. 

Secretary LEW. I do not believe that is the reason. 

Mr. GARRETT. Are you saying you have you tried to change that? 

Secretary LEW. I do not believe that is the reason the estimates 

have changed. 

Mr. GARRETT. But they have been wrong during each one of 

those years, correct? 

Secretary LEW. The estimates have been corrected in both directions over the period of time you are describing. 

Mr. GARRETT. Well, collectively, it is an over $40 billion collective 

figure. 

Secretary LEW. I am just saying, I do not think it is an issue of 

fair market accounting. It has to do with the levels of activity. 

Mr. GARRETT. You think that you were going to propose to make 

it more transparent and accurate in their protections of their revenue? 

Secretary LEW. We have shown in this budget the impact as it 

is presently estimated. 

Mr. GARRETT. With regard to the GSEs, your predecessors made 

promises for four years with regard that they were going to do and 

reform in that area; do you have any intentions in the short term 

to make any recommendations? 

Secretary LEW. We have continued to work on it. There is policy 

being discussed. I think the important thing is that as we are 

working on a longer term plan, we are winding down the assets. 

Mr. GARRETT. Do you have a date you have coming for us? 

Secretary LEW. I cannot give you a date right now. 

Mr. GARRETT. With regard over the counterswap markets, we understand there are two plans going out with the SEC and the 

CFDC; do you believe that is an appropriate arbitrate that is going 

on between these two, and will you take any role to make sure that 

they act jointly in their manner going forward on this? 

Secretary LEW. Well, through the FSOC, there is a discussion 

that goes on at in a lot of these. 

Mr. GARRETT. More than discussion, will you actually action like 

you have with the money market fund? 

Secretary LEW. As chair of FSOC, I will use the authority that 

I have. I do not take the place of the regulatory agencies. 

Mr. GARRETT. You do in other areas. 

Secretary LEW. It is not a broad power to tell them what to do, 

but we are working closely on the important issues of implementing Dodd-Frank. 

Chairman RYAN. Thank you. Mr. Yarmuth. 

Mr. YARMUTH. Thank you, Mr. Chairman, and Secretary Lew, 

nice to see you here today. I want to get to the issue of tax fairness 
27 

on the individual, and I agree with my Republican colleagues. A lot 

of times when I resist the notion to talk about fairness because 

that is always going to be in the eyes of the beholder, and what 

somebody at moderate or lower income considers fair is going to be 

a lot different than what somebody at a higher income level would 

think. And you use the word of the wealthier Americans can afford 

a certain tax payment. I kind of resist that word as well because 

just the ability to afford it is not a rationalization for any tax rate, 

lower or higher. I am interested, though, in the concept of what has 

happened with income growth in the country over the last few 

years because this seems to me to be the justification to asking 

wealthier Americans to pay more, because it is not just because 

they are wealthier, it is just that they are making more and more 

of the national income. Could you give us a little bit of data on 

what has happened with the upper 1 percent of income growth as 

opposed to everybody else? 

Secretary LEW. Congressman, I think that is exactly the point. 

We have seen income growth at the high end eclipsing income 

growth in the middle and the bottom. You can only tax income 

where it falls, so if you end up with very disparate distribution of 

income, the tax system ought to reflect that. And I do not think it 

is a question of saying it is because they can afford it. Obviously, 

that is part of it. You do not want anyone to be bearing a burden 

they cannot afford. But it is also where the income is, and if we 

want to do anything to correct the distribution of income in this 

country, our tax laws have to be part of that. I think we made big 

progress at the beginning of this year in raising the top rate to 

39.6. I think that was an enormous step. It was the biggest step 

in a long time in terms of dealing with some of that inequity. I do 

not think you can do it expressly through the tax code. We have 

to look at growing the economy and creating good, high-paying jobs, 

and there needs to be a really strong engine of middle class job creation in this country. And that is what our budget is really aimed 

at doing. 

Mr. YARMUTH. That is a perfect segue into my next question, because a lot of people are concerned about what a federal budget, 

whomever it comes from, does to promote job growth, and you have 

incorporated many of the provisions of the American Jobs Act in 

the budget, and I am very happy about that. The Republican budget seems to rely solely on the dynamic of cutting taxes as a way 

to create more jobs. There is nothing else in there that I can find 

that has any kind of job creation effect. So judging from the fact 

when we cut taxes in 2001 and 2003, those tax cuts did not result 

in robust job growth, as far as I can remember. And so is there any 

reason to believe that the economy has changed in such a way over 

the last 10 years that the dynamic would change and significant 

tax cuts at this point would result in job growth? 

Secretary LEW. Congressman, I think we have seen there are 

some tax policies that actually stimulate economic growth. The 

payroll tax cut was a very effective way for a short period of time 

because it put money in the pockets of people who spend most of 

their paycheck. Tax cuts at the high end do not seem to stimulate 

the economy very much because a lot of the benefit of the tax cut 

is going into savings. And if you are trying to stimulate demand, 
28 

it is getting money into the hands of people who are spending their 

paycheck. So I think it depends on the nature of what the tax policy is. 

I think if you look at this budget one of the important things it 

does is it backs out the sequester. The sequester was not designed 

to be good policy, it was designed to be bad policy, and that turns 

out to be something you can accomplish. If you set out to design 

bad policy, you can deliver bad policy. The reason it was meant to 

be bad policy was to create an incentive for Congress to act and 

reach a bipartisan agreement on good policy. The sequester will be 

a drag on the economy. It will cost us a half a percent of GDP if 

it stays in place. Now, at a time when we are struggling to get in 

to the mid 2s in terms of GDP growth, if we could have another 

half a percent of GDP, that is hundreds of thousands of jobs. Now, 

I think that is an important enough reason to come together in the 

sensible center. If you look at the specifics, our budget promotes 

not just pieces of the Jobs Act, but it has short-term spending increases of infrastructure to jumpstart building, what every CEO I 

meet with tells me we need to compete in the future, which is the 

roads, the bridges, the seaports, and the airports to compete in the 

21st century. 

And I do not think education can be left out. Education is both 

the opportunity for the future, and it is real short-term employment. This is the first recovery that I have ever seen where state 

and local hiring is a headwind the way it is in this recovery, and 

the more we can put people back to work teaching, the better we 

are going to be in the future and the short term. 

Chairman RYAN. Thank you. Mr. Campbell. 

Mr. CAMPBELL. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary. The vast majority of people who smoke in America are 

low and moderate income people. So the cigarette tax increase in 

the president’s budget will, generally, largely hit low and moderate 

income people with a tax increase that is in the president’s budget 

of somewhere between $6.5 billion a year to $10 billion a year, depending on the year. That is just fact, but that is actually not what 

I want to focus on. What in the budget you did was the cigarette 

tax increased funds and a new entitlement program. This was done 

in California, my home state, some time ago, and guess what? You 

said that you expect the cigarette tax revenues to decline because 

you hope it will discourage people from smoking. Your budget numbers do not quite reflect that, but let’s presume that is the case. 

That has been the case in California. Then what you have is you 

now have an entitlement created that runs out of money. In fact, 

we have that situation in California, where this entitlement will 

completely run out of money by 2016. Even in your budget, in the 

president’s budget, it shows that this new entitlement, at the end 

of the 10-year budget window, has a deficit of $5 billion, and over 

time, the entitlement will increase while the revenue source will 

decrease. Is this not exactly what got us into the deficit problem 

we are in, and you are just replicating it with a new program? 

Secretary LEW. Congressman, I think the budget projection 

shows what we expect the revenue will be. I was, earlier in the 

hearing, expressing my hope that we would see a decline in smoking. It is not what is reflected in the numbers or the analysis. 
29 

Mr. CAMPBELL. But then the deficit would be even worse. 

Secretary LEW. If I could just respond to your question. If we get 

the revenue, then we pay for the program, and that is within the 

budget estimate. I have to look at what the last year issue that you 

are describing is. I was not working on the year-to-year numbers 

as treasury secretary of the spending side. The benefit of reduced 

smoking, if it were to occur, would reduce spending dramatically. 

I mean, if you look at what is driving health care costs in this 

country, it is things like smoking and obesity. So either way, we 

are going to cover the cost. We are either going to cover it with a 

revenue, or there will be savings because of better health care outcomes. 

Mr. CAMPBELL. But not in this new entitlement that has been 

created, because you show a deficit in the entitlement, so you have 

an entitlement that will not have a funding source. 

Secretary LEW. We have proposed a funding source to cover it 

through this period. What happens after the period, I have to look 

at. 

Mr. CAMPBELL. And I know you have not been able to look at 

every line item, but it actually does not. By your own numbers, it 

runs a deficit through most of the 10-year window. Let me ask you 

about another thing in the budget. The funding for the International Monetary Fund, the IMF, I believe you have $63 billion 

in there, which, on the margin, everything we spend will be borrowed, so that $63 billion which we will borrow in order to increase 

funding to the International Monetary Fund. And you also propose 

to make it a mandatory program, basically an entitlement. So 

given the domestic programs under pressure currently, given the 

deficit that we have, do you, does the president believe that borrowing $63 billion to further fund the IMF is a good use of resource? 

Secretary LEW. To be clear the proposal that we are making on 

the IMF is to swap what we have contributed to the new agreement to borrow into the IMF. It is really a shifting. 

Mr. CAMPBELL. But we could get that money back. 

Secretary LEW. We have made the commitment. We have made 

that commitment already. We are proposing just moving it to a different place because it has better effect there. 

Mr. CAMPBELL. It is kind of almost in an escrow account now. 

This will actually be moving it to the IMF is what you propose, but, 

so, you believe that that is something we should and should spend 

money on, even given that the amount of it, $63 billion, is almost 

the amount of the sequester. 

Secretary LEW. Yeah, I think when you look at the IMF, it is 

complicated because we had assets that back up what we put in 

the IMF, so in terms of what the actual exposure is, it is not quite 

the same as direct spending. But I think the important thing about 

IMF is the policy. The policy is that we have a veto in the IMF, 

we have a controlling voice when we need to, we have leverage so 

the United States can influence the economic decisions around the 

world, and it is something that our international leadership depends on. 

Mr. CAMPBELL. In my last 25 seconds, I believe you want to also 

make it a mandatory program, effectively making contributions to 
30 

the IMF an entitlement, to use another word. Why do you want 

that? 

Secretary LEW. I am sorry, could you repeat that? 

Mr. CAMPBELL. You make it a mandatory program, the IMF, contributions to the IMF; why? 

Secretary LEW. I mean, it actually could be done either way. It 

is an existing funding stream, we are proposing moving it, and we 

would be open to working with the Congress on doing it in the 

most expeditious way. And I would just point out, I think that one 

of the reasons we are talking about different numbers on the tobacco tax covering the program is that you are looking at budget 

authority and we are looking at outlays, but I would be happy to 

follow up. 

Chairman RYAN. Thank you. Mr. Pascrell. 

Mr. PASCRELL. We have heard, Mr. Chairman, plenty of rhetoric 

about how the budget House Democrats propose never balances. 

And good morning, Secretary, great to see you. 

Secretary LEW. Good morning. 

Mr. PASCRELL. When was the last time we had a balanced budget 

in this country, Mr. Lew? 

Secretary LEW. It was in 2001. 

Mr. PASCRELL. And what were you doing? 

Secretary LEW. I was the director of the Office Management of 

Budget. 

Mr. PASCRELL. How many times after World War II, where we 

ran up a massive war time deficit, but before the Clinton administration; before the Clinton administration, did the budget balance? 

Secretary LEW. There were years when there was balance, but 

there was no other period when there were three consecutive years 

of balance or surplus. 

Mr. PASCRELL. How did we end up reducing our public debt 

throughout that time period without technically balancing the 

budget the entire time? How did we do that? Is that magic? Is that 

finagling the numbers? 

Secretary LEW. The truth is our economy was growing faster 

than were deficits, and as long as the economy is growing faster, 

you are making progress, and we were able to, through growth in 

the interwar period, very much reduce, almost eliminate, the deficits that were built up to pay for World War II. 

Mr. PASCRELL. Before I ask my next question on that, then we 

go back to 2008, we had a choice, 2009, when we had no growth, 

to continue and sustain what we were doing, and that was nothing 

the federal government, and trying to improve the job market and 

the economy, and I listen to folks on the other side who tell me, 

‘‘Well we had this great deficit in 2009, 2010, and debt,’’ and they 

are absolutely right. But are they suggesting, Secretary Lew, that 

we should have done nothing, had no February supplemental 2009? 

Is that what they are suggesting? What would have happened if 

that happened? 

Secretary LEW. Congressman, I cannot speak to what others are 

suggesting. I can tell you that when I left office in January of 2001, 

we projected a surplus of $5.6 trillion for the next 10 years. When 

President Obama took office, it was the exact opposite. So before 

he began, the surplus had been turned in to a deficit. 
31 

Mr. PASCRELL. Was our budget, Mr. Secretary, in primary balance in those years I was just talking about before? With the economy growing faster than the annual budget deficits, is that what 

you are saying? 

Secretary LEW. That is the definition of primary balance or surplus. 

Mr. PASCRELL. Now does the budget the president propose, which 

you are advocating, your running point on this, does that get the 

primary balance? 

Secretary LEW. It does. 

Mr. PASCRELL. Tell us how we do that. 

Secretary LEW. Well, we reduce the deficit as a percentage of 

GDP in the end of the 10-year window to less than 2 percent, and 

somewhere just around 3 percent, you go in to primary balance. It 

depends on what interest rates are year to year, what the exact 

number is. But for the second half of the budget window, we are 

in primary balance and surplus, in terms of primary balance calculations. 

Mr. PASCRELL. I think it is important, that question needs to be 

asked over and over again, and your response needs to be remembered. I am pleased that this budget also includes an exemption to 

annual state volume cap on tax exempt qualified private activity 

bonds; for the furnishing of water, for the furnishing of our sewer 

system which needs billions and billions of dollars in order to keep 

up with the time. In fact, if you add up the needs of the infrastructure, whether it be the sewage, whether it be the drinking water, 

whether it be the waste water, it adds up to $1,200,000,000,000. So 

you started a down payment on this, and recommending what you 

recommended. And by the way, for every billion dollars that is invested into the very things I am talking about, we create about 

150,000 jobs. Does that grow the economy? 

Secretary LEW. When we are investing in businesses and growing jobs, we are growing the economy. 

Mr. PASCRELL. So when you talk about growing the economy, you 

do not necessarily have to be talking about cutting taxes. 

Secretary LEW. Cutting taxes do not directly grow the economy. 

It is business activity that grows the economy. It is creating jobs 

that grows the economy. It is creating demand that grows the economy. 

Mr. PASCRELL. Was there very much business activity in 2008? 

Secretary LEW. Our economy was sliding, and with no obvious 

endpoint in 2008. If we had not stepped in strongly in 2009, both 

to deal with the financial crisis and the economic crisis, there was 

no telling where things would go. And you look at the experience 

we have had versus others who went right into austerity, we are 

growing, and they are not. 

Mr. PASCRELL. And there is no doubt, Mr. Secretary, that if we 

did not have that money voted upon in February 2009, we would 

have been in a worse place. 

Chairman RYAN. Thank you. Mr. McClintock. 

Mr. CLINTOCK. Thank you, Mr. Chairman. Mr. Secretary, I am 

a big fan of your work with the Clinton administration, I will get 

to that in just a moment. But first, I have to take strong exception 

with your testimony that a provision to support the public credit 
32 

by assuring the first call on revenues goes to support the public 

credit is somehow unworkable or cannot amount to defaulting on 

our other obligations. The fact is most other states have provisions 

in their constitutions to do so, and have for hundreds of years. Last 

year, Fed Chairman Ben Bernanke told the Senate that he credited 

the relative stability and municipal markets, quote, he says, ‘‘which 

suggests that investors still are reasonably confident that there 

will not be any default among major borrowers. One reason they 

might believe that is because most states have rules which put 

debt repayment and interest payment at a very high priority above 

many other obligations of the state and locality,’’ end quote. Mr. 

Bernanke sat right you are sitting now and told this very Committee, quote, ‘‘My concern is about defaulting on the debt, and for 

me that is a very high priority so a debt prioritization bill would 

help on that count very much.’’ 

Now, since Mr. Bernanke is the president’s appointee, I have got 

to believe that internally the administration is of two minds on this 

subject, and I would urge you to listen to your Fed chairman and 

look to centuries of experience of other states. No state has ever 

used such a provision to protect their credit as an excuse not to pay 

for their other bills. On the contrary, these provisions protect their 

credit, and actually support and maintain their ability to pay all 

of their obligations in the event of a shortfall. Protecting the public 

credit supports all of the other obligations of the government, and 

it is a necessary provision in a government like ours that is now 

borrowing nearly 40 cents of every dollar it spends. Put it very simply, when you are depending on your credit cards to pay your bills, 

you better make the minimum payment first, and I urge you to reconsider your position on that. 

But now to the happier discussion of the success of the Clinton 

administration under your management. Is it correct that President Clinton decreased federal spending by nearly 4 percent GDP 

during his eight years in office? 

Secretary LEW. There was a big cut in spending while he was in 

office; there was also a lot of economic growth and more revenue. 

Mr. CLINTOCK. Is it correct that President Bush increased federal 

spending by 2 percent of GDP during his eight years that followed? 

Secretary LEW. I would have to go back and check the numbers, 

Congressman. 

Mr. CLINTOCK. I believe it is, and I believe you might also find 

that it is correct that President Obama has increased federal 

spending by another 2 percent of GDP just in the last five years. 

Is it correct that President Clinton dramatically decreased entitlement spending by signing the Welfare Reform Act? 

Secretary LEW. He did sign Welfare Reform, yes. 

Mr. CLINTOCK. Is it correct that President Bush dramatically increased entitlement spending with his Medicare Part D? 

Secretary LEW. I cannot disagree with that. 

Mr. CLINTOCK. In fact, the biggest expansion of entitlement 

spending up until that point since the Great Society, as I recall. 

Secretary LEW. It was a program I thought at the time should 

have been paid for. 
33 

Mr. CLINTOCK. And is it correct that President Obama has dramatically increased entitlement spending even more with his socalled Affordable Care Act? 

Secretary LEW. Yeah. The Affordable Care Act net saved the bottom line, so I think it is actually very distinguishable from the prescription drug benefit. 

Mr. CLINTOCK. Do you not agree that it is a massive expansion 

of entitlement spending? 

Secretary LEW. So, Congressman, I would be happy to address 

the issues you raised. 

Mr. CLINTOCK. The issue I have raised is very simple. Why can 

the president’s budget not be more like President Clinton’s and a 

lot less like President Bush’s? 

Secretary LEW. The reality of demographics, and the difference 

in where we were in the 1990s and where we are today, is that my 

generation, the baby boom, is starting to retire. We have tens of 

millions of people coming onto Social Security and Medicare, and 

that is what is driving those percentages of spending. So I think 

we have a fundamental question: Are we going to keep faith with 

that generation? 

Mr. CLINTOCK. Now the biggest single expenditure in the history 

of the United States was the so-called Stimulus Bill at the outset 

of this Administration that cost almost as much as the entire Iraq 

war from start to finish. So, you know, do not give me, ‘‘Well this 

beyond our control;’’ it was entirely within your control. It was 

within President Clinton’s control, and, again, my only problem 

with President Obama and his budget is not that he has changed 

George Bush’s policies. The problem is he has taken the worst of 

them and doubled down on them. 

Secretary LEW. Congressman, we have agreed in 2011 to over a 

trillion dollars of savings on discretionary spending. It is much 

larger than the reductions in discretionary spending made in the 

Clinton years. We have had major savings in the Affordable Care 

Act that added to the life of Medicare trust fund. We are proposing 

in this budget considerable new savings including fundamental 

structural reforms in entitlement programs. So I do not disagree 

that we need to have more savings, but we also need revenue to 

get to the goal. 

Chairman RYAN. Ms. Castor. 

Ms. CASTOR. Good morning, Secretary Lew. Thank you for being 

here to discuss the president’s budget. It is a balanced plan. It reduces the deficit by $1.8 trillion over the next decade. And I would 

like to commend the Administration and you for including an element that boost jobs and economic growth that is starkly missing 

from the Republican budget plan. But I would mostly like to thank 

the Administration for standing with American families, especially 

our older neighbors, our parents, and our grandparents because 

President Obama keeps the promise of Medicare, unlike the Republican plan. The Republican plan, again, proposes to turn Medicare 

into a voucher. It does not decrease costs. Over time, it simply 

shifts the costs to our older neighbors, and our parents and grandparents. It is not consistent with American values. And at the time 

when, as you noted, we have this new demographic crisis with the 

retirement of this big baby boom population, you keep the promise, 
34 

and you achieve savings in Medicare through very important reforms. So thank you for that. 

The other stark contrast is in long-term care for our older neighbors. I mean, it has not gotten a lot of attention because people 

know and understand Medicare a lot more, but the horrendous cuts 

that the Republican budget makes to the ability of our parents and 

grandparents to live their retirement years in dignity really is 

scandalous, in my view. What Medicaid is, is it allows people to 

stay in their homes and not enter skilled nursing, but then, at the 

end of their life, or with a severe diagnosis, they are able to have 

dignity, and get the skilled nursing and long-term care that they 

need. In contrast, the president stands with families to ensure that 

that lifeline will continue to exist. I want to commend the Administration again for standing with families all across this country. 

But I wanted to direct your attention to another important issue. 

It has been a scourge on the state of Florida and my community, 

and because you are here, this is a good opportunity for me to raise 

it directly with you, and that is the problem with tax refund fraud 

tied to identity theft. Something that all of us can agree on is preventing criminals from stealing billions of taxpayers’ dollars 

through fraudulent tax returns. There are many bipartisan efforts 

underway. I have a bill with my Republican colleague, Rich Nugent 

from Florida, that addresses the issue, but it really comes down to 

your oversight and the IRS stopping these fraudulent refunds from 

being issued. Tax refund fraud tied to identity theft is an epidemic. 

If it has not happened in your district yet, you just wait. It is 

spreading across the country, and it must be stopped. 

The treasury inspector general, Mr. Secretary, for tax administration estimates that the IRS could issue $21 billion in fraudulent 

refunds tied to identity theft over the next five years, and the taxpayer advocate reported in January that identity theft case receipts 

increased by more than 650 percent from fiscal year ’08 to ’12, and 

at the of ’12, the IRS had almost 650,000 identity theft cases in its 

inventory. What is happening is organized criminals are stealing 

the Social Security numbers of children, seniors, even the deceased. 

They are filing tax returns using stolen taxpayer names and Social 

Security numbers, and when the real taxpayer files for a refund, 

or claims their refund, that return is rejected, and their life is severely impacted for years. And the problem is, for those of you that 

have dealt with these complaints, is they face a labyrinth of procedures, drawn-out timeframes for resolution. It is an epidemic in 

Florida, Georgia, New York, California, Texas, Ohio, but, Mr. Secretary, this is spreading, and what are you doing to urge the IRS 

to get in front of this problem so we do not have this huge hole 

in the Treasury? Thank you. 

Secretary LEW. Congresswoman, I am not sure I have time to respond. I would be happy to if I did. The IRS is getting very much 

ahead of it and trying to deal with the problem as we know it 

today. Made a good deal of progress. The problem is that the hackers just keep figuring out new ways to get in. So this is not a problem we can solve once and consider it over. We have to be vigilant 

on an ongoing basis in order to make sure we are doing what I 

think we all agree is right to protect our tax payers, our Social Security recipients from that kind of attack and fraud. 
35 

Chairman RYAN. Thank you. Mr. Lankford. 

Mr. LANKFORD. Thank you, Mr. Secretary, for being here. Can 

you define for me a term that you used earlier, that is primary balance? You say in the second half of the president’s budget they 

reach primary balance. 

Secretary LEW. Yeah, Congressman, primary balance is a term 

that economists use to describe when the only deficit that we have 

is the debt service for previously accumulated debt. 

Mr. LANKFORD. What is our interest payment right now? 

Secretary LEW. I would have to look up the exact number, Congressman. 

Mr. LANKFORD. It is around $224 billion a year, is my understanding. Do you remember what the interest payment is anticipated at the end of the 10-year window? 

Secretary LEW. Yeah, it is several hundred billion higher than 

that. It grows because we have a very large debt, and because interest rates are going to go up over that period. 

Mr. LANKFORD. If it is consistent with CBO’s estimation, by the 

end of this 10-year window, it is $857 billion a year in interest payments. So I am a little confused by your statement to say we get 

to balance all but about that last trillion dollars. That last trillion 

dollars we still have not balanced, but we call it balance except for 

$857 billion of that. Does that seem consistent? 

Secretary LEW. In that last year, the deficit is less than 2 percent 

of GDP, and that means that with the economy growing faster than 

that, debt, as a percentage of GDP, is coming down. 

Mr. LANKFORD. I do, I understand, because we see that in our 

budget where we actually get to actual balance where we are paying out what we are bring in, and an actual balance because of the 

growth as well. I have seen some of the growth estimations on it. 

I do want to ask you a little bit about, the president’s budget has 

quite a bit about oil, and gas, and coal taxation. Why were those 

three specific industries picked out to say normal business expensing will be taken away from those three? 

Secretary LEW. Well, that is not actually what the budget says, 

that normal business expensing will be taken away. It is the exact 

opposite. 

Mr. LANKFORD. So wages, fuel, vehicles, all that; that is normal 

business expensing. 

Secretary LEW. We would apply normal business expensing. We 

would not give the extraordinary treatment that the extracted industries have gotten in the past. 

Mr. LANKFORD. So like the 199 that every domestic manufacturing gets? They should get that as well? 

Secretary LEW. I would have to look at the specific provisions. 

Mr. LANKFORD. Well, I would say, the 199 manufacturing tax 

credit, right now, every domestic manufacturer of anything gets 

this 199 tax credit right now. So that should be left in because that 

is a normal business tax? 

Secretary LEW. What drives the policy that is in our budget on 

oil and gas is that for, really, the better part of 100 years, we have 

had very generous tax treatment for oil and gas. It helped build the 

oil and gas industry in this country. That is an industry that is 

very competitive and no longer needs the special depletion and 
36 

other rules that go to it. It should be treated at a level playing field 

with other kinds of businesses. 

Mr. LANKFORD. So current businesses now should not have normal business expensing because 30 years ago, 40 years ago, businesses were successful. This business is successful. What I am trying to figure out is the philosophy, I guess, behind it. 

Secretary LEW. Well, the philosophy, I can tell you, is clear. It 

is that they should be treated more like normal businesses, not in 

an extraordinary way they have been treated. 

Mr. LANKFORD. Okay. 

Secretary LEW. And if there are specific issues to work through 

there, we would look forward to working through those. 

Mr. LANKFORD. The budget, the Greenbook actually coming out 

of Treasury, actually uses the term ‘‘neutral.’’ They want to have 

neutral investment into oil and gas and coal on that. Or, actually, 

they use just the term neutral investment in energy. But it is interesting, there is about $40 billion normal business expenses 

taken away from oil and gas and coal, and in just in one line item, 

there is about $20 billion that is added to a lot of other areas. Is 

that neutral to take away from one and give to another, because 

at one point it refers to it being neutral energy policy, want to just 

make all our tax treatment neutral, and the other areas, it gives 

significant to clean energies, which, by the way, I have no problem 

with. As far as having clean are in our American portfolio, that is 

a good thing. 

Secretary LEW. We have made clear in our budget that our goal 

is to encourage investment in renewable and clean energy, and, in 

a sense, give them the benefit that the extractive technologies got 

when they were young industries. 

Mr. LANKFORD. Is it the anticipation that in the next 10 to 15 

years, that all of the renewables will be able to catch up and surpass what is currently done with oil and gas and coal? Do you have 

a guess on how long the time would be? 

Secretary LEW. I do not have an estimate. 

Mr. LANKFORD. See the problem I have is, I have no problem 

with wind and hydro-electric and all that, solar. I have no problem 

with those. But the assumption that we are going to take away 

normal business expensing from oil and gas and coal, and which 

will slow down the production and which will increase price, it is 

the same as the cigarette tax. The cigarette tax we have currently, 

in the budget it actually says, we want to decrease usage of cigarettes by increasing the price. So we are going to get revenue and 

also get this outcome. It seems to be the same with oil and gas and 

coal. We are going to decrease usage of that by increasing the price 

at the pump, for home-heating oil, for electricity. We will increase 

the price of those, and try to then supplement off onto other areas, 

which every economy that I have seen that deals with energy economy, says those technologies are not there probably not for 30 

years or more to even get close to catching up. It is about 9 percent 

of our portfolio now. We are trying supplement the other 91 percent. 

Secretary LEW. Congressman, I actually do not think that is how 

our proposals on the oil and gas industries would work, but I would 

be happy to follow up with you. 
37 

Chairman RYAN. Thank you. Mr. McDermott. 

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

Lew. I have sat here and listened to this debate about debt, and 

cutting and cutting and cutting, and then I thought about what the 

president proposed, which is really a vision for the future of investment. And I was thinking to myself, you have big shoes to fill. I 

mean, I can imagine Albert Gallatin coming in here and explaining 

why they bought the Louisiana Purchase. Why did they make an 

investment in a bunch of land way out there with nothing on it 

that anybody could see? And we would have said, in this climate, 

‘‘Oh, we should not spend the money. We should not invest,’’ I am 

sure. And the same with Secretary Seward who bought that famous icebox; we call it Alaska. We would have never invested in 

that because, ‘‘Well, why are we wasting our money? We have got 

a civil war going on. And why should we be out there spending and 

investing on something like Alaska?’’ 

And what I would like you to talk about is we have watched Europe deal with the same economic situation we are dealing with, 

and they have had such magnificent success with their austerity 

measures. I think the unemployment rate in Spain is now 22 percent, and something similar in Italy, and yet we have continued to 

invest despite the resistance of the Republicans. We have continued 

to invest, and we are moving forward. I would like you to contrast 

what is going on in Europe with what is going on here because I 

think the lesson is clear. 

Secretary LEW. Congressman, when I was in Europe last week, 

I tried to emphasize both what we have in common and where we 

have taken a different path. What we have in common is that we 

all need to deal with the realities of middle and long-term fiscal realities where we have got to reduce deficits and get our fiscal house 

in order. But we have to do it in a way that is balanced so that 

we can also get the growth and the job creation that will enable 

us to have the kinds of healthy economies that will make it possible to achieve those goals. I think if you do your cutting upfront, 

what you are doing is actually slowing down your ability to rebound, grow, and get the kind of fiscal correction that we need here 

and they need there. 

So it is a question of timing and balance, not a question of are 

we acknowledging the need for both. The president’s budget is very 

clear. He accomplishes more than $4 trillion of deficit reduction in 

this 10-year window. But he does it in a way where we grow the 

economy and we create jobs while we are doing it. I do not believe 

you can cut your way out of these problems alone. If we do not educate the next generation to have the jobs we need, there will be 

millions of jobs that go unfilled, or those jobs will go elsewhere. We 

have to have the best-trained workforce in order to grow. And I 

think that same argument can be made on infrastructure and 

many other areas. Now we cannot do it without regard to the fiscal 

reality. We need to be on a path where five years from now, 10 

years from now, we are steadily reducing the deficit, and the debt 

is a percentage of GDP. And the president’s budget does both. 

Mr. MCDERMOTT. As the jobs increase, and more people are 

being paid and, therefore, are paying taxes, that helps the itself by 

making the GDP increase. 
38 

Secretary LEW. Absolutely. We balanced the budget in the 1990s 

because we encouraged the kind of confidence in the economy that 

kept the economy growing and jobs being created. 

Mr. MCDERMOTT. Can you give me any reason why the sequester 

cuts to the National Institutes of Health would be good for the 

economy? And do you see any way the Republicans can justify 

those cuts to the National Institutes of Health? 

Secretary LEW. No, Congressman, I cannot. I mean, for 30 years 

I have worked on issues related to the funding to the National Institutes of Health, and there has always been a broad bipartisan 

agreement that it was the right thing to do to grow our economy, 

to have the intellectual power to compete in the future, and to 

solve the mysteries that are associated with the worst diseases we 

have in this country. I cannot imagine that there would be any 

willingness to affirmatively enact the kinds of cuts that the sequester would impose on NIH. 

Mr. MCDERMOTT. My mind or my memory is not perfect, but it 

seems to me during the Bush administration we made a major increase in our investment in the National Institues of Health. 

Secretary LEW. We did. 

Mr. MCDERMOTT. I hear one of my colleagues sort of saying that 

the Bush era was a terrible one because all these things went up, 

and the debt went up, and all the rest. But is it not true that we 

made a major investment under Bush in the National Institutes? 

Secretary LEW. There was a major investment in the Clinton administration, there was a major investment in the Bush administration, and there has been a major investment in the Obama administration. It has been something that there has been bipartisan 

agreement on. I would note that the head of NIH in the Bush administration, Dr. Zerhouni, has been very critical of the impact of 

the cuts on sequester, both in terms of medical research and in 

terms of future economic growth. 

Chairman RYAN. Thank you. Ms. Black. 

Mrs. BLACK. Thank you, Mr. Chairman, and thank you for being 

here, Mr. Lew. I want to go back to questioning from the gentleman from Georgia related to the limit on individual tax advantage retirements. Mr. Lew, this cap would apply equally to men 

and woman, is that correct? 

Secretary LEW. It is neutral with regard to gender. 

Mrs. BLACK. So do you think that woman need less retirement 

income than men do? 

Secretary LEW. No, I do not think that this is a revision that say 

men or women need more or less. This is a provision that says that 

the tax benefit should only be available up to a certain amount, 

and the amount is $3 million. 

Mrs. BLACK. Okay, so in that case, then, I am at a loss on this 

policy because your limit is based on a gender-neutral contribution, 

and women do live longer than men, and so annuities are more expensive. And this means any cap on a tax advantage retirement 

plan that is set equally for both males and females, a female will 

necessarily be unable to really actually purchase the same level of 

annuity that a male would be able to. So did the president take 

this into consideration before putting this policy forward on how it 

would affect woman disproportionately? 
39 

Secretary LEW. Congresswoman, the vast majority of Americans 

have retirement savings that are under $100,000. The average is 

more like $50,000. So we are talking about very, very few people. 

If you would like to work together on ways to make sure it is adjusted by life expectancy, we could look at things like that. But this 

was really a way of saying that in a world of tough choices, to have 

tax incentives for very, very large retirement savings is something 

we could not afford. 

Mrs. BLACK. Well, let me just say this. I believe, after being in 

the public sector for a number of years, that carrots are always better than sticks, and I want to put a carrot out there to encourage 

people to do all they can on their own to be able to save and have 

as much as they can for their retirement as they would like to 

have, and I do not know if this policy really does that. 

Secretary LEW. If I could say on that, we think that one way to 

put that carrot out there would be to have auto IRAs where people 

are automatically signed up and opt out so that more people end 

up getting into the practice of saving for their retirement. The 

more Americans that save for their retirement, the better off we 

will be. 

Mrs. BLACK. I do not discount the fact that we need to do everything we can with a carrot to get people to save. I do not believe 

the government should get involved with sticks. So let me go back 

to, in your opening remarks, I found it very interesting that you 

did talk about since the president came into office that the economy now is stronger, unemployment is lower. But you said something, and I did not get all of it down. I did write down your reference to political gridlock stopping the economy from moving forward. Am I correct in what I heard you say, that it was political 

gridlock that you attributed to the lack of full recovery? 

Secretary LEW. I was referring to political gridlock being something that is a drag on the economy. We cannot say there is only 

one thing. If you look back to 2011, political gridlock was not a 

good thing for the economy. 

Mrs. BLACK. So let me to go to what I hear from my constituents, 

in particular the job creators in my district. I ask them all, ‘‘What 

keeps you up at night?’’ And this is what they tell me. They tell 

me one thing that keeps them up are the massive deficits which 

create the crushing debt that they do not know what is going to 

happen to them next with a new tax. Secondly, the mandates that 

are put upon them. In particular, right now, their hair is on fire. 

We are trying to decide, since we do not even have the regulations 

out there about what they are going to do with keeping health insurance for their employees. And third are all the new regulations 

that hit them. I hear it many times from the banking industry with 

the Dodd-Frank. But I hear it continually from my industries that 

it is the EPA and the new regulations that come out that are not 

always cost benefit analysis done, or scientific information to say 

that they are really necessary. And so this is what I hear, this is 

what I hear continually, constantly from my 19 different counties, 

and that is really what gets the economy growing is jobs. 

And then my final question, and I have very little time here for 

you to answer this, but you made another comment that just really 

bothered me, that what we have to do is correct the distribution 
40 

of income. Is this really what the Administration’s policy is, is that 

the policy of government to correct the distribution of income in a 

policy? 

Secretary LEW. So, Congresswoman, that is quite of number of 

issues that I can very quickly try to run through. On the regulatory 

side, this Administration has had a stronger record on cost benefit 

analysis than any recent administration; stronger than the Clinton 

administration, stronger than the Bush administration. And in 

areas like EPA, we have done things like the Clean Car Rules 

where it has been trailblazing in terms of the kind of agreement 

where business and environmental interests come together for better economic outcome. 

On the questions on the new laws, we are working to implement 

them as quickly as possible. You know, it was a little challenging 

in the early years because Congress was resisting appropriating 

money, and it was a challenge to keep up with it, but we are getting there, and we will implement both the Affordable Care Act 

and Dodd-Frank on schedule. 

In terms of the income distribution question, what I meant to be 

saying and what I believe is that we have a problem in this country 

that we have had disparity of income growing, and it is just something that has to inform how we make our policies, and I do believe 

the tax code should be a force for correction in that. 

Mrs. BLACK. We are out of time, Mr. Chairman, I realize that, 

but I would like in writing a little more explanation on income distribution because I do not believe that is the government’s responsibility. Upward mobility for everyone is what we should be doing. 

Thank you. 

Secretary LEW. I agree with that, but I am happy to respond in 

writing. 

Chairman RYAN. The gentleman will respond to the gentlelady in 

writing. Ms. Lee. 

Ms. LEE. Thank you very much, and good to see you. And congratulations, Secretary. 

Secretary LEW. Thank you. 

Ms. LEE. And thank you and everyone at Treasury on behalf of 

the American for the work that you do each and every day. 

Secretary LEW. Thank you. 

Ms. LEE. Of course, the president clearly sees the link between 

the morally correct thing to do and the economically smart thing 

to do. After all, the budget is a reflection of our nation’s values. He 

prioritizes job creation before blindly making these broad cuts to 

programs that millions of Americans rely on for economic security. 

Vital nutritional programs are protected in this budget, investments in mental health, and crime prevention, and also effective 

treatment of HIV and AIDS. Also, I am glad to see these very innovative strategies as it relates to, for instance, the Promise Neighborhood, commitment to education, as well as universal preschool 

for every child in America which is a huge factor in reducing poverty throughout our country. Also, the budget extends the very important expansion of the child tax credit, the earned income tax 

credit. I could go on and on, but I just have to say, in stark contrast to the Republican budget where their $6 trillion tax cuts for 

the wealthiest of Americans, and 66 percent of the Republican 
41 

budget, they cut our nation’s safety net, yet we have 50 million 

people living in poverty. And so I just want to thank you and the 

president for that because much of our discussion here since I have 

been on this Committee has been, how do we look the strategies 

to lift the 50 million people who are living in poverty now out, and 

put on a pathway out of poverty. So thank you for this. 

I want to ask you one thing, a couple questions. When nearly 50 

million people are living in poverty, and they are cut off from the 

economic security of our country, how does that impact our overall 

economic security of the country? Secondly, one of the parts of the 

budget that is very troubling to me, personally, and others is 

chained CPI. You came up, I think, with the protections that are 

put in place to shield the very elderly and the most vulnerable 

from this, but yet, if it is not so bad, why do you come up with protections when middle income seniors rely on this also? And so I do 

not quite understand the protections, yet it is okay to do. 

With regard to Cuba, the Office of, what is it, Foreign Asset Control? You continue to spend resources on enforcing strict travel and 

trade sanctions with Cuba, a country that, dating back to 1998, the 

Defense Intelligence Agency said it was not a threat to United 

States National Security, yet it is still on the list of terrorist countries. And so what in the world is going on and over at OFAC? 

And, in fact, how many times have you blocked or intercepted terrorism-related financial transaction supported by the Cuban government? 

Secretary LEW. Congresswoman, starting with the question that 

you asked on the economic impact of people below poverty not 

being fully integrated into the economy, not getting the full benefit, 

it is a real issue. I mean, you look at the job listings in this country. We have millions of jobs that are not filled while we have millions of kids who have never had a job. That is not good for the 

economy, it is not good for the kids who are not getting into the 

labor market and developing the work history that will make them 

be stronger as individuals and stronger contributors to the economy. Our budget tries to deal with that. It tries to deal with the 

fact that we have to make sure that our young people get the skills 

they need, and I have not heard anyone stronger supporting that 

than CEOs who are trying to invest in the United States. They 

come and they say, ‘‘We need to make sure we have the workers 

we need for the future and the infrastructure to get our products 

to market. That is where the government can help us.’’ And I think 

we have that obligation, if we care both about our people and or 

economy, to get that right. 

On chained CPI, you know, it does the effect of lowering the increase. Not the base benefits, but the increase because it is a different level of inflation. I think that the president made clear that 

it is not something he would have chosen to do, but in an attempt 

to find an agreement, we have been told time and again that it is 

something that would have to be part of an agreement that would 

be acceptable to Republicans in this environment. It is something 

we can defend on a technical basis because it is more accurate, and 

because for middle class people, it is a burden that is relatively 

small. Even $10 a month for the most vulnerable is a big deal. If 

you lived to be 90 years old, and all you have is your Social Secu-
42 

rity, that $10 can be the difference between food the last couple 

days of the month. So I think we do have to distinguish between 

what impact going to a more correct measure would have. And we 

have put it in in a way that we think is fair by saying that the 

most vulnerable will have their benefits go up. Not because we 

have the overall adjustment being faster, but because we will make 

the decision to go in and make sure they are not hurt. 

Chairman RYAN. Thank you. Mr. Flores. 

Mr. FLORES. Thank you, Mr. Chairman. Thank you, Mr. Secretary Lew, for appearing here again today. I have four sets of 

questions that I am going to run through quickly, and then you can 

answer at the end or answer supplementally. First has to do with 

the CPA, I always looks at the underpinnings of the budget, how 

it is constructed because the choice of the underpinnings or the assumptions can drive the outcome substantially. And, in particular, 

I noticed that the president used estimates related to GDP growth, 

unemployment, inflation, and interest rates that were generally 

more optimistic than either the CBO or the Blue Chip forecast. So 

I would like to have the information about two things. Why did we 

use these more optimistic rates, number one. Number two, what 

would happen if we reset these rates to the assumptions that the 

CBO is using? 

Secondly, I think that you and president, and we in the House 

of Representatives all agree on one thing with respect to moving 

this country forward, and that is, we need to grow economic pie, 

we need to grow opportunity for everybody. And so the questions 

on that subject are kind of like this: How do we grow the economic 

pie and opportunity when we are raising taxes on the economy? 

The president is proposing to raise taxes to a level as a percentage 

GDP that were higher than even during the Clinton administration. So how do we think that is going to generate more jobs and 

more economic growth? The second part of this question is this: If 

you raise taxes on business, how do you expect that business to invest more in R&D, and hiring people, and property, plant, and 

equipment? How do we expect those businesses to produce more 

and better products and services at lower cost? Those are things we 

need to think about. 

In particular, I think about the woman in Bryan, Texas who 

owns a chain of dry-cleaning and laundry shops, and right now she 

is just locked down. She just got her taxes filed last week. Now she 

is locked down. She has got 19,000 pages of regulations related to 

ObamaCare that are crushing her, and she is not hiring today because of that. And so my question is this: On top of that, how is 

she going to better off and able to hire more employees, and pay 

them a better wage, and invest in new locations when the president is proposing to raise taxes on her? Another example is the 

president has this attack on oil and gas companies which already 

pay the highest effective tax rate in the country at 41 percent 

versus what most companies pay at 26 percent. So how does this 

encourage more investment in natural gas which has done more 

than any government policy to clean our air? Our emissions today 

are lower than the Kyoto Protocol, and it is because of the investment in natural gas. And so now the president says we want to 
43 

raise taxes on this industry so we can get less investment in natural gas, and therefore dirtier environment, theoretically. 

The third thing, and I would assume that you believe, and the 

president believes, and we in the House believe that we need a 

more accountable and a more efficient government, so I would 

bring up a slide to remind us about the way this government seems 

to operate. This picture of Jeff Neely sitting in a hot tub. As we 

may remember, Jeff Neely was a GSA employee who wasted millions of taxpayer dollars on conferences. This person is back on the 

payroll, and he makes just under $220,000 a year. He got bonus 

during his last year. So I have not seen anything in the president’s 

budget that creates a smaller, more accountable, more efficient government. We have got a GAO report here that identifies tens of billions of dollars in waste, and overlap, and duplication. I did not see 

any attempt in the president’s budget to take care of that. Another 

area, and part of the stimulus, the Department of Energy had a 

slush fund it used to invest in things like Solyndra and Fisker, and 

in light of the stellar results of those organizations or those investments, I would like to have an answer as to why are we doubling 

down on more stimulus types of payments? Why do we think that 

that is going to somehow work better this time than it did the last 

time? 

The next area is what I am going to call trying to help people 

come out of poverty. Since the war on poverty was started, we have 

spent $19 trillion, but we have got more people in poverty than 

ever before under our current economic policies. We have also got 

more people on food stamps than ever before. Why did the president not propose a plan to scrap current welfare and poverty programs and start with something new so we can focus on getting 

paychecks for these folks and give them a hand up instead of keeping them locked down where they are today? So why do we not stop 

the White House parties? You know, for every day, every hour that 

we keep Air Force One unused, we can pay for 18 days to keep the 

White House open for visitors? Why are we taking so many presidential vacations? 

I have run out of time. I have a rhetorical question. How can we 

call the president’s budget using a balanced approach when the 

budget never balances? Thank you, I yield back. 

Chairman RYAN. I’ll give the gentleman the ability to respond in 

writing. Mr. Cicilline. 

Mr. CICILLINE. Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here, and congratulations. You know, there has 

been a lot of discussion this Committee about deficit reduction, 

both in this hearing and in all of our budget considerations, and 

the president’s budget cuts the deficit by an additional $1.8 trillion 

over the next 10 years, reducing the deficit to 1.7 percent of the 

economy of GDP by 2023, and, again, importantly in a downward 

path beginning in 2016. That is, of course, in addition to the deficit 

reduction we have already done combined of $2.5 trillion, so we are 

now, with those two figures combined, at, or actually exceeded, the 

deficit reduction recommend by Simpson-Bowles. And there is a lot 

of discussion about that, but the reality is, as you know, Mr. Secretary, deficit reduction in and of itself is not an economic development strategy or a growth strategy. And one of the most effective 
44 

ways that I believe we can grow the economy, and ultimately deal 

with this deficit, is to really get people back to work and to grow 

jobs in this country. And this budget reflects, for me, three important ways that we can do that that will really help to strengthen 

the foundation of our economy. 

You said in your testimony cutting taxes alone does not create 

jobs, and it is, of course, the demand of the middle class, a good 

job, a middle class family demanding the goods and services business produces that really creates jobs. So people talk about the job 

creators. The job creators in the country are the middle class families who have a job, who are purchasing the goods and services the 

business produces. My friends on the other side of the aisle proposed a budget that the Economic Policy Institute says will cost 2 

million jobs in 2014; add to that the sequestration which is not replaced, a loss of another 750,000 jobs. And so what I would like to 

ask you to speak about is really what this budget does to create 

growth and create jobs because, to me, that is the real crisis facing 

this country. 

I am from a state that has either the first, or second, or third 

highest unemployment rate in the country, and what my constituents want to know is, how is our federal budget reflecting the urgent priority of getting people back to work? The three areas that 

I am particularly pleased that the president is focused on is manufacturing and the development of manufacturing innovation institutions to really rebuild American manufacturing, which is a real 

growth opportunity for Rhode Island, and I think for this country. 

Investing in infrastructure to rebuild our bridges, roads, ports. If 

we are going to have an economy to compete in the 21st century 

we need to have infrastructure capable of supporting that economy. 

It is a way to put people back to work and rebuild America. And 

third, education. The great investments in pre-K, protecting the 

student loan interest rates from doubling; the STEM initiative that 

I hope you will turn in to STEAM, and add art and design is part 

of that, you know, STEM to STEAM, but the education investments 

are critical. So if you could speak to those three areas, and how 

they really get to the most important area, I think, we facing our 

country, and that is getting people back to work. 

Secretary LEW. Well, Congressman, I could not agree more the 

fundamental goal we have is growth and job creation. It is really 

the idea that is infused in every part of this budget, and it is the 

goal that everything comes together towards. At a macro level, we 

have things that we know we can do to create a better rate of 

growth and more jobs. Replacing the sequester, which is costing us 

jobs, with sensible, middle, and long-term deficit strategies that are 

balanced between revenues and spending, that will create jobs by 

creating economic growth. Economic growth means jobs. A half percent of GDP makes a big difference. 

In the specific areas that you have raised, manufacturing, infrastructure, and education, these are obviously pillars of what the 

president sees both as the keys to our economic future, but also 

things that we can do today to create jobs. The truth is, our manufacturing initiatives are not about 10, 20, 30 years from now. They 

are about this coming year; it is incentives to invest now. The research and development is about the future, but the manufacturing 
45 

tax incentives are for today. Infrastructure, we ought to be working 

in now, not 10 years from now, to repair or bridges, our ports. We 

will regret it if we find ourselves in better economic times with 

higher interest rates and more problems with our bridges and our 

ports. We do not get to put that off forever. And education, I would 

say that it is, again, good for the economy today and good for the 

economy in the future. Every opportunity we create for early childhood education, or higher education, or middle school education, 

that means teachers in the classroom, it means schools being open, 

and it means our young people getting the skills they need, so that 

10, 20, 30 years from now we still have the best-trained workers 

in the world. That is what this budget is about. Thank you. 

Chairman RYAN. I understand you have a time crunch, Secretary 

Lew. Can you hang until 12:30 so we can get through the rest of 

our witnesses? Is that possible? And if so, what I would propose, 

and I hate to do this to my fellow colleagues, but Mr. Van Hollen 

and I have been talking about this, is knocking the time down to 

three minutes each, in order to get to accommodate everybody, if 

you can stay until 12:30. Does that work for you Secretary Lew? 

Secretary LEW. Yes, Mr. Chairman, I can. 

Chairman RYAN. All right, thank you. So we will knock it down 

to three minutes. And it is Mr. Williams. Mr. Williams is next. Yep. 

Mr. WILLIAMS. Thank you for being here. I am a small business 

owner; have you ever run a business? 

Secretary LEW. I have worked in businesses, I have not had my 

own business. 

Mr. WILLIAMS. But you have not run one. 

Secretary LEW. I do not have my own business. 

Mr. WILLIAMS. Okay. Are you concerned that the debt our country is obtaining is going to eventually go into higher interest rates? 

Secretary LEW. Well, I think economic growth will lead to higher 

interest rates. I think we have to plan, as our budget does, on a 

time of higher growth and higher interest rates. 

Mr. WILLIAMS. Where do you think the interest rates will be five 

years from now? 

Secretary LEW. Well, our budget projects interest rates coming 

slowly back to a more normal level. 

Mr. WILLIAMS. Five percent, 6 percent? 

Secretary LEW. I do not think our budget goes that high. 

Mr. WILLIAMS. If you are in business and you have low interest 

rates like we do today, most businesses right now are paying down 

their debt. They are not waiting for higher interest rates. Do you 

not think it would be a good idea to start paying our debt down? 

Secretary LEW. Well, look, I think we should not have built the 

debt up with tax cuts we could not afford, and putting wars on the 

credit card, and the Medicare prescription drug benefit we could 

not afford, so I am going to take back seat to nobody. I ran three 

surpluses. We are not there. When we hit a recession, we had no 

capacity to deal with it other than by, we were in deficit, we had 

a bigger deficit; we now have to slowly work our way out, and this 

budget gets us to a solid, stable place. 

Mr. WILLIAMS. What is the highest rate that you think can be 

charged to a small business? 

Secretary LEW. I am sorry? 
46 

Mr. WILLIAMS. We are at 39 percent now, one of the highest in 

the nation. I can tell you, that does not help small business. What 

is the highest rate you and president think we can charge small 

business before they just collapse, and break, and quit hiring people? 

Secretary LEW. Well, obviously, businesses choose whether to organize on the corporate side or the individual side. We have proposed bringing the business tax rate down to 28 percent. We have 

not proposed any increase beyond the current 39.6 on the individual side, and the better we do at broadening the base, the better 

we will do at lowering the rates. 

Mr. WILLIAMS. Was not the sequester President Obama’s idea? I 

have heard you talk about it today as a bad policy. The bottom line 

is, was it not his deal? 

Secretary LEW. You know, it is not as simple a question as that. 

It was a very difficult negotiation where we were negotiating with 

the Republicans who refused to put taxes on the table, and it was 

the only thing everyone could agree on. 

Mr. WILLIAMS. All right, I get it. Let me just close by saying this. 

I am a small business owner, and I can tell you, you are not helping small business, okay. The burden that this Administration is 

putting on small businesses is unbelievable. I would suggest you 

look at Texas, maybe even North Dakota, and see what less government and competition, what it does. When you start talking 

about raising minimum wage and capping the maximum wage in 

this country, that is a bad deal. It should be a country of unlimited 

opportunity, not unlimited liability, of which you all are putting us 

in. Small business is hurting. You need to understand that. And I 

hope we do not get to where the norm is 7.8 percent unemployment, where you can save $50,000, and that is all you can save. 

Fifteen percent of the people in poverty; I hope that is not the 

norm. I fear that it is, and I just think that it is a dangerous course 

for our country. Thank you. 

Chairman RYAN. Thank you. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. Of course, the proposal from the Administration is not to cap something at $50,000, 

it is to stop having taxpayers subsidize savings beyond 3 million; 

big difference, I think. Secretary Lew, we appreciate your patience. 

You have been here countless times, and the balanced approach 

you are attempting to do with the Administration. I would just put 

one item on the table that we would like to explore with you further, dealing with infrastructure finance. In the past, the Administration has supported an effort to reinstitute the superfund tax 

which expired in 1995, so there is virtually no money in the superfund. And it stalls clean up around the country. This was a deal 

that was made with the petrol/chemical industry years ago; gave 

them a little escape hatch which they still enjoy, but they are not 

investing to help clean it up, and I hope that we can talk with the 

Administration about that, and, at some point, have a conversation 

about what we are going to do with the transportation trust fund 

in freefall because of the outstanding efforts of the Administration 

to improve fuel efficiency. If we are going to fund transportation 

based on gallons pumped, we are going to be in a downward spiral 

over time, and we need to have an opportunity to look at that. And 
47 

I hope that there is an opportunity to, at some point talk, about 

a vehicle mile travel fee that would help stabilize and move forward. 

But I wanted to just get your brief reaction, I know you are not 

Secretary of Defense, but the top line considerations where you 

have moved to try and help offset some of the costs of the sequestration, looking at bases which are far surplus to what we need at 

home and abroad, and maybe stopping the decline in the percentage that military personnel pay retirees for their health care, 

which is actually going down, but is going up for everybody else. 

Some of my friends on the other side of the aisle, particularly those 

in responsibility, are somehow pretending that this would be outrageous, that it is a violation of all that is holy and it is not going 

to get their support. Can we move forward with the Department of 

Defense if we do not start looking at some of these areas? 

Secretary LEW. Congressman, while it is not currently in my 

area of responsibility, I spent a good deal of time working with the 

Defense Department on its strategic plan when I was OMB director 

and chief of staff, and I think that the strategic plan the Defense 

Department put together to save $500 billion over 10 years is one 

of the best pieces of strategic budget planning that I have ever 

seen. It is hard choices without a doubt, but it reflects the military 

and civilian leadership making the balanced choices of how do we 

secure our national defense and still hit the target. I think the sequester is the opposite. The sequester is across-the-board cuts that 

do not make sense, that do not move our national security interests 

forward, and it is something that should be replaced by sensible 

policy. 

Mr. BLUMENAUER. I hope Congress will be able to make some 

tough decisions along with you. 

Chairman RYAN. Thank you. Mr. Rokita. 

Mr. ROKITA. I thank the Chairman and I thank Mr. Lew for joining us here today. Good afternoon now, by the way, appreciate you 

staying. 

Secretary LEW. Good afternoon. 

Mr. ROKITA. I want to pick up on some of the things that Mr. 

McClintock was saying. Of course, he has this bill that is going to 

prioritize our payments, and I would associate with his comments 

in saying that it works in several states, and I heard your testimony that said, well, it just will not work for the federal government. But let’s assume for a minute that we have a prioritization 

bill that becomes law. What level of detail would you expect from 

Congress so as the Treasury Department could not override or ignore the prioritization process that that bill, which would become 

law again, would have in it? That is to say, under what circumstances do you think you can override a law that would direct 

prioritization? 

Secretary LEW. Congressman, and to be clear, I did not say that 

you could not write a law that would say which bills you pay first. 

Clearly, you could write a law that says which bills you pay first. 

Mr. ROKITA. No, you said we would go into default; does not matter what area we would go into default. 

Secretary LEW. What I said, what I believe is correct and is 

something we really need to focus on, is that if you were to do that, 
48 

if you were to lock in this idea that if we pay one set of bills and 

not the others we are avoiding default, that is not correct. If you 

do not pay all of our obligations, it is one or another form of default. You are just choosing what to default on. 

Mr. ROKITA. Let’s go back to my question. Assuming you have 

this law, all right, what level of detail would you expect so that 

you, as the Department of Treasury, could not override anything it 

says? 

Secretary LEW. Well, I am not sure that I understand. I mean, 

we comply with laws when they are written, and were you to write 

a law, we would comply with the law. That is not the issue. The 

issue is that that law does not solve the problem. 

Mr. ROKITA. It is my time, I just want to be clear that if a bill 

came out of this Congress and it was a law, you would intend to 

follow it to the letter. 

Secretary LEW. We always endeavor to follow the law. 

Mr. ROKITA. Okay, all right, just want to be sure. But you will 

follow it? Endeavoring and following, it is slightly different, right? 

Secretary LEW. Yeah, I cannot comment on a law that I have not 

read. The truth is there are sometimes ambiguities, and if there 

are ambiguities, we need to discuss them. But if you are asking me 

the question, could you set an order, of course you can set an order. 

I am saying it is a mistake to think that solves the problem. The 

only thing that solves the problem is Congress extending the debt 

limit so we can pay all our obligations and avoid default. 

Mr. ROKITA. Understood what you are saying. I do not necessarily agree, but I understand what you are saying. On this $3 

million cap that would pay out roughly $205,000 a year, new policy, 

can you tell me, and, by the way, the Wall Street Journal estimates 

that 6 percent of the population will be impacted by this new cap. 

I remember your testimony saying it will be a very small amount 

of people, but Wall Street Journal, at least, says 6 percent. I heard 

a lot of complaining about the 1 percent. Are we now targeting the 

6 percent, and what after them? 

Secretary LEW. No, Congressman, our position is clear. We want 

all Americans to save for their retirement. We want to encourage 

people who do not save to save, and we want to make it easier, not 

harder. But in a world of tough choices when most average families 

have less than $100,000, an average of $50,000 saved for retirement, saying that the tax benefit ends at $3 million is a reasonable 

trade-off to make. 

Chairman RYAN. Thank you. Mr. Huffman. 

Mr. HUFFMAN. Thank you, Mr. Chair, and Mr. Secretary, thanks 

for being here. I want to associate myself with those who have expressed opposition to you over chained CPI, but I also appreciate 

the fact that the administration has very specifically linked that to 

hundreds of billions of dollars in new tax revenue that, so far, our 

Republican colleagues have flatly rejected. So I do not know how 

likely that bargain is at this point, but one thing that strikes me 

as very possible, if not likely in this Congress, is comprehensive immigration reform. And so I wanted to ask your thoughts as we 

think about the budget horizon that we are discussing today about 

how comprehensive immigration reform could affect these budget 

numbers and our broader economy as well. 
49 

Secretary LEW. Congressman, I have not been, in my current capacity, working on immigration reform, but I have worked on the 

issue on many occasions over the last 30 years, and I think as a 

student of American history, one can only conclude that one of the 

things that has made us the strong country we are is that we are 

constantly refreshing ourselves with people who want to come here 

and work hard, play by the rules, and make a contribution. I think 

immigration reform would open the opportunity to fair legal participation in our economy to many people whose only goal is to contribute to society, and that is going to be good in terms of the economy. The fact is, our economy has work to be done, and I think 

there is hopefully going to be a bipartisan agreement that is fair, 

that protects our borders, that is very much in keeping with both 

concerns that we bring people out of the shadows, but that we also 

insist on compliance with our laws. 

Mr. HUFFMAN. With respect to both the deficit and the debt at 

the 10-year horizon, would it be fair to assume that comprehensive 

immigration reform would have a positive effect on both of those 

things? 

Secretary LEW. I would have to go back and look analytically at 

the numbers. Intuitively, I think that makes sense, but I have not 

seen an analysis. 

Mr. HUFFMAN. Thank you, Mr. Secretary. 

Chairman RYAN. Fifty-three seconds to spare. You will learn. Mr. 

Nunnelee. 

Mr. NUNNELEE. Thank you, Mr. Chairman. Thank you, Mr. Lew, 

for being here. 

Secretary LEW. Good to be here. 

Mr. NUNNELEE. January 1 we had a $600 billion tax increase 

added to a $1 trillion tax increase that went into effect as part of 

the Affordable Care Act. And then shortly after that, we had cause 

for additional tax increases. The president’s budget has got an excess of a trillion dollar increase in taxes, so I guess the start of the 

question, does the Administration think that the American people 

are not paying enough money to Washington? 

Secretary LEW. Congressman, the Administration has had consistent view that we have a very, very big hole in our budget, a fiscal gap that has to be closed with a fair balance of $2 of spending 

to $1 of revenue. In December there was extensive discussion 

where Republican leaders were saying we could raise a trillion dollars by broadening the base and closing loopholes. We want to work 

together to do that and get the job done in a balanced, fair way, 

with $2 of spending cuts for $1 of revenue. 

Mr. NUNNELEE. But you got 1.6 trillion January 1. We did not 

get any $2 spending cut for that. 

Secretary LEW. Well, no, we enacted the spending cuts first. In 

2011, we enacted over a trillion dollars of spending cuts. So we 

have already got over twice as much spending cuts as we do revenue. We need to finish the job. We need to look at everything we 

have done since we started trying to close this $4 trillion gap. And 

it will get to 2:1 if the president’s plan is the basis for an agreement. 
50 

Mr. NUNNELEE. The Administration continues to say that balanced budgets are not necessary. At what point does our national 

debt cause a problem? Is there a ceiling? 

Secretary LEW. Look, our national debt cannot continue to grow 

as a percentage of GDP without it becoming a problem. That is 

why the president’s budget brings it down to around 73 percent, 

the debt as a percentage of GDP, at the end of this 10-year window. That is why the budget deficit is brought down to under 2 

percent of GDP at the end of this window. You know, I wish that 

the hole was not as deep as it was when the president took office. 

I wish that we did not have an economy that was in freefall that 

needed to be brought back to health. But that was what the world 

looked like in 2009. Our economy is now growing. We need to be 

on a path with the kind of balanced deficit reduction that is consistent with growth and job creation, and we would to look forward 

to working on a bipartisan basis to get that done so we can get the 

confidence in the economy that would, I think, be really good for 

the economy. 

Mr. NUNNELEE. All right, and then the president came forth with 

a plan to address some of the problems with Social Security, and 

then he started blaming the Republicans. Does the president stand 

by his plan? 

Secretary LEW. I am not sure which plan you are referring to 

right now. 

Mr. NUNNELEE. The issue dealing with growth and Social Security. 

Secretary LEW. Well, the president has, for a number of years, 

and continues to believe that we should work on a bipartisan basis 

to have a balanced, fair approach that protects Social Security’s 

basic structure but that, along the lines of the 1983 agreement, has 

a bipartisan approach for long-term, 75-year solvency. It is best to 

do that not in the context of the budget. 

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

Chairman RYAN. Thank you. Mr. Jeffries. 

Mr. JEFFRIES. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for your testimony. There seems to be a consistent narrative amongst many in the House, amongst many on the other 

side of the aisle that this Administration has taken us on a fiscally 

unsustainable course, pursuant to that narrative, as a result of an 

unlimited desire to expand and an unwillingness to get that spending under control. But am I correct that it is this Administration 

that has reduced the deficit by $2.5 trillion over the last several 

years? 

Secretary LEW. Congressman, yes, we, together with Congress, 

reduced the deficit by $2.5 trillion. We have also reduced the deficit 

as a percentage of GDP in half, and we are on a track towards taking it down to under 2 percent. 

Mr. JEFFRIES. Now we have a constitutional obligation to protect 

the full faith and credit of the United States, and this has played 

itself out as it relates to the flirtation with possibly defaulting in 

connection with the debt ceiling. And part of the reason why some 

have suggested that the debt ceiling is problematic and our need 

to raise it is problematic is because of a misconception as it relates 

to what the debt ceiling represents. The debt ceiling is a backward- 
51 

looking vehicle that gives the Administration the opportunity to 

pay for bills that have already been incurred, is that not correct? 

Secretary LEW. That is absolutely correct, Congressman. 

Mr. JEFFRIES. And most of the obligations that have already been 

incurred, or many of those obligations relate to policies and decisions that were made during the eight years of the prior administration. Is that not correct? 

Secretary LEW. They relate to all the permanent laws that are 

in place and all the annual appropriations that have been enacted. 

Mr. JEFFRIES. So that would include the tax cut in 2001 and in 

2003 that were not paid for, correct? 

Secretary LEW. Absolutely. 

Mr. JEFFRIES. And that would include the prescription drug benefit backed by the pharmaceutical industry that was not paid for 

in 2003, correct? 

Secretary LEW. Yes. 

Mr. JEFFRIES. And that would include the war that was entered 

into as it relates to Iraq for weapons of mass destruction that were 

never found. Is that correct? 

Secretary LEW. All spending that was authorized by Congress is 

included, and the spending that you have described is all part of 

what is being covered. 

Mr. JEFFRIES. And now based on your experiences in the Clinton 

administration, would it be fair to say that perhaps the best strategy in order to deal with the debt problem as well as the deficit 

issues that we confront, as evidenced by the fact that the Clinton 

administration turned over a surplus that was subsequently blown 

by the Bush administration, is not the best strategy to invest and 

to grow our economy? 

Secretary LEW. I think that the best strategy is a growing economy, growing jobs, and balanced bipartisan deficit reduction where 

you have a mix of spending and tax measures to get the job done 

in the right timeframe. 

Mr. JEFFRIES. Are there alternatives other than the chained CPI 

that could help strengthen the solvency of Social Security moving 

forward? 

Secretary LEW. There certainly are other measures that would 

strengthen the solvency of Social Security. 

Mr. JEFFRIES. Thank you. 

Chairman RYAN. Thank you. Ms. Lujan Grisham. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman, and thank you, 

Secretary Lew, for extending your time and joining us today. I am 

going to join in the efforts by many of my colleagues before me 

today that I appreciate your responses about moving the economy 

and investing in jobs, and I have mentioned to other folks who 

have come before this Committee that I am in a state that has got 

negative job growth, and I think the only state in the country, as 

we are seeing some improvements with negative job growth, so I 

am very excited about many provisions in the president’s budget 

proposal that invest in job growth. I would also like to thank you 

for your investments in the budget for Indian Health Services. I actually proposed an amendment to the Republican budget that 

would fund HIS, which is woefully under-funded, and the health 

care sector grows by 30 percent if we fully invest in health care 
52 

jobs, and so I appreciate all of those efforts in bringing jobs to rural 

New Mexico. 

I also, quickly, since I have got such a little time, want to thank 

the Administration for prioritizing veterans, and I want to just 

highlight a couple. So we have got 63.5 billion for the Administration. It is an 8.5 increase over 2012, and it provides mental health 

care, telehealth, specialized care for women, veterans, and benefits 

for caregivers. Seven billion set aside for mental health services 

such as PTSD, sexual trauma, which is at 15.4 increase over the 

2012 level, and $136 million to deal with the back log. Can you tell 

me, with these investments, and that we are working hard to get 

our veterans back to work, and with companies in New Mexico not 

hiring because of the sequester, can you give me a sense about how 

many jobs this might create, and how many veterans might be able 

to get back into the employment pipeline? 

Secretary LEW. Congresswoman, I can tell you the direction, but 

I would have to get back to you or have someone get back to you 

on the exact number of jobs. 

Ms. LUJAN GRISHAM. Well, feel free to make a statement about 

that direction, what you see globally for the country, but please get 

back to me in writing about that job growth and those developments for veterans. 

Secretary LEW. The first principle is we have a sacred obligation 

to our veterans who have put their lives on the line to protect our 

country, to treat them right when they come home, and that means 

helping them to get the job training or the jobs they need, and the 

health care they need, and the support in their community that 

they need. This budget invests, in a very tight budget, billions of 

dollars to try and keep that promise. Now, apart from just the 

basic decency and fairness associated with our policy, it is good for 

the economy. Our soldiers come back with leadership skills, management skills, the ability to make a contribution that we cannot 

afford to lose. And it is only a plus when we match up a veteran 

with the kind of opportunity that gives them the chance to contribute as civilians as they did when they were in the military. 

Ms. LUJAN GRISHAM. As my time wraps up, we have got the 

highest suicide rate by veterans that we have ever seen before in 

this country, and the number one homeless group is women returning veterans in my district. Thank you. 

Secretary LEW. Thank you. Mr. Cardenas. 

Mr. CARDENAS. Thank you, Mr. Chairman. Thank you, Secretary 

Lew, for being here and extending your time with us. I was taken 

aback by one of my colleagues that talked about that it seems that 

some small business owners lose sleep at night because they are 

worried about the federal debt. I think that if people stop watching 

Fox News right before they go to bed, they might not have that 

problem. I used to own a small business, and never once, never 

once, was the federal debt ever on my mind. Really what was on 

my mind is focusing on my business, wondering, knowing, trying 

to figure out what I am going to do tomorrow, what I am going to 

do next month, hoping and looking forward to access the capital so 

that I could go ahead and hire more people, and grow my business, 

and therefore impact the economy locally, and, quite frankly, make 

more money for me and my family as well. So one of the things 
53 

that I would like to ask you is, the president’s budget, does it look 

to invest in education and training our current workforce and our 

future workforce? 

Secretary LEW. Yes, Congressman. We have a proposal, a number of proposals, that would help people get the skills training they 

need, really starting from high school all the way through workers 

who are displaced by the economy. 

Mr. CARDENAS. Well, the president’s budget actually talks about 

continuing and increasing investment in preschool as well. 

Secretary LEW. Correct. From preschool all the way through. 

Mr. CARDENAS. Yeah. 

Secretary LEW. And, you know, one thing I would say from the 

perspective of how small businesses make decisions, I think all 

businesses make decisions based on where the order book is and 

where the market is. If we grow the economy, and if small businesses see that they are doing business in an environment where 

it is growing business, they are going to make the decisions to invest and hire. If they are afraid the economy is going to be shrinking, they are not going to take a risk by investing. I think that they 

fundamentally look to the bottom line of their business when they 

make their decisions. 

Mr. CARDENAS. Well, I have a question for you in your vast experience in looking at budgets and understanding the dynamics between government and private industry. Do successful businesses 

grow while having debt on their books in this country? 

Secretary LEW. Many businesses have debt for their capital investment and other purposes. 

Mr. CARDENAS. And so, basically, when we look at the economy 

and we look at the president’s budget, the president’s budget actually acknowledges that we have debt. The president’s budget actually acknowledges that the best way that we need to grow our way 

out of this dynamic is to make sure that we continue to grow the 

economy, and even though the economy has been growing at a 

slower pace than any of us would like, the bottom line is that it 

has been growing pretty much throughout the majority of his presidency, correct? 

Secretary LEW. It has been growing for 14 consecutive quarters, 

and we need to continue that and increase the rate of it, but we 

also need to make the tough decisions to finish the work of making 

policy changes in a fair and balanced way. 

Mr. CARDENAS. So running government like a business would 

mean continue to do growth, but, at the same time, acknowledging 

debt. 

Secretary LEW. Correct. 

Mr. CARDENAS. Thank you. 

Chairman RYAN. Thank you. Mr. Pocan. 

Mr. POCAN. Thank you, Mr. Chairman. Thank you, Mr. Secretary. I also just want to add I am really looking forward to seeing 

your signature on our currency. It will be an affirmation for many 

of us who received harassment from our teachers growing up in 

penmanship, so thank you. 

As a small business owner for over half my lifetime, I just want 

to reiterate a little bit about that. What you are doing by growing 

the economy, investing in infrastructure and research and develop-
54 

ment, having tax fairness in this budget that helps small business 

owners and middle class, and stopping the sequester that is hurting small business owners are all very much appreciated by those 

of us who are still in that part of the economy. I do want to ask 

you a question about taxes, but let me just, if in one minute, if you 

could try to answer. People kept talking about actual balance in 

the GOP budget, and, you know, there is a lot of fuzzy math in 

there, especially around the Affordable Care Ac. I mean, you can 

keep saying there is actually a balance. I can keep saying that I 

have a thick mane of hair, but I do not. Can you just reference 

that, the actual balance question on the GOP’s health budget? 

Secretary LEW. I think that without knowing how that budget 

will pay for the tax cuts that it has proposed, we do not really 

know what it is going to accomplish. It is a pretty big hole. It is 

like a $5 trillion hole to cut tax rates. It is either going to have 

to raise taxes on middle class taxpayers, or it is not going to cover 

the tax cut that is proposed. 

Mr. POCAN. Since we are on taxes, this is specifically what I 

would like to ask. You know, we just had tax day yesterday. Small 

business owners across south central Wisconsin paid their taxes, 

the vast, vast, vast majority of them. However, we do have offshore 

tax abuse, and the GAO report that came just a little while ago 

talking about some of the tax expenditures talked about how this 

growing right now in the country. Specifically, can you just address 

a little about the Administration position on this? I mean, you 

know, I hear that there are 18,000 corporations in a five-story 

building in the Cayman Islands. I mean, clearly, that is nothing 

but tax avoidance. Can you just address that from the Administration perspective? 

Secretary LEW. The Administration very much wants to close opportunities to avoid taxation through abusive practices, and, you 

know, we have done a lot to create transparency so that we can see 

when businesses and individuals are taking income offshore in 

order to avoid taxation. I think there is a secondary issue, which 

is, what is legal that should not be, where we need to work together to look at how do we close some loopholes that should not 

exist. So there is the illegal forms of tax avoidance which we need 

to close down on, and we need to work together to try and shut 

down ways of legally avoiding taxes. 

Mr. POCAN. Would the Administration be open to some kind of 

language that might better define what a business operation is 

when it is overseas? 

Secretary LEW. It is something that we would look forward to 

working together on. 

Mr. POCAN. Great. Thank you very much. 

Chairman RYAN. Thank you. Thank you, Secretary Lew. We have 

got you done with seven minutes to spare. I appreciate your indulgence. You are three out of four. You have got your last one this 

afternoon. We are going to agree to disagree on some of these 

things. But I would like to think that we have explored a few possibilities where we can find common ground. 

Secretary LEW. I hope so. 

Chairman RYAN. So thank you very much. The meeting is adjourned. 
55 

Secretary LEW. Thank you, Mr. Chairman. 

[Questions submitted for the record and their responses follow:] 

QUESTIONS SUBMITTED FOR THE RECORD BY CHAIRMAN RYAN

To gain a better understanding of the relationship of outlays, receipts, deficits and 

debt on a unified basis with daily Treasury statements, debt subject to limit, and 

the daily change in debt subject to limit, please respond to the following four questions and provide supplemental information that would help explain these relationships. 

1. While the Daily Treasury Statement contains helpful information, it is not clear 

how the reported daily outflows and inflows relate to the reported changes in total 

federal debt subject to the statutory debt limit. To help better understand that relationship, please provide a daily breakdown of spending, taxes and other receipts, 

intra-governmental transactions, and the change in the operating cash balance that 

fully accounts for and explains the change in the opening and closing balances of 

total public debt subject to the statutory limit for each business day for the months 

of June and July 2012. In addition, please provide a table that crosswalks from the 

change in the operating cash balance to the change in the debt subject to limit for 

each of the days in this time period. 

2. Please describe the process for the preparation of the Fiscal Assistant Secretary’s daily cash balance projections. Historically, how accurate are these cash balance projections? 

3. Were the cash balance projections to show expected cash outlays in excess of 

expected cash balances, what measures are available to Treasury? 

4. In an August 2012 report to Sen. Hatch, the Treasury Inspector General stated 

that ‘‘because Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.’’ 

a. Please identify which of Treasury’s systems are relevant to this statement and 

describe any rules and procedures governing the operation of these systems. 

b. Is the limitation described in the statement a technical limitation or a matter 

of policy? 

5. During testimony about the Chained-CPI, Secretary Lew stated that the use 

of Chained-CPI can be defended ‘‘on a technical basis because it’s more accurate.’’ 

a. Did the Administration exempt means-tested programs from Chained-CPI because they do not believe it is a more accurate measure for these programs? 

b. If they do believe it is a more accurate measure—why did they not apply 

Chained-CPI to these programs and address any concerns they have with the subsequent change in benefits through direct changes to the laws governing means-tested 

programs directly? 

QUESTIONS SUBMITTED FOR THE RECORD BY HON. DIANE BLACK, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TENNESSEE

1. Can you please explain to me what you meant in your comments that, ‘‘[if] we 

want to do anything to correct the distribution of income in this country, our tax 

laws have to be part of that. I think we made big progress at the beginning of this 

year in raising the top rate to 39.6. I think that was an enormous step that was 

the biggest step in a long time in terms of dealing with some of that inequity.’’ 

Do you believe that Congress should redistribute wealth through the tax code? 

2. You mentioned in your remarks before the House Budget Committee that the 

administration has run the ‘‘most aggressive cost-benefit analysis of the regulations 

released by each agency.’’ 

Have you run a report projecting the cost of the 14,000 pages of regulations released by various departments related to the Patient Protection and Affordable Care 

Act (PPACA)? 

What is that cost? How do you measure the cost-to-benefit ratio? 

Do you have a time frame for when the PPACA law will be fully implemented? 

At the end of the implementation process, do you play on sending a full estimate 

of the cost of the final PPACA regulations? Do you have an estimate of what that 

cost would be? 

3. In the Treasury Green Book, the administration proposes expanding the small 

business health insurance tax credit included in the health care law. 

How will this help small businesses since the administration has chosen to delay 

the small business exchanges (‘‘SHOP exchanges’’)? 

I’ve looked through the materials the administration has released. The firms must 

fill out seven worksheets to determine their eligibility and many of the small businesses in my district are confused, burdened, and are deterred from providing 
56 

health insurance and even creating jobs as a result. How do you plan on guiding 

small businesses through this process? 

4. The President’s budget extends and expands various refundable tax credits, 

which are actually cash transfer payments to individuals who, in many cases, do 

not pay any income taxes (and, in some cases, do not even pay payroll taxes). Of 

particular note, the budget proposes to reinstate, extend, or expand a variety of tax 

provisions that have substantial outlay components, such as the Earned Income Tax 

Credit, the American Opportunity Tax Credit, the Build America Bonds program, 

renamed as Fast Forward bonds, and the proposed Promise Zones. 

How does all of this increased spending through the tax code help with deficit reduction? 

How does this increased spending through the tax code help simplify the tax system to further the goals of fundamental tax reform? 

QUESTIONS SUBMITTED FOR THE RECORD BY HON. BILL FLORES, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS

CONTEXT

Secretary Lew commented that people who exceed the $3 million cap can still contribute, but will simply not receive a tax break. This is a contradiction of the Treasury Department explanation where it says: ‘‘If a taxpayer reached the maximum 

permitted accumulation, no further contributions or accruals would be permitted, 

but the taxpayer’s account balance could continue to grow with investment earnings 

and gains’’. 

Transcript from hearing last week: 

LEW: And we’re not saying people can’t contribute. We’re just saying that the tax 

benefits aren’t going to be the same. So you can still contribute. You just can’t get 

it with before tax dollars. You can’t contribute it before tax dollars. 

QUESTIONS FOR SECRETARY LEW

1. There are multiple proposals in the budget that will negatively impact retirement savings, including the 28% cap on itemized deduction, the $3 million cap and 

the chained CPI proposal (which will limit annual inflation adjustments for contribution and comp limits), has the government considered the effect that these 

three proposals could jointly have on individuals saving for a secure retirement? 

2. Have you looked at any behavior models to understand the potential impact 

on qualified plan formation or continuation, particularly in the small business context where a small business owner would lose the incentive to save within the qualified plan system? 

3. While I understand the $3 million cap is to target millionaires, we all recall 

the economic downturn not too long ago, and I am concerned that with any similar 

downturn, couldn’t we have someone’s supposed secure $3 million turn into $1 million, which would then not be enough to fund a comfortable retirement? 

ADDITIONAL QUESTIONS

1. In terms of the proposal to place a $3 million cap on savings, won’t this discourage savings more broadly? And wouldn’t that be the wrong message for the government to send? 

2. Would you envision individuals needing to pay taxes immediately if they have 

funds over $3 million in their account? How about spouses who have inherited IRAs 

and may need that money to live comfortably? 

3. In terms of the actual number the government is proposing, what happens with 

a potential economic downturn? Or a changed life situation? Such a limitation does 

not take in account any possible changed circumstances. 

4. Has the government looked at how this could impact ESOP formation? Current 

ESOP participants? 

QUESTION SUBMITTED FOR THE RECORD BY HON. TOM RICE, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH CAROLINA

Secretary Lew, I am deeply interested in a report from the Treasury Inspector 

General for Tax Administration regarding the Additional Child Tax Credit. You may 

recall this report. It was issued on July 7, 2011. 

Specifically, the report highlights the gross misuse of filers using individual taxpayer identification numbers to claim the Additional Child Tax Credit. In other 
57 

words, filers who do not have a social security number and are not authorized to 

work in the United States. 

As you may know, ITIN filers’ claims for the Additional Child Tax Credit have 

increased from $924 million in 2005 to $4.2 billion for 2010. This information is detailed in the Treasury Inspector General for Tax Administration’s report. 

We are giving billions in tax credits to individuals who are not authorized to work 

in our country. There is also evidence of ITIN filers claiming multiple children who 

do not even reside in our country. 

The Treasury Inspector General for Tax Administration’s report directed both the 

IRS and the Department of Treasury to look into this staggering issue. Since the 

report was issued almost two years ago, I am very interested in the IRS and Department of Treasury’s progress. What efforts have your agency made to end this blatantly fraudulent activity? 

QUESTIONS SUBMITTED FOR THE RECORD BY HON. BARBARA LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA

ON POVERTY

We know that unemployment remains too high, and income inequality is near historic highs, with incomes for low and middle income workers stagnating or even falling. 

While big corporations have more than recovered and are posting massive profits, 

Main Street families continue to struggle and small businesses across America don’t 

have enough customers coming in their doors. 

1. What would be the economic impact of successfully implementing a national 

plan to cut the national poverty rate in half in a decade? 

ON THE IMPACT OF CHAINED CPI

Today, the White House released a document outlining the protections put in 

place to shield the very elderly and families who rely on means tested programs 

from the impacts of Chained CPI. 

2. If Chained CPI does not amount to a $230 billion dollar benefit cut, why does 

anyone need protections from the impacts of Chained CPI as outlined by the White 

House yesterday? 

ON CUBA AND OFAC

Given the tight budgets, it is vitally important that we effectively allocate resources to the highest priority endeavors. One such office that I believe needs a 

thorough review is the Office of Foreign Asset Control (OFAC) which is tasked with 

a critical role in our nation’s fight against acts of terrorism and the funding of 

groups and actors who support terror. 

OFAC continues to unnecessarily spend resources on enforcing strict travel and 

trade sanctions with Cuba, a country that, dating back to 1998, the Defense Intelligence Agency has not considered a significant threat to U.S. national security. 

3. Mr. Secretary, when was the last time that the office of Office of Terrorism and 

Financial Intelligence or the Office of Foreign Asset Control blocked or intercepted 

a terrorism related financial transaction supported by the Cuban government? 

ON THE DISPARITY IN THE UNEMPLOYMENT RATE

The national unemployment rate is now at 7.6%, and has been slowly ticking 

downward for the last several months now. However, the rates for minorities—particularly African Americans at 13.3 percent and Hispanics at 9.2—have remained 

well above national average throughout the unemployment crisis, and are still unacceptably high. 

As part of the Omnibus Appropriations Act for FY2009—which was signed into 

law—the Department of Labor was required to provide a report outlining actions 

which can be taken related to reducing disparities in employment rates. 

4. Many economists find that increasing equitable access to economic opportunity 

is a better economic model that will lead to greater economic growth for all Americans, do you agree? 

5. How can the Treasury and our entire government act to effectively address this 

pervasive issue of unemployment in these communities? 

[Response to questions submitted follow:] 
58 

1OFAS also prepares estimates of Treasury debt outstanding and debt subject to limit. 

SECRETARY LEW’S RESPONSE TO QUESTIONS SUBMITTED FOR THE RECORD

CHAIRMAN PAUL RYAN QFRS FOR SECRETARY LEW

To gain a better understanding of the relationship of outlays, receipts, deficits and 

debt on a unified basis with daily Treasury statements, debt subject to limit, and 

the daily change in debt subject to limit, please respond to the following four questions and provide supplemental information that would help explain these relationships. 

Question 1: While the Daily Treasury Statement contains helpful information, it 

is not clear how the reported daily outflows and inflows relate to the reported 

changes in total federal debt subject to the statutory debt limit. To help better understand that relationship, please provide a daily breakdown of spending, taxes and 

other receipts, intra-governmental transactions, and the change in the operating cash 

balance that fully accounts for and explains the change in the opening and closing 

balances of total public debt subject to the statutory limit for each business day for 

the months of June and July 2012. In addition, please provide a table that crosswalks from the change in the operating cash balance to the change in the debt subject 

to limit for each of the days in this time period. 

The Daily Treasury Statement summarizes the cash and debt operations of the 

U.S. Treasury. It consists of eight tables; five contain information about cash flows 

while three contain information about changes in debt outstanding and debt subject 

to limit. 

In some instances, daily cash flows are related to changes in the debt subject to 

the limit. For example, when Treasury auctions securities to the public its cash position increases by roughly the same amount. (Treasury’s auction decisions are based 

on its goal of funding the government at the lowest possible cost to the taxpayer, 

and generally are not directly tied to the expenditures of any single day.) 

Other transactions may affect Treasury’s cash position, but do not necessarily affect the debt subject to the limit. For example, various expenditures decrease Treasury’s cash, but do not affect the outstanding debt, unless it is necessary to issue 

debt to finance those expenditures. Likewise, there are transactions that increase 

the outstanding debt subject to limit that do not have any impact on cash, such as 

the periodic payment of interest to Federal trust funds, which are invested in Treasury securities. 

Still other transactions create an indirect linkage between cash flows and outstanding debt subject to the limit. For example, when Treasury receives Federal 

withheld income and FICA tax payments, a portion of those payments is deposited 

in the Social Security trust funds, and that deposited amount is then invested in 

Treasury securities, as required by law. This investment increases the outstanding 

debt subject to the limit. 

The tables below summarize cash and debt activity appearing in the Daily Treasury Statements which covers all business days in June—July 2012. (See attachment 

1.) 

Question 2: Please describe the process for the preparation of the Fiscal Assistant 

Secretary’s daily cash balance projections. Historically, how accurate are these cash 

balance projections? 

Treasury’s Office of the Fiscal Assistant Secretary (OFAS), staffed exclusively by 

career officials, prepares estimates of Treasury’s cash balances.1 These estimates depend on projections of receipts, outlays for government operations, and net cash 

flows from Treasury securities sold at auction (marketable activity) and the issuance 

and redemption of certain other Treasury securities, including State and Local Government Series (SLGS) and savings bonds (non-marketable activity). 

OFAS prepares ‘‘baseline’’ cash balance projections on a quarterly basis. Treasury’s projected marketable borrowing needs and assumed end-of-quarter cash balances for the current and next calendar quarters, as calculated in the baseline, are 

announced publicly as part of Treasury’s quarterly refunding announcements. 

OFAS updates its baseline projections on a regular basis. These updates inform 

daily cash position management decisions. Updated cash projections are also used 

by Treasury debt managers to adjust marketable financing plans to help ensure that 

Treasury has adequate cash to fully cover obligations presented for payment. 

There is necessarily a margin of error applicable to Treasury’s projections. The 

margin of error for a projection one week in the future (at a 95 percent confidence 

level) has typically been roughly plus or minus $10 billion, and the margin of error 

for a projection two weeks in the future (at a 95 percent confidence level) has typi-
59 

2 Improper Payments Elimination and Recovery Improve Act of 2012 (Public Law 112-248). 

3Debt Collection Improvement Act of 1996 (Public Law 104-134). 

cally been roughly plus or minus $17 billion. At the 99 percent-plus confidence level, 

the margins of error are $14 billion for projections one week in the future, and $26 

billion for projections two weeks in the future. In April 2013, receipts for the month 

came in a record $53 billion stronger than projected as of the end of March. There 

is also significant volatility with regard to the receipts of a single day: on one day 

in recent years, Treasury recognized $9.6 billion more of receipts than it had forecast that same morning; on another day, Treasury recognized $15.7 billion less of 

receipts than it had forecast the business day before. 

Question 3: Were the cash balance projections to show expected cash outlays in excess of expected cash balances, what measures are available to Treasury? 

Treasury maintains an appropriate cash balance to ensure that unforeseen fluctuations in cash balances do not negatively impact our debt management strategy. 

While Treasury strives to maintain a regular and predicable auction schedule, we 

also have the capacity to announce, issue, and settle a same-day cash management 

bill (CMB) should cash balance projections suggest that we are facing a cash shortfall. 

Question 4: In an August 2012 report to Sen. Hatch, the Treasury Inspector General stated that ‘‘because Congress has never provided guidance to the contrary, 

Treasury’s systems are designed to make each payment in the order it comes due.’’ 

a. Please identify which of Treasury’s systems are relevant to this statement and 

describe any rules and procedures governing the operation of these systems. 

Each year, Treasury issues over one billion payments valued at over $2.4 trillion. 

Treasury issues these payments on behalf of Federal agencies and programs. An 

agency submits an electronic payment request to Treasury specifying the amount 

and recipient of the payment. Treasury then prepares the electronic payment or, in 

some cases, a paper check. 

This is a highly automated process where Treasury uses one of three centralized 

systems: one for domestic payments, one for international payments, and one for letter-of-credit or ‘‘draw down’’-type payments. 

Because of the volume of payments, this is a precisely scheduled operation where 

agencies electronically transmit large batches of payment requests for processing by 

Treasury. A single batch may contain millions of payment requests. 

There is little time delay between when an agency submits a batch of requests 

and when Treasury releases the resultant payments into the banking system. During that brief period, Treasury’s automated systems perform four sequential functions to: 

1. Ensure the internal integrity and consistency of the thousands of payment requests in the batch; 

2. Confirm that the payment recipients are screened through Treasury’s Office of 

Foreign Asset Control. (In the future, Treasury is scheduled to start pre-payment 

screening of all payments except tax refunds); 2

3. Offset any eligible payments to collect delinquent debt owed to Federal and 

State Governments3 and other authorities; and, 

4. Create the necessary accounting entries to update the financial reports of the 

agency and Treasury. 

On average, Treasury issues approximately 80 million separate payments per 

month; the automated systems that perform these four functions operate almost 

continuously. 

b. Is the limitation described in the statement a technical limitation or a matter 

of policy? 

Given the volume of payments and the time it takes to process them, we process 

payments as they arrive, not based on policy matters, other than improper payments and debt collection requirements. 

Question 5: During testimony about the Chained-CPI, Secretary Lew stated that 

the use of Chained-CPI can be defended ‘‘on a technical basis because it’s more accurate.’’ 

a. Did the Administration exempt means-tested programs from Chained-CPI because they do not believe it is a more accurate measure for these programs? 

b. If they do believe it is a more accurate measure—why did they not apply 

Chained-CPI to these programs and address any concerns they have with the subsequent change in benefits through direct changes to the laws governing means-tested 

programs directly? 
60 

In the interest of achieving a bipartisan deficit reduction agreement, the President’s FY2014 Budget contains the President’s compromise offer to Speaker Boehner 

from December. As part of that offer, the President is willing to accept proposals 

to switch to the chained CPI, but the Presidents’ openness to chained CPI depends 

on two conditions: the change must be part of a balanced deficit reduction package 

that includes substantial revenue raised through tax reform, and the change must 

be coupled with measures to protect the vulnerable and avoid increasing poverty 

and hardship. That is why the Budget chained CPI proposal includes a Social Security benefit enhancement for the very elderly and others who rely on Social Security 

for a long period of time and does not apply the chained CPI to means-tested benefit 

programs. 

REPRESENTATIVE TOM RICE QFRS FOR SECRETARY LEW

Question 1: Secretary Lew, I am deeply interested in a report from the Treasury 

Inspector General for Tax Administration regarding the Additional Child Tax Credit. 

You may recall this report. It was issued on July 7, 2011. 

Specifically, the report highlights the gross misuse of filers using individual taxpayer identification numbers to claim the Additional Child Tax Credit. In other 

words, filers who do not have a social security number and are not authorized to 

work in the United States. 

As you may know, ITIN filers’ claims for the Additional Child Tax Credit have increased from $924 million in 2005 to $4.2 billion for 2010. This information is detailed in the Treasury Inspector General for Tax Administration’s report. 

We are giving billions in tax credits to individuals who are not authorized to work 

in our country. There is also evidence of ITIN filers claiming multiple children who 

do not even reside in our country. 

The Treasury Inspector General for Tax Administration’s report directed both the 

IRS and the Department of Treasury to look into this staggering issue. Since the report was issued almost two years ago, I am very interested in the IRS and Department of Treasury’s progress. What efforts have your agency made to end this blatantly fraudulent activity? 

Since the release of the TIGTA Report in July, 2012, the IRS has taken significant 

steps to protect the integrity of the ITIN program and the Additional Child Tax 

Credit. There reforms include adopting TIGTA’s recommendation that filers be required to submit originals of their identity documents in order to obtain ITINS, as 

well as other measures. In a follow-up report on this issue released in June, 2013, 

TIGTA concluded, ‘‘The IRS initiated corrective actions to address the majority of 

recommendations included in our prior audit report. These actions are significantly 

improving the identification of questionable ITIN applications.’’ 

The Treasury Department and the IRS have considered this issue carefully and 

have concluded that, under current law, individuals filing with Individual Taxpayer 

Identification Numbers (ITIN)s are eligible for the Additional Child Tax Credit, and 

the IRS does not have authority under current law to deny the refundable child 

credit to Individual Taxpayer Identification Number (ITIN) filers. Nothing in the Internal Revenue Code requires that the individual claiming the credit must have a 

Social Security number, in contrast to the earned income tax credit, which does contain such a requirement. Nonetheless, to address issues of improper payments, the 

IRS has internal procedures to identify potentially improper claims for refundable 

credits, including the Additional Child Tax Credit, which it refines on an ongoing 

basis. Under these procedures, refunds associated with potentially improper claims 

may be frozen until the IRS audits the return to determine whether the claim 

should be allowed. 

REPRESENTATIVE DIANE BLACK QFRS FOR SECRETARY LEW

Question 1: Can you please explain to me what you meant in your comments that, 

‘‘[if] we want to do anything to correct the distribution of income in this country, our 

tax laws have to be part of that. I think we made big progress at the beginning of 

this year in raising the top rate to 39.6. I think that was an enormous step that was 

the biggest step in a long time in terms of dealing with some of that inequity.’’ 

Do you believe that Congress should redistribute wealth through the tax code? 

I believe that the tax code can be effectively and appropriately used to make the 

distribution of after-tax income somewhat less skewed towards the very well off 

than it would be otherwise. I also believe that it is appropriate for the most-welloff American families to bear a somewhat higher share of the cost of the provision 

of government services than they did in the prior decade. It is only fair that those 

who benefit the most from our system of government contribute a modest share of 

income toward its cost. 
61 

Question 2: You mentioned in your remarks before the House Budget Committee 

that the administration has run the ‘‘most aggressive cost-benefit analysis of the regulations released by each agency.’’ 

Have you run a report projecting the cost of the 14,000 pages of regulations released by various departments related to the Patient Protection and Affordable Care 

Act (PPACA)? 

What is that cost? How do you measure the cost-to-benefit ratio? 

Do you have a time frame for when the PPACA law will be fully implemented? 

At the end of the implementation process, do you play on sending a full estimate of 

the cost of the final PPACA regulations? Do you have an estimate of what that cost 

would be? 

OMB designates and reviews ‘‘significant regulatory actions’’ as that term is defined in section 3(f) of Executive Order 12866. These include rules with an annual 

economic impact greater than $100 million. For any rule that is covered by E.O. 

12866 and reaches the $100 million threshold (i.e., ‘‘economically significant’’ regulatory action), Treasury analyzes the costs and benefits of the proposed rule and its 

alternatives, consistent with OMB Circular A-4. For rules that do not reach the economic threshold, but that are designated by OMB as significant regulatory actions, 

Treasury adheres to the principles set forth in Executive Orders 12866 and 13563. 

With respect to IRS rules, pursuant to OMB guidance implementing E.O. 12866, 

and longstanding agreements between OMB and Treasury, only IRS legislative 

rules that constitute ‘‘significant regulatory actions’’ are subject to E.O. 12866 review. Thus, pursuant to longstanding practice across several Administrations, most 

IRS rules are not subject to E.O. 12866 review. 

The timeframe for implementing the Affordable Care Act is generally determined 

by the statute, and we are working diligently to meet that timeframe. As is the case 

with any new tax provision, we carefully evaluate whether transition rules are appropriate to relieve new statutorily imposed compliance burdens. Many provisions 

have already taken effect and have been fully implemented. Most of the major coverage-related provisions take effect in 2014 and will generally be reflected on returns filed in 2015. As with other provisions of the tax code, we may continue to 

address issues and provide guidance on implementation even after provisions take 

effect. 

Question 3: In the Treasury Green Book, the administration proposes expanding 

the small business health insurance tax credit included in the health care law. 

How will this help small businesses since the administration has chosen to delay 

the small business exchanges (‘‘SHOP exchanges’’)? 

I’ve looked through the materials the administration has released. The firms must 

fill out seven worksheets to determine their eligibility and many of the small businesses in my district are confused, burdened, and are deterred from providing health 

insurance and even creating jobs as a result. How do you plan on guiding small 

businesses through this process? 

The small business exchange, or SHOP, is under the jurisdiction of the Department of Health and Human Services (HHS). My understanding is that for the 2014 

coverage year, the SHOP will be open and many small employers will be able to 

purchase coverage and receive a tax credit for providing that coverage to their employees. 

The IRS has a dedicated webpage and has devoted other resources to help small 

employers benefit from the small employer tax credit. And while many small employers have already claimed the credit, we have received feedback suggesting that 

the tax credit be made simpler, more generous, and available to even more businesses. In response to this feedback, the President’s last two Budgets have proposed 

a package of changes that would (1) increase the maximum size of a firm eligible 

for the credit from firms under 25 full-time employees (FTEs) to firms under 50 

FTEs, (2) adopt a more generous phase-out schedule, and (3) simplify the credit calculation by eliminating the uniformity requirement and the cap based on average 

premiums in the state where a firm is located. We look forward to working with 

Congress to improve this tax credit. 

Question 4: The President’s budget extends and expands various refundable tax 

credits, which are actually cash transfer payments to individuals who, in many 

cases, do not pay any income taxes (and, in some cases, do not even pay payroll 

taxes). Of particular note, the budget proposes to reinstate, extend, or expand a variety of tax provisions that have substantial outlay components, such as the Earned 

Income Tax Credit, the American Opportunity Tax Credit, the Build America Bonds 

program, renamed as Fast Forward bonds, and the proposed Promise Zones. 

How does all of this increased spending through the tax code help with deficit reduction? 
62 

These tax credits support important social or economic goals, many of which benefit lower and middle-income American families. For example, the Earned Income 

Tax Credit is highly effective in preventing poverty among working families. Continuing these tax credits has a budgetary cost, but the Administration believes that 

this cost is justified by the benefits they provide. In the Administration’s Budget, 

these costs are more than offset by other changes. 

How does this increased spending through the tax code help simplify the tax system 

to further the goals of fundamental tax reform? 

Simplicity is one goal of a desirable fiscal system, but it is not the only goal, and 

the best choice of policies will involve appropriately managing trade-offs among competing goals such as simplicity, efficiency, and equity. It might indeed be the case 

that the important policy goals of such programs as the Earned Income Tax Credit 

and the American Opportunity Tax Credit can be achieved more simply under a fundamentally reformed tax system. I look forward to working with you in developing 

a tax reform proposal that improves equity and efficiency and raises adequate revenue in a simple manner. 

REPRESENTATIVE BARBARA LEE QFRS FOR SECRETARY LEW

On Poverty: We know that unemployment remains too high, and income inequality is near historic highs, with incomes for low and middle income workers stagnating or even falling. 

While big corporations have more than recovered and are posting massive profits, 

Main Street families continue to struggle and small businesses across America don’t 

have enough customers coming in their doors. 

Question 1: What would be the economic impact of successfully implementing a national plan to cut the national poverty rate in half in a decade? 

The national poverty rate has declined dramatically over the past half century, 

from 22.4 percent in 1959 to 11.3 percent in 2000. The largest decline over this period occurred prior to 1970, largely as a result of social programs enacted during 

the 1960s. Over the past decade, the poverty rate has trended upward and in 2011 

stood at 15.0 percent. Cutting the poverty rate in half from its current level would 

lower the national poverty rate to approximately 7.5 percent, well below the previous historic low of 11.1 percent recorded in 1973. 

Economic growth is critical to poverty reduction. The World Bank estimates that, 

on average, a 1 percent increase in economic growth reduces poverty by 1.25 percent. The Administration is concerned about the long-term consequences of rising 

poverty for the nation’s economic prospects and remains focused on reducing poverty 

by increasing broad-based economic growth and expanding economic opportunities 

for all Americans. 

On the Impact of Chained CPI: Today, the White House released a document outlining the protections put in place to shield the very elderly and families who rely 

on means tested programs from the impacts of Chained CPI. 

Question 2: If Chained CPI does not amount to a $230 billion dollar benefit cut, 

why does anyone need protections from the impacts of Chained CPI as outlined by 

the White House yesterday? 

The adoption of chained CPI for indexation of federal programs is estimated to 

reduce deficits during 2014-2023 by $230 billion. Lower outlays account for approximately $130 billion of this reduction and are achieved through slower growth in 

benefits. 

The President’s FY2014 Budget contains the President’s compromise offer to 

Speaker Boehner from December. As part of that offer, the President is willing to 

accept proposals to switch to the chained CPI, but the Presidents’ openness to 

chained CPI depends on two conditions: the change must be part of a balanced deficit reduction package that includes substantial revenue raised through tax reform, 

and the change must be coupled with measures to protect the vulnerable and avoid 

increasing poverty and hardship. That is why the Budget chained CPI proposal includes a Social Security benefit enhancement for the very elderly and others who 

rely on Social Security for a long period of time and does not apply the chained CPI 

to means-tested benefit programs. 

On CUBA and OFAC: Given the tight budgets, it is vitally important that we effectively allocate resources to the highest priority endeavors. One such office that 

I believe needs a thorough review is the Office of Foreign Asset Control (OFAC) 

which is tasked with a critical role in our nation’s fight against acts of terrorism 

and the funding of groups and actors who support terror. 
63 

OFAC continues to unnecessarily spend resources on enforcing strict travel and 

trade sanctions with Cuba, a country that, dating back to 1998, the Defense Intelligence Agency has not considered a significant threat to U.S. national security. 

Question 3: Mr. Secretary, when was the last time that the office of Office of Terrorism and Financial Intelligence or the Office of Foreign Asset Control blocked or 

intercepted a terrorism related financial transaction supported by the Cuban government? 

As Cuba is designated as a state sponsor of terrorism, the Treasury Department 

reports the blocking of millions of dollars each year related to Cuba in the Terrorism 

Assets Report. However, because our sanctions regime on Cuba targets not only the 

Government of Cuba, but also its nationals, defined to include entities and individuals, the reported figures include assets in which either the Government of Cuba 

or a Cuban national has an interest. In the most recent Terrorism Assets Report, 

Treasury reported a net increase of $8.1 million of blocked funds related to Cuba 

in 2012, for a total of $253.1 million of blocked funds related to Cuba. 

On the Disparity in the Unemployment Rate: The national unemployment rate is 

now at 7.6%, and has been slowly ticking downward for the last several months 

now. However, the rates for minorities—particularly African Americans at 13.3 percent and Hispanics at 9.2—have remained well above national average throughout 

the unemployment crisis, and are still unacceptably high. 

As part of the Omnibus Appropriations Act for FY2009—which was signed into 

law—the Department of Labor was required to provide a report outlining actions 

which can be taken related to reducing disparities in employment rates. 

Question 4: Many economists find that increasing equitable access to economic opportunity is a better economic model that will lead to greater economic growth for 

all Americans, do you agree? 

We agree. Despite the progress we have made under President Obama, more 

needs to be done to get America’s job seekers back to work. Too many Americans 

still lack opportunities to make use of all of their talents and potential. All of us 

would benefit from a fuller employment of their skills. That is why the Administration supports programs such as the universal preschool initiative outlined in the FY 

2014 Budget that help in giving all children the tools they need to succeed. It is 

also why the Administration is addressing challenging labor market conditions 

through programs that equip individuals with the skills and tools they need to succeed, encourage the creation of jobs in in-demand industry sectors and occupations, 

and strengthen actions that address discriminatory practices. 

Question 5: How can the Treasury and our entire government act to effectively address this pervasive issue of unemployment in these communities? 

The Administration is very concerned about the persistent high level of unemployment and is committed to policies that aim to improve labor market conditions. 

These include employment subsidies, worker retraining, and investment in infrastructure, among other policies. For instance, efforts are currently underway to upgrade and revitalize America’s community colleges so that any individual will have 

the opportunity to further their education, gain skills, and acquire industry-recognized credentials. The FY2014 budget introduces several initiatives to encourage job 

growth as well as bolster education and worker training, such as modernizing, 

streamlining access, and strengthening the delivery of job training services through 

the American Job Centers. 

REPRESENTATIVE BILL FLORES QFR FOR SECRETARY LEW

Context: Secretary Lew commented that people who exceed the $3 million cap can 

still contribute, but will simply not receive a tax break. This is a contradiction of 

the Treasury Department explanation where it says: ‘‘If a taxpayer reached the 

maximum permitted accumulation, no further contributions or accruals would be 

permitted, but the taxpayer’s account balance could continue to grow with investment earnings and gains’’. 

Transcript from hearing last week: 

LEW: And we’re not saying people can’t contribute. We’re just saying that the tax 

benefits aren’t going to be the same. So you can still contribute. You just can’t get 

it with before tax dollars. You can’t contribute it before tax dollars. 

Question 1: There are multiple proposals in the budget that will negatively impact 

retirement savings, including the 28% cap on itemized deduction, the $3 million cap 

and the chained CPI proposal (which will limit annual inflation adjustments for contribution and comp limits), has the government considered the effect that these three 

proposals could jointly have on individuals saving for a secure retirement? 
64 

The provisions that you note are unlikely to have any discernible effect on most 

individuals’ ability to save for a secure retirement. While we all agree that too few 

Americans are saving enough for retirement, that concern does not extend to the 

few individuals who have accumulated amounts in tax-preferred savings vehicles 

that are sufficient to provide more than $205,000 per year for the life of the participant and an assumed spouse (and would be subject to the cap on tax-advantaged 

retirement accumulations to which you refer, and which today would currently be 

approximately $3.4 million). Similarly, the 28-percent limit on certain tax expenditures will have little impact on retirement security because only high-income taxpayers are subject to the 28 percent limitation on the value of the tax benefit from 

retirement contributions, and even with that limitation, they would still receive a 

larger tax incentive to save for retirement than most middle-class families. Furthermore, the proposal recognizes that retirement savings are taxed when they are distributed, and allows affected taxpayers an adjustment to basis for the additional tax 

paid as a result of the 28-percent limit. The proposal to use the chained-CPI instead 

of the current CPI slows the growth of contribution limits to bring them in line with 

what most experts regard as a more accurate measure of average change in the cost 

of living. As noted in the Budget, this last proposal would only be considered in the 

context of a comprehensive deficit reduction effort. 

Question 2: Have you looked at any behavior models to understand the potential 

impact on qualified plan formation or continuation, particularly in the small business context where a small business owner would lose the incentive to save within 

the qualified plan system? 

We agree that tax incentives for both higher- and lower-wage employees (including the self-employed) are an important part of our system of voluntary saving for 

retirement. The proposal will have little if any impact on this incentive for the vast 

majority of beneficiaries. Almost no small business employers would ever reach the 

cap on retirement savings, which is an amount sufficient to provide an annuity of 

$205,000 per year. Even those who do will have an incentive to continue to offer 

tax-subsidized plans for their employees because retirement plans are an important 

recruitment and retention tool. 

Question 3: While I understand the $3 million cap is to target millionaires, we all 

recall the economic downturn not too long ago, and I am concerned that with any 

similar downturn, couldn’t we have someone’s supposed secure $3 million turn into 

$1 million, which would then not be enough to fund a comfortable retirement? 

Fluctuating values in retirement accounts is an important concern. However, the 

proposal to limit the tax benefit to accumulations sufficient to provide an annual 

income over $200,000 will have little if any impact on retirement security. First, a 

$205,000 annuity should be more than sufficient to provide for a secure retirement. 

Second, the few individuals who would be subject to this provision are still free to 

save additional amounts outside of the tax-favored system. And third, if accumulated levels fall below an amount sufficient to fund the maximum allowable tax-favored annuity, the taxpayer would be permitted to resume contributions. 

Question 4: In terms of the proposal to place a $3 million cap on savings, won’t 

this discourage savings more broadly? And wouldn’t that be the wrong message for 

the government to send? 

The proposal will not have any discernible impact on overall saving. While we all 

agree that too few Americans are saving enough for retirement, that concern does 

not extend to the very few individuals who have accumulated amounts in tax-preferred savings vehicles that are sufficient to provide income of $205,000 per year. 

Moreover, those few affected individuals are still free to save additional amounts 

outside of the tax-favored system. There is little evidence that tax-preferences for 

retirement saving substantially increase the amount saved by higher-income individuals once a reasonable amount has been accumulated, and thus little reason to 

believe they will save less if those tax benefits are modestly curbed. 

Question 5: Would you envision individuals needing to pay taxes immediately if 

they have funds over $3 million in their account? How about spouses who have inherited IRAs and may need that money to live comfortably? 

No, a taxpayer who has already accumulated sufficient retirement saving to fund 

an annuity of more than $205,000 (in today’s dollars) will not have to pay tax immediately. The taxpayer would continue to enjoy tax-deferred growth of retirement saving and would merely be prohibited from making additional tax-favored contributions. 

The proposal would have no impact on IRAs inherited by a spouse. 
65 

Question 6: In terms of the actual number the government is proposing, what happens with a potential economic downturn? Or a changed life situation? Such a limitation does not take in account any possible changed circumstances. 

If a taxpayer’s account balance falls below the limit (assets sufficient to fund a 

retirement annuity of $205,000), because of an economic downturn or other reasons, 

he or she will be allowed to resume making contributions. Note that the limit is the 

same as the maximum defined benefit pension today, and that a $205,000 annuity 

should provide for a secure retirement. 

Question 7: Has the government looked at how this could impact ESOP formation 

or current ESOP participants? 

ESOPs receive additional tax preferences beyond that of a typical qualified retirement plan and have desirable non-tax related features that can also benefit firms, 

which would not be affected by this proposal. Therefore, the proposal would have 

little, if any, impact on ESOP formation. Since very few ESOP participants would 

ever reach the limit, the vast majority of current ESOP participants would be unaffected by the proposal. 
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ATTACHMENTS
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[Whereupon, at 12:23 p.m., the Committee was adjourned.] 

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