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PRESIDENT’S BUDGET FOR FISCAL YEAR 2012 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 16, 2011 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

ADMINISTRATION WITNESS 

Geithner, Hon. Timothy F., Secretary, Department of the Treasury, Washington, DC ............................................................................................................. 5 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 41 

Geithner, Hon. Timothy F.: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 43 

Responses to questions from committee members ......................................... 52 

Hatch, Hon. Orrin G.: 

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

Prepared statement .......................................................................................... 116 

Rockefeller, Hon. John D., IV: 

Prepared statement .......................................................................................... 118 

COMMUNICATION

U.S. Chamber of Commerce .................................................................................... 121 

(III) 

(1) 

PRESIDENT’S BUDGET FOR FISCAL YEAR 2012 

WEDNESDAY, FEBRUARY 16, 2011 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:06 a.m., in 

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

(chairman of the committee) presiding. 

Present: Senators Wyden, Schumer, Nelson, Menendez, Carper, 

Cardin, Hatch, Snowe, Kyl, Crapo, Coburn, and Thune. 

Also present: Democratic Staff: Russ Sullivan, Staff Director; Lily 

Batchelder, Chief Tax Counsel; Alan Cohen, Senior Budget Analyst; Hun Quach, International Trade Analyst; Tom Klouda, Professional Staff Member, Social Security; Diedra Henry-Spires, Professional Staff; and Claire Green, Detailee. Republican Staff: Chris 

Campbell, Republican Staff Director; Mark Prater, Deputy Chief of 

Staff and Chief Tax Counsel; and Tony Coughlan, Tax Counsel. 

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

President John F. Kennedy said, ‘‘Anyone who is honestly seeking a job and can’t find it deserves the attention of the U.S. Government and the people.’’ Unfortunately, today too many Americans are seeking jobs and having little success. That is why our 

number-one priority must remain creating as many new wellpaying jobs as possible. 

We have already made real progress in our efforts to save jobs 

and to create new ones. During 2010, our economy created more 

than 1 million new jobs in the private sector. It was the best year 

for private sector job growth since 2006. 

But we have a long way to go. The work to create jobs must continue as we examine the budget of the coming year, and it must 

continue as the economy continues to recover and return to deficit 

reduction. 

For starters, the health care law we enacted last year dramatically reduced the deficit. The nonpartisan Congressional Budget 

Office projected that this legislation would reduce deficits by $230 

billion in the first 10 years and by more than $1 trillion in the 10 

years thereafter. 

Despite that significant step, we need to continue the deficit reduction work with the administration and our colleagues on both 

sides of the aisle. So today we are joined by Treasury Secretary 

Tim Geithner, who will discuss the President’s budget. He will examine the ways tax, trade, and health care policy can create the 

2 

jobs we need, reduce our deficit, and ensure our long-term prosperity. 

The President’s budget proposal includes a number of tax incentives to encourage job creation. It makes permanent the tremendously successful Build America bonds program. In 2009 and 2010, 

the Build America bonds program led to over $180 billion in financing for new projects pursued by State and local governments. 

Build America bonds come at a lower cost per dollar financed 

than tax-exempt bonds. These construction projects created new 

jobs all across the country. Last year, we also enacted a number 

of successful job-creation tax packages, including the HIRE Act and 

the Small Business Jobs Act. It is my hope that we can build on 

those successes. 

Our ability to create jobs also depends on a smart, thoughtful, 

aggressive trade policy. The administration’s goal of doubling exports by 2015 is one important way to create jobs here at home. 

Another certain way to create jobs and boost the sale of American 

goods around the world is to resolve the outstanding issues and approve the pending free trade agreements with Korea, Panama, and 

Colombia. I urge the administration to resolve these issues promptly, including concerns about access to the Korean market for U.S. 

beef. 

We have to work to implement a trade policy focused on job creation. I am concerned that the President’s proposal to consolidate 

Federal export agencies could impede export growth. Agencies such 

as the Office of the U.S. Trade Representative have long had great 

success promoting U.S. exports. This success is precisely because 

they are small, nimble, and non-bureaucratic. Any potential reorganization must preserve what works, create new jobs, and expand 

our economy. 

And the administration must work together with Congress on 

this. The President’s budget also ensures the successful implementation of the Nation’s new health care law. Giving the law a chance 

to work reduces rising health care costs for families and businesses. It reduces the deficit by more than $1 trillion. It strengthens our economy and creates more than 250,000 new jobs. Repealing the new law would eliminate this job growth. Repealing the law 

would move our economy backwards. 

The new health care law makes significant progress in creating 

the jobs our economy needs, but it cannot stop there. This year I 

plan to look closely at ways we can make America’s tax code more 

competitive. We will continue our series of Finance Committee 

hearings on tax reform. We will look at ways to make our tax system as simple, efficient, and well-targeted as possible, and we will 

look at every deduction and every credit with an eye toward job 

creation and economic growth. 

As we consider the President’s budget today, let us resolve to do 

all we can to create the jobs our economy needs. Let us work to 

improve our long-term prosperity. The country is counting on us. 

Secretary Geithner, thank you for being here today. We look forward to your testimony. 

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

The CHAIRMAN. Senator Hatch? 

3 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. 

I do not know how you get job increases here when Mr. Elmendorf said there would be 800,000 jobs lost. I know that Mr. Elmendorf is an honest man, trying to do the best job he can. The Build 

America bonds thing, my gosh, why do we have the rest of the 

country paying for the profligacy of a couple of States that just will 

not get their spending under control? 

The American public is going to have to pay 28 percent of those 

Build America bonds. That means the other States that have their 

spending under control have to pay for States that do not, and that 

is not right. I do not care what anybody says. But I want to thank 

you for scheduling this hearing. 

I welcome you, Mr. Secretary. 

In thinking about our hearing today, a couple of humorous comments came to mind. The first comment comes from the famous 

poet, Ogden Nash. One of Mr. Nash’s light verses was about the 

potential of omnipotent taxation. Here is what he said: ‘‘The more 

you earn, the less you keep, and now I lay me down to sleep. I pray 

the Lord my soul to take, if the tax collector hasn’t got it before 

I wake.’’ I think Ogden Nash was pretty prescient for our day. 

The second comment comes from a constituent of the Senator 

from Wyoming, Senator Enzi. Mr. Bruce L. Hargraves, U.S. Navy, 

Retired, of Worland, WY, wrote a letter to the editor of the Northern Wyoming Daily News. His letter was entitled, ‘‘Objection from 

a Former Sailor.’’ 

Now, here is what Mr. Hargraves wrote: ‘‘I object and take exception to everyone saying that Obama and Congress are spending 

money like a drunken sailor. As a former drunken sailor, I quit 

when I ran out of money.’’ [Laughter.] 

Now, Mr. Hargraves’s letter and Mr. Nash’s poem are very relevant to the topic of today’s hearing. The official topic is the revenue proposals in President Obama’s budget, but there is a much 

bigger issue before us. Mr. Hargraves’s letter was instructive. Over 

the last couple of years, the President and Congress have been 

spending like drunken sailors. Spending as a percentage of our 

economy is at levels we have not seen since World War II. The last 

time I saw it, it was 25.3 percent of GDP. The last time we did that 

was 1945. 

Overall, it is up by 20 percent as a percentage of our economy. 

Non-defense discretionary spending by itself has ballooned in the 

last couple of years. It is up by—according to what I read the other 

day—25.3 percent, some say 24 percent. But that is still a whopping number. If you count the stimulus spending, it is up by 84 

percent. 

The President’s budget proposes a freeze on that 24-percent 

ramp-up, but that is kind of like telling a drunken sailor that it 

is prudent that he continue his spending spree. Mr. Hargraves is 

also correct that drunken sailors run out of money to spend. Not 

so here in Congress, and not so in the White House. 

Now, Mr. Chairman and Mr. Secretary, maybe we do owe those 

drunken sailors an apology. Unlike the drunken sailor’s budget, the 

President’s budget does not cut the government off from its spendVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
4 

ing spree. What does the budget tell us? The trend line for spending means all government spending will take 10 percent more of 

the economy than the historical average. From a fiscal discipline 

perspective, that number is surely viewed with skepticism. It will 

likely be much worse. We shall see what CBO says in a few weeks. 

Viewed in the light most favorable to its proponents, this number 

must be disappointing. It basically concedes the point that we cannot restrain the growth of government to some reasonable measure. 

In that concession we have squandered an opportunity, Mr. Secretary. It is an opportunity because the will of the people, it seems 

to me, is clear. They want us to come together to restrain spending. 

A budget that at best means all government growing by 10 percent 

as a percentage of the economy is not restraint. 

The poet Mr. Nash’s verses bear on the consequences of the fiscal 

behavior enabled in this budget, and staggering levels of debt will 

be built up. By 2019, it will triple from where it was when the 

President took office. Now, this huge debt will have to, at a minimum, be serviced. 

Recently CBO, with conservative baseline assumptions, pegged debt service as high as $1 trillion per year in the out-years. If 

Ogden Nash were alive today, he would be rightly concerned. With 

the spending-driven fiscal holes, mounting debt, who among us 

does not believe there is a monstrous tax hike coming? Could it be 

so monstrous that Mr. Nash might be worried that his soul would 

eventually be the subject of confiscatory taxation? 

I am trying to help you, Mr. Secretary. I intend to help you. I 

happen to like you, and I happen to appreciate how hard you work. 

But we see the steps to that monstrous tax hike in the budget before us. By our calculation, a tax hike of $1.6 trillion is proposed. 

It comes in many forms, and it hits a lot of different taxpayers. 

If the taxpayer is an entrepreneur with a growing small business, he or she may be facing marginal rate hikes of 17 to 24 percent; you know it, I know it. Investors can look forward to a top 

capital gains rate hike of almost 60 percent in 2013. 

Some taxpayers may see their mortgage interest deductions, 

charitable deductions, and State and local tax deductions cut back. 

Families and businesses may see a doubling of the gas taxes they 

pay at the pump, and that does not even include how rapidly gas 

at the pump is going to go up just naturally. Business may face 

general tax increases. 

Mr. Secretary, again, I want to thank you for appearing today. 

I am pulling for you. I would like to see you go down in history 

as a good Secretary. I know how hard you work, and I appreciate 

it, personally. I look forward to a full, frank, and constructive discussion of the revenue proposals in the President’s budget. 

I can only stay for a short period today because I have a number 

of things that I also have to do, but please do not consider that any 

element of disrespect, because I do have a lot of respect for you. 

I do think we have to weigh in heavier, and you are in a position 

right now where you can do it. You passed the first 2 years, and 

now they ought to be listening to you, and you ought to be helping 

them to get real about spending, and about taxing, and about government. 

Thank you, Mr. Chairman. 

5 

The CHAIRMAN. Thank you, Senator. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. Thank you, Secretary Geithner, for coming before 

us today to discuss the President’s budget proposal, certainly with 

respect to your jurisdiction. You know the drill. Your statement is 

automatically included. Speak for as long as you wish. 

STATEMENT OF HON. TIMOTHY F. GEITHNER, SECRETARY, 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Secretary GEITHNER. Thank you, Mr. Chairman, Ranking Member Hatch, and members of the committee. It is a privilege to be 

before you today to talk about the choices ahead of us to help 

strengthen the economy and reduce our long-term deficits. 

The President’s budget presents a comprehensive strategy to 

strengthen economic growth and expand exports with investments 

in education, innovation, and the Nation’s infrastructure. Alongside 

these investments, the budget presents a detailed, multi-year, comprehensive plan to cut spending and reduce deficits. 

Our deficits are too high. They are unsustainable. Left unaddressed, these deficits will hurt economic growth and make us 

weaker as a Nation. We must restore fiscal responsibility and go 

back to living within our means as a country. 

The President’s budget cuts the deficit he inherited in half as a 

share of the economy by the end of this first term. These cuts are 

phased in over time to protect the recovery. In order to make it 

possible for us to invest in future growth and to restore fiscal sustainability, the President proposes to reduce non-security discretionary spending to its lowest level as a share of the economy since 

Dwight Eisenhower was President. 

To achieve this, the President proposes a 5-year freeze of annual 

non-security discretionary spending at its 2010 nominal level, 

which will reduce the deficit by more than $400 billion over the 

next 10 years. The President also proposes to reduce the request 

for defense spending, to freeze civil service salaries, and improve 

efficiency in government through a range of program eliminations 

and reductions. 

These savings create the room necessary for us to make targeted 

investments in support of reforms that will help strengthen future 

economic growth. The most important things we can do to promote 

our long-term growth are to improve the quality of our education 

system, to invest in innovation, and to rebuild our infrastructure. 

Without these investments, America will be weaker and less competitive. 

As part of the strategy for growth, the President proposes reforms to our tax system designed to encourage investment. We propose to put in place a permanent and expanded tax credit for research and development in the United States, to eliminate capital 

gains on investments in small businesses, to encourage advanced 

manufacturing in clean energy technologies, to keep taxes on investment income—dividends and capital gains—low, and to make 

college more affordable for middle-class Americans. 

These tax incentives are accompanied by reforms that would reduce the incentive to shift income and investment outside the 

6 

United States and to close loopholes and tax preferences that we 

cannot afford. 

Now, in addition we propose to pursue comprehensive reform of 

the corporate tax system that would lower the corporate rate. Our 

present corporate tax system, as you know, combines a very high 

rate with a very broad range of very expensive tax preferences for 

specific industries and activities. 

We need a more competitive system that allows the market, not 

tax planners and lobbyists, to allocate investment, a system in 

which businesses across industries pay a roughly similar share of 

earnings in tax, a system which provides more stability and certainty and is more simple to comply with, and we need to do all 

this without adding to our future deficits. We have begun the process of building support for comprehensive reform. I welcome the 

support many members of this committee have given to this exercise, and I think we have an opportunity now to try to do this. 

The President’s budget also outlines some responsible reforms on 

the individual side. We proposed, as we have in the past, to allow 

the 2001 and 2003 tax cuts for the wealthiest Americans to expire 

on schedule, to limit certain deductions for those same high-income 

Americans, to restore the estate tax to 2009 levels, and to close the 

carried interest loophole. 

These proposals—and I want to emphasize this—will help ensure 

that the savings we achieve together through spending cuts are devoted to deficit reduction, not to sustaining lower tax rates for the 

most fortunate 2 percent of Americans. 

This budget would achieve the dramatic reductions in our deficits 

over the next decade that are necessary to stop the national debt 

from expanding as a share of the economy and to stabilize the debt 

burden at a level that will not threaten future economic growth. 

These are only a first step, however, a down payment on the 

longer-term reforms necessary to address the long-run deficits. To 

address the deficits we face over the next century, not just those 

over the next decade, we have to build on the progress that was 

achieved in the Affordable Care Act to reduce health care costs. Although it is not a contributor to our short- and medium-run deficits, we should work together across party lines to strengthen Social Security for future generations. 

We cannot grow our way out of these deficits. They will not go 

away on their own. They will not be solved by cutting deeply into 

programs that are critical to future growth and competitiveness. 

We need to find consensus on a multi-year plan that cuts where we 

can so we can invest where we need to and that reduces our deficits. Making a multi-year commitment will allow us to make sure 

that the changes are phased in as the economy recovers, and making a multi-year commitment will give businesses and individuals 

adequate time to adjust and prepare for future changes in economic 

policy. 

The President’s proposal represents an important starting point 

for the discussion. Now, we recognize there are many ideas on both 

sides of the aisle, and we know, as you do, that we need both parties and both Houses of Congress to come together to enact solutions that are going to work. 

7 

Now, in December we were able to find bipartisan consensus, due 

to the hard work of a lot of people in this room, on a very strong 

package of tax incentives to help sustain the recovery and restore 

confidence. We need to bring that same commitment to the challenge of fiscal responsibility. 

Thank you. 

The CHAIRMAN. Thank you, Mr. Secretary. 

[The prepared statement of Secretary Geithner appears in the 

appendix.] 

The CHAIRMAN. I would like to follow up a little bit on jobs. You 

mentioned investment and future jobs. What can you tell people 

today who do not have a job? What is there here in the budget that 

gives them a little comfort that we are going to create jobs now, 

not only in the future? 

Secretary GEITHNER. Well, Mr. Chairman, I will start with this. 

The economy is gradually getting stronger. With growth, you are 

going to see employment start to increase, as it already has. As you 

have said, we have created more than a million private sector jobs 

in the last three quarters—more jobs, more quickly—than was true 

in the last two recoveries. But of course, it is not happening fast 

enough, and we need to work to make sure we are reinforcing the 

strength of recovery so more people get back to work. 

The budget has a series of very powerful proposals that will help 

that objective. We propose a very, very substantial multi-year plan 

to strengthen infrastructure. We propose, as you referred to in your 

opening comments, a broad strategy to double our export growth, 

pass trade agreements that will help expand market access for U.S. 

companies around the world. We propose a series of tax incentives 

to encourage investment in the United States so that the major 

U.S. companies, small and large, will build their next plant here, 

not outside of the United States. We propose a series of tax cuts 

for small businesses. 

I referred in my opening statement to zero capital gains tax on 

investments in small businesses that will, again, help reinforce 

that broad objective of helping accelerate job creation. We propose 

a series of targeted investments in clean energy technology. We 

proposed, as you said, to reform, but extend, the Build America 

bond programs that can help States make sure that they are financing school construction, for example, in a sustainable way. 

So those sets of proposals, we think, go a long way to building 

a foundation for better growth not just in the near term, but over 

the next several decades. We live in a much more competitive 

world. The world is not standing still. We need to make sure we 

frame a strategy as we think about these fiscal choices that is designed to support future growth. 

The CHAIRMAN. I wonder if you could expand a little more on incentives to keep jobs here, not overseas. As you know, there are 

many who point out, roughly, American companies have about 

$2 trillion in cash reserves, cash on hand, and about half of that 

is overseas—a little less than half. Some suggest repatriation, let 

companies bring that money home under our deferral system at 

lower rates, much lower rates, to ‘‘create jobs.’’ I would like your 

thoughts on that suggestion, repatriation. Second, what other inVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
8 

centives are you referring to that would help bring jobs home instead of overseas? 

Secretary GEITHNER. Well, in the President’s budget we propose 

a series of specific changes to the existing tax structure for corporations that would advance those objectives: permanent expanded 

R&D tax credit; some changes to the treatment of foreign income 

that will, again, reduce the incentives and the opportunities in the 

current tax code to shift income and investments outside of the 

United States; and a series of tax preferences for small businesses, 

that all help work in that basic direction. 

But we also say that that is working within the current system. 

I think the best thing we can do is look beyond the current system 

and legislate comprehensive corporate tax reform that would substantially lower the corporate rate and pay for that by substantially reducing a set of very expensive, broad-based tax expenditures and special interest tax expenditures that, again, are very expensive. They distort the allocation investment, they hurt economic 

growth. 

The world, as you know, while we have been standing still, has 

moved to dramatically lower their corporate rates. I think in that 

more competitive environment globally, it makes sense for the 

country for us to move in that direction. So we will support working with Congress to build support for comprehensive reform that 

would lower the rate, broaden the base, improve the incentives for 

investing in the United States, but do so in a way that does not 

add to our long-term deficits. 

The CHAIRMAN. Repatriation? 

Secretary GEITHNER. Repatriation, we would be happy to consider in the context of overall corporate reform. If we can do corporate reform right, we will have a chance to help on that front, 

but we would not support it outside the context of comprehensive 

reform. 

The CHAIRMAN. As you know, the biggest tax preference is a deferral. The corporate world suggests moving to a territorial system, 

which is even more than deferral on the surface. Your thoughts on 

that? 

Secretary GEITHNER. Well, there is a range of ideas out there. 

Again, the basic principles that have to guide us are how to make 

sure that we are encouraging, not reducing, incentives to invest in 

the United States and that we are reducing, not enhancing, incentives to shift investment income outside of the United States. 

So when we look at territorial tax systems, we have to make sure 

that the ultimate outcome supports that basic objective. There are 

lots of ways to do this, but again, to make a difference on that front 

you have to do a comprehensive reform that lowers the corporate 

rate quite significantly. 

The CHAIRMAN. Some suggest that the United States has either 

the highest, or second-highest statutory corporate rate in the world, 

but the effective rate is competitive with other countries. The 

counter to that is, well, to some degree that may be true, but CEOs 

and people who look at the statutory headline rate, psychologically 

that has an adverse effect. 

Second, even the CFOs may say, gee, our company’s effective 

rate is not that bad. A lot of CEOs say, well, I am less concerned 

9 

about that. They are looking at the statutory headline rate. Your 

comments on that. Your comments on the degree to which this top 

statutory rate is an impediment. 

Secretary GEITHNER. I think you are right to emphasize the fact 

that our average effective corporate tax rate is about the average 

of our major trading partners. Some are below, but we are about 

the average. But I think the high statutory rate is a problem. 

Again, that rate is so high because we are paying for a set of special and broad-based tax expenditures that distort the allocation of 

investment, and the costs of complying with that are substantial. 

I agree with what you said, which is that a lot of people who look 

at this who run businesses say, I would like the certainty of knowing what my tax burden is going to be over time, and I would like 

a lower corporate statutory rate even if my effective tax rate at the 

margin may go up a little bit. I think they would say that tradeoff is good for them. It makes them more competitive. I think that 

is what has to drive the interest in reform. 

The CHAIRMAN. My time has expired. But you made a very good 

point which I did not have a chance to get into, and that is the uncertainty that exists in the American business world, and also 

among consumers. Some people think it is caused by big bills, 

health care reform, et cetera. It is also that all the extenders expire, and these tax preferences you talk about may or may not still 

be around. 

I was very happy to hear you talking about making the R&D tax 

credit permanent. Senator Hatch and I have advocated that together for some time now, and I think that is one way of many, 

many ways we can address this question of uncertainty, by making 

very key, very important provisions permanent. Thank you very 

much. 

Senator Hatch? 

Senator HATCH. Well, thank you, Mr. Chairman. Likewise, I 

think that is a very good step because then companies can plan on 

having that. A lot of other nations do it the right way. We do not 

do it the right way. 

Also, even though you say we are pretty equal with other nations, they have tax expenditures too that have made them, what, 

the G–7, down around 28 percent, the G–20 somewhere down 

around 23 percent. They have tax expenditures. So we have to get 

those corporate rates down. 

The CHAIRMAN. Good. 

Senator HATCH. Mr. Geithner, when you appeared before this 

committee as Treasury Secretary nominee over the last couple of 

years, Senator Grassley referred to an op-ed in an August 14, 2008 

edition of the Wall Street Journal. That op-ed was written by thenSenator Obama’s senior economic advisors, Drs. Furman and 

Goolsby. 

Now, they indicated that the Obama administration would seek 

to keep the revenue base at close to historic levels or averages of 

GDP. At that point, CBO reported that over the past 40 years taxes 

as a percentage of GDP averaged 18.3 percent. The budget before 

us stays very close to that average in the first 5 years, but the 

trend is about one-half point above that average in the last 5 years, 

though it peaks at 20 percent in the last year. 

10 

Is the only path to fiscal discipline to maintain record levels of 

Federal taxation as a percentage of the economy, and are there 

negative consequences to future economic growth if we return to 

record levels of Federal taxation? 

Secretary GEITHNER. Senator, I think I would approach it this 

way: there is no way to bring our deficits down to a sustainable 

level, no strategy that could be achieved, by focusing just on discretionary spending cuts. It is, I think, completely unrealistic politically for that to be possible, and I think it would be very damaging 

to try to achieve that. 

Senator HATCH. We all agree with that. 

Secretary GEITHNER. Right. So I think that requires you to look 

at revenues. It is very hard to do. Most people say, I do not want 

to hear about revenues until you demonstrate as a country you can 

restrain spending more directly. 

Senator HATCH. But does it not require us to look at entitlements? 

Secretary GEITHNER. Right. 

Senator HATCH. My position is this: just in the paper today, it 

said that the President leaves it up to Congress to work on these 

entitlements. You cannot make any changes without presidential 

leadership. Why is he not leading in this area, when we know that 

that is where the major problems are? 

Secretary GEITHNER. Senator—— 

Senator HATCH. I am sorry to interrupt you. 

Secretary GEITHNER. No, that is an exellent point. You are right. 

I think, again, the way I think you should think about the fiscal 

challenge is, it comes in two phases. We do have a real problem 

in the next 10 years. That problem has nothing to do with entitlements; it is about a huge imbalance between commitments and resources, partly a legacy of decisions made in the last decade, partly 

the cost of the recession. 

It is very important—nothing is possible unless we can demonstrate we can bring that down much closer to balance. That is 

what the President’s budget proposes doing. That is not enough because, even if we achieve that, over time you are going to see our 

commitments on entitlements slowly eat away a much more dramatic share of GDP over time. That is untenable and unsustainable. 

Now, the President did show a lot of leadership in the last 2 

years, working with the Congress, to pass comprehensive health 

care reform that does reduce substantially those costs to the taxpayer of health care over the next couple decades. The chairman 

referred to that in his opening remarks. That is absolutely right. 

The President is prepared to build on those changes with other reforms—he mentioned several in the State of the Union address, including medical malpractice reform—that allow us to go further. 

But it is important to emphasize, and you are right to say that entitlements matter. 

Senator HATCH. Can I interrupt you here? 

Secretary GEITHNER. Yes. 

Senator HATCH. Is he going to submit something on medical liability reform? I know quite a bit about that, having tried some of 

those cases. It is nice to say he is for medical liability reform, but 

11 

if that means just tinkering around the edges, we are not going to 

solve that problem. 

Second, you know darn well that our revenue flow right now is 

a little less than 15 percent. I mean, it is nowhere near the 18– 

20 percent that we hope it would be. 

Thirdly, I do not see how the administration can keep saying 

that we are going to save money in this health care bill when Mr. 

Elmendorf says we are going to lose about 800,000 jobs over time. 

Secretary GEITHNER. Well, again, our budget system is not doing 

a very good job. 

Senator HATCH. It is a lousy system. 

Secretary GEITHNER. It is a lousy system. But—— 

Senator HATCH. Can you come up with a better one? I would like 

to see that. 

Secretary GEITHNER. I think it is a very lousy system. It is completely untenable. 

Senator HATCH. Then let us change it. 

Secretary GEITHNER. But, Mr. Senator, the one great thing is we 

have a nonpartisan arbiter of costs and savings, and CBO has said 

consistently over time that these health care reforms will dramatically reduce the cost to the taxpayer of Medicare/Medicaid over the 

next two decades—substantially in the first decade, as you know, 

roughly $230 billion, but $1 trillion over the next decade beyond 

that. We have to make sure we safeguard that. Now, we can go beyond that, and we would like to work with you on that, but we 

have to make sure we lock those in. 

Senator HATCH. Well, look. Nobody that I know really believes 

that. Frankly—— 

The CHAIRMAN. Whoa. Whoa. Whoa. 

Senator HATCH. No, I do not believe it. 

The CHAIRMAN. You know me. 

Senator HATCH. Do I know you? [Laughter.] 

You believe that? 

The CHAIRMAN. Yes, I do. 

Senator HATCH. I am worried. Usually Montanans are pretty 

tough on belief. But let me just say this, one other thing. There are 

a lot of things I would like to chat with you about. But look, one 

of the things that would help you a great deal, would help our 

country a great deal, is to expand the H1B and allow these Ph.D.s 

who are educated here, who want to stay here, who are brilliant 

and who could help us in the high-tech world and other worlds, to 

stay here. I mean, it is ridiculous that the administration does not 

weigh in on that. And I know why they do not, but it is ridiculous 

not to. 

We have now created real competitors in India, in China, just to 

mention two places, but others as well. Even in health care, we 

have competitors in Thailand and all over those areas that are 

much more competitive than we are. We are not doing the things 

that really we ought to do to get competitive. Look, I want to help 

you, so weigh in on this H1B thing. That would help us a great 

deal. There are so many other things I wish I had time to chat with 

you about. 

Secretary GEITHNER. I agree with you on H1B, by the way. It is 

just a question of how best to do it. But the great—— 

12 

Senator HATCH. Expand it. Allow more people who qualify—— 

Secretary GEITHNER. I agree. That is the way you have to do it. 

Senator HATCH. Yes. All right. 

The CHAIRMAN. Thank you very much, Senator. 

Senator Snowe? 

Senator HATCH. I am giving you all these good ideas. 

The CHAIRMAN. Oh, yes. Actually, Senator Wyden is ahead of 

you, but he is not here at the moment. 

Senator SNOWE. Thank you. 

The CHAIRMAN. You are next, and then Senator Nelson is after 

you. 

Senator SNOWE. Thank you. 

Thank you, Mr. Secretary, for being here today. One of the critical issues that I want to focus on, which I think has to be our Nation’s ultimate priority, is job creation. Frankly, it is dismaying 

that we are where we are at this point in our Nation with respect 

to creating jobs. If you look at just what has happened over the last 

2 years, we have lost 7.3 million jobs during this last recession. 

So, when you are mentioning that you created 1 million jobs, it 

pales by comparison in terms of what we have lost, and with the 

extended numbers with respect to the unemployed, which is probably upwards of 14, 15, perhaps as high as 20 million people who 

are unemployed. If you look at the stagnation in the job creation 

market, we have only created 70,000 jobs between June of 2009 

and December of 2010, which is a .06 increase over that period of 

time. 

I have a couple of charts here that I think are illustrative of the 

point where we stand. The first chart demonstrates the severity 

and the intransigence of the unemployment number. It has been 

above 9 percent for 21 consecutive months. The only other period 

that was even close to approximating that was back in 1982, where 

there were 19 consecutive months. So that is where we stand 

today. 

The second chart, I think, illustrates the point as well, even with 

the stimulus plan. I mean, looking at the administration’s estimates with the recovery plan, we were supposed to be, at this 

point, 6.9-percent unemployment. Well, that is not where we were. 

As we look at the second line that indicates the fact that with this 

stimulus, with the White House estimates, we would be at 6.9 percent. Obviously, we were at 8 percent. Now we are 9 percent. In 

reality, we should be at 8 percent, according to your estimates, at 

this point in time, at least by virtue of the fact of the estimates 

that you had given with respect to the stimulus plan. 

So that is $814 billion later, not to mention the extraordinary increase in spending in other parts of the category and what the Federal Reserve is doing, with the top related expenditures of more 

than $700 billion. So what is the plan for creating jobs? I mean, 

because obviously the stimulus has not worked to the degree that 

you indicated, just by virtue of those different lines between what 

you estimated would happen and what ultimately happened, which 

is where we stand today with an intractable 9-percent unemployment rate for 21 consecutive months. 

Now, Chairman Bernanke indicated recently at a hearing that it 

is going to take a long time. It is going to be a slow process to reVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
13 

build. We need a plan. For all that we talk about all these different 

programs, more spending, that is what I am hearing even in the 

budget—more infrastructure spending. 

That all was supposed to have occurred in the stimulus plan, and 

all that has happened since. People want to know, where are the 

jobs? If you look down the road, what is it going to take to get back 

to, let us just say 5 percent, by 2016? We require 285,000 jobs a 

month for 60 consecutive months. That is 5 years. 

So, clearly, we have a long ways to go. I think we have to focus 

on this issue like a laser. We have to have a master plan. We have 

to get everybody together. We have to point in that direction. What 

I am hearing is more and more of the same. I mean, even on small 

business, you had the small business plan last fall. That became 

law, but now we are talking about small business initiatives and 

more spending. Yet, we are not seeing any turnaround. 

I think there is a reason for that. I think it is the uncertainty that exists out there. Even with the $7 trillion that is sitting on 

the sidelines with small businesses and with large businesses, it is 

because they are unwilling because of the risk of the policies coming out of Washington. So where is the plan? We need a plan on 

job creation. 

Secretary GEITHNER. Senator, you are exactly right to emphasize 

we still have a lot of challenges. Unemployment is very high. Even 

under the best of circumstances it is going to come down only slowly, and that is because of the cause of this crisis and the deficit crisis. 

But we have laid out a very comprehensive set of proposals to 

make sure that we are investing in infrastructure, we are creating 

better incentives for investment in the United States, we are helping small businesses, and we are helping to expand exports. Those 

are things that, as you know, the executive branch cannot do, cannot compel Congress to do. It requires Congress to legislate to put 

those changes in place. 

I think as part of that, as we are discussing today, it is important that Congress lay out a clear, multi-year, long-run plan to reduce these deficits, because part of the uncertainty that you are referring to out there is uncertainty among families and businesses 

about how we are going to go back to living within our means. You 

cannot provide that confidence if you leave us with a year-by-year 

huge uncertainty about what the basic rules of the game are going 

to be on tax and spending. 

That is why, as part of anything we do to help reinforce recovery 

and strengthen employment, we have to have a multi-year, clear 

set of commitments to bring those deficits down over time. That 

will help businesses and families to plan and invest. But again, 

these basic changes that we have to confront as a country to help 

strengthen investment, strengthen innovation, improve education, 

improve competitiveness, those are things that Congress has to legislate. 

The executive can propose, and we have proposed, but it is really 

up to this body, up to both Houses, to find a consensus on concrete 

things that will help work. Now again, we do not have a monopoly 

of wisdom on this stuff. There are lots of other ideas out there. We 

are willing to take any idea, but we have to find some way like we 

14 

did in the tax package. I think that is a very good example of bipartisan cooperation. We have to find a way to get people to come 

together and work on practical things that will help. 

Senator SNOWE. Well, I think it requires presidential leadership 

on this question. 

Secretary GEITHNER. But we met that test in the sense that— 

again, you can debate the proposals, but they are proposals. They 

are comprehensive plans. We would welcome a debate about how 

to achieve the same amount of deficit reduction with a better mix 

of incentives for job creation because, if there are better ideas out 

there, we would be happy to take them. 

Senator SNOWE. But what I am saying is, the stimulus occurred 

2 years ago, and this is where we stand today on unemployment. 

That is the bottom line. 

Secretary GEITHNER. But Senator, I—— 

Senator SNOWE. And you can sit here and say it, but all the proposals you are talking about are way down the line. We need to be 

working on it now. It requires presidential leadership. Let us get 

together here. We can get together. I think we are just sort of deferring. 

Secretary GEITHNER. But Senator, I—— 

Senator SNOWE. Everybody can get together. The President can 

call it and let us just all sit down and work it out. 

Secretary GEITHNER. But Senator, can I just say, I think you are 

a little dark and pessimistic about what is actually happening in 

the economy. The tax package. To give you an example, in the tax 

package there is a $100-billion tax cut for payroll taxes that goes 

to 155 million working Americans today, and the most powerful incentive for businesses’ expensing that we have ever passed: 100- 

percent expensing for investment in capital expenditures this year, 

available to any business across the country. 

Those two things are helping contribute to a little acceleration in 

the economy as a whole. We want to reinforce that and should not 

put that at risk. Again, the worst thing we could do now as a country is to call into question our commitment to bring these deficits 

down, to meet our obligations as a country. We want to make sure 

that we are reinforcing that, but that requires Congress fixing how 

it does budgets so we can lay out a multi-year plan that will bring 

these down and people can plan for that. 

The CHAIRMAN. Senator Nelson? 

Senator NELSON. Thank you, Mr. Chairman. 

Mr. Secretary, we have heard a lot of commentary that has been 

critical. I personally think that the President’s budget is a step in 

the right direction, but we have a long way to go. We have heard 

a lot of commentary that is critical about, well, you are not doing 

anything about entitlements. In fact, in the health care bill, $400 

billion is being squeezed out of the Medicare system over the 

course of the next 10 years. Now, I am assuming that your budget 

takes that into account. Is that right? 

Secretary GEITHNER. It does. 

Senator NELSON. All right. Well, given the fact of that $400 billion, how does that then project into keeping Medicare in a solvent 

position for the future? How long does that extend the life of Medicare solvency? 

15 

Secretary GEITHNER. Well, it extends it very substantially. But 

again, I think the right thing to emphasize is that, using the nonpartisan, independent CBO estimates, the Affordable Care Act reduces the deficit over the next 10 years in health care by $230 billion, and by $1 trillion over the next decade. 

Now, a lot of experts will point out that CBO is traditionally very 

conservative in estimating cost savings—often understates those 

estimates—so we could do better, but only if the law is allowed to 

be implemented over time. Unless those reforms can get some traction now, we will not realize those savings. 

Senator NELSON. For example, CBO cannot estimate the cost 

savings for Accountable Care Organizations, and yet that is a basic 

underpinning of the health care bill, that it is going to increase efficiency, increase quality, and lower cost. So, is it that we are going 

to actually have to get into it with these Accountable Care Organizations that—by the way, hospitals that are buying up all these 

doctors’ practices are now forming their own Accountable Care Organizations. Is it basically that we are going to have to get into it 

and see what the cost savings are in order to realize—— 

Secretary GEITHNER. Well, I think that, again, there are specific 

changes in the law that CBO is willing to score in terms of their 

savings and costs, and, if Congress allows those to remain in place 

and to be implemented, they would deliver those savings maybe 

even better. But there is a whole range of other reforms in the bill 

that CBO will not score. You will note over time how much savings 

they will produce, but they are likely to surprise on the positive 

side over time. But again, only if we allow those reforms to take 

effect. 

But I think you are right to say that the Congress did pass the 

most sweeping entitlement reform considered in a long time with 

the largest impact on reducing cost growth that Congress has considered, much less passed, in decades and decades. 

Senator NELSON. I do not know how you go about something that 

is politically acceptable for squeezing any more out of Medicare in 

the immediate future. Do you have any suggestions? 

Senator NELSON. I think the President’s view is, again, we are 

happy to build on the framework laid out in the Affordable Care 

Act. He has identified some specific areas—I mentioned medical 

malpractice reforms—where we think we can do better. But I 

think, realistically, our best hope is to make sure we let those reforms start to work. As we explore other ideas, we can do them on 

top of those. 

Senator NELSON. All right. Now, let us shift subjects. Why has 

the HAMP program not worked? It has only helped some 700,000 

folks, when in fact we were looking at it helping 3 million. 

Secretary GEITHNER. The HAMP, the President’s mortgage modification program, has helped more than 2.5 million Americans take 

advantage of a mortgage modification that lowered their monthly 

payments very substantially, on average, $500 or $600 a month, for 

a sustained period of time, and thereby helped them have a chance 

to stay in their homes. 

Now, it cannot reach everyone, because a lot of the people at risk 

of foreclosure today are people where it is an investor-owned property, it is a second home, or was a very expensive home supported 

16 

by a jumbo mortgage, or frankly are people who can afford to meet 

those payments. It can help people who really just got too overextended, bought a house they just could not afford, and have lost 

the capacity to meet those commitments. 

But we want to make sure these programs reach as many people 

as possible. But they made a very substantial difference for millions of Americans, and without those programs you would have 

seen much, much higher rates of foreclosure and much, much more 

damage to the communities where those foreclosures in the States 

were concentrated. 

We are going to try to make sure, again, those programs reach 

as many people as we can, but we cannot reach everybody caught 

up in this crisis. This crisis has a lot of innocent victims. A lot of 

people saw their home values decline who were very careful and 

prudent. A lot of people lost their home through no fault of their 

own. I think we have an obligation still to make sure we are not 

just strengthening this recovery, but reaching as many Americans 

as we can. 

Senator NELSON. Are you optimistic that the small business lending program that we passed last fall that is still yet to be implemented, that it is going to help put $300 billion of loans out there 

for small business? 

Secretary GEITHNER. I think it is going to make a big difference. 

I think it is better than all of the alternative ideas out there. I will 

tell you where we are on implementation. We have about 250 applications from banks for capital under this program. Those applications, if they were granted, would result in about $4 billion in capital provided by the government to those banks for a fee. Of course, 

the way that program works, the more they increase lending, the 

more the fee is reduced. So it is a well-designed program with good 

incentives. 

We are also approving programs for States to help give them 

more financial support for their small business credit programs. I 

think that will help. It is coming just at the right time now because 

you are seeing loan demands start to pick up. We want to make 

sure small banks across the country are able to help support that 

rising demand for credit. 

The CHAIRMAN. Senator Crapo? 

Senator NELSON. Mr. Chairman, I have taken less time than everybody else. I would just say, in conclusion, that I want you to 

work with me on saving the citrus industry of this country with the 

citrus trust fund. Thank you. 

The CHAIRMAN. Thank you. Thank you very much. 

Senator Crapo? 

Senator CRAPO. Thank you, Mr. Chairman. 

Secretary Geithner, we welcome you here. I want to talk with 

you a little bit about the tax reform issue because, frankly, as I 

evaluate this budget, I do not find what I call tax reform in it. 

Now, there are some positive provisions. For example, the provision 

you referred to earlier about the R&D tax credit, and so forth. But as I look at the budget, we have about $1.6 trillion of new 

taxes in the proposed budget over 10 years, but no real change in 

our tax system. Frankly, depending on whether the economic assumptions of this proposal are accurate—and I think they are sigVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
17 

nificantly overstated—maybe at most, with the most aggressive 

economic projections, you have a $1-trillion reduction in the rate of 

growth of our debt over 10 years, which I think is far lower than 

what we need to be focusing on. 

My question is this: as you know, Senator Coburn, Senator 

Conrad, and I served on the Fiscal Commission that made recommendations for tax reform. Although the budget that you are 

proposing contains, I think, over $300 billion of reduction of tax expenditures, and it is said that you are following the pattern of the 

Fiscal Commission, that is very different from what the Fiscal 

Commission did, because the Fiscal Commission did much more 

than that. 

But the tax expenditure reduction that the Fiscal Commission 

proposed was utilized for rate reduction and for major reform of 

our tax system. The tax expenditure reductions that I see in the 

budget are being used to offset more spending, as I see it. Could 

you comment on that? 

Secretary GEITHNER. Yes. Let me just compliment you, first, for 

the work you did in the committee, because I think you helped 

highlight the cost of existing tax expenditures, and you laid a path 

for bringing sensible changes to our tax system that involve lowering rates significantly, a broadened base, and raising revenue. 

The proposals you endorsed do raise substantial revenue over time, 

but in a way that, frankly, makes a lot of sense. 

Look, if you are going to make changes around the margin in the 

current tax system, you have less scope for fixing the broad set of 

problems our tax system presents the economy today. What the 

budget does, as you said, is it makes a set of changes around the 

edges of the current tax system. I agree with many who say that 

realistically it may make more sense to do comprehensive reform 

on the individual side and the corporate side rather than making 

these changes at the basic margin. 

If you do comprehensive reform, then you can lower rates, you 

can broaden the base, you can probably raise some revenues too in 

a way that is more acceptable to people, and you can clean up a 

system that is very complicated, very unfair now, and probably bad 

for economic growth. So that has a lot of merits. 

We did not propose comprehensive reform on the individual side 

in this budget, but the President said in the State of the Union address that we think that is something we are going to have to come 

to. What we need to do is try to build the foundation in the Congress on alternative strategies to achieve that. But I admire the 

path you laid out in the Commission, and I think that is obviously 

a model. There are other models out there; I know Senator Wyden 

has one. 

Senator CRAPO. Well, let me just interrupt and say it seems to 

me to use $320 billion-plus of tax expenditures and end up with 

zero reform of the tax code, no rate reduction, and in fact in my 

opinion, as I read the budget, no real spending restraint, is a huge 

mistake. It uses up a huge portion of our opportunity for true tax 

reform. 

Secretary GEITHNER. Senator, could I just clarify one thing? In 

the proposals we set in the budget, we are proposing, as you said, 

to reduce this one tax expenditure that goes to the top 2 percent 

18 

of Americans. We suggest to devote that to helping pay for extending the AMT. So that is like using a tax expenditure reform to 

make possible lower rates for a substantial number of Americans, 

but I will not disagree with you that there is a lot of merit in taking a comprehensive approach, because you can do a lot of good 

things for simplicity, fairness, for growth, for efficiency, by looking 

at this comprehensively and trying to lower rates as you broaden 

the base. 

Senator CRAPO. Thank you. I want to get into that further with 

you, but I am running out of time, and I have one other question 

I really want to get out to you. 

That is on the corporate side. Again, I do not see the kind of reform that I think we should have seen coming from the President. 

But one question I have is, as you know, the Commission recommended in our corporate reform, when we get to it, that, in addition to rate reduction, we adopt a territorial system for our country 

in our tax code, which most other nations are moving to now. Nothing from the White House has been said on this yet. I would like 

you to share your opinion with us as to whether we should make 

that move. 

Secretary GEITHNER. Well, as I tried to say, as the President said 

in the State of the Union address, we would like to work towards 

comprehensive corporate tax reform that lowers the rate, broadens 

the base, and is revenue-neutral. As part of that, we will examine 

a range of options on the territorial side. The test for us is going 

to be, how do we make sure our system encourages, rather than 

discourages, investment in the United States? 

When you look at territorial systems, you have to be very careful, 

not just so you are not losing hundreds of billions of dollars in revenue, but you do not want to be reinforcing incentives and opportunities for companies to shift income and shift investment outside 

of the United States. We could not justify it, cannot defend it. But 

we will look at a whole range of those options in the context of 

comprehensive reform. 

Can I just say one quick thing about what you said about deficit 

reduction? The Commission laid out a comprehensive approach 

that would reduce the deficits, as the Commission estimated, to 

somewhat below 3 percent of GDP over the next 5 years or so. That 

was the task we gave the Commission, and you guys met that, and 

slightly over-achieved on that task, though it has not been scored 

formally. 

This budget does achieve reduction, as it brings us down to 3 

percent over the same time frame. You go a little further, which 

I commend you for. That is at a minimum necessary. I mean, we 

need to go beyond that over time, but that is a good place to start. 

What the President does is lay out a comprehensive set of changes 

that achieves not just spending reduction, but a set of reforms that 

will help bring the deficits down, too. 

Again, I emphasize this because, as you said, I think you do not 

want those spending savings that we are going to have to deliver 

to go to sustained, unaffordable tax expenditures, tax rates, tax 

preferences that only benefit a very small fraction of the economy 

and have other costs for everybody else. Everybody else pays higher 

19 

taxes because of those expenditures. It is not a good way to make 

fiscal policy. 

The CHAIRMAN. Thank you very much. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. Thank you, Secretary Geithner. I think you know, I am very interested in working 

with you and the administration on this tax reform issue. Picking 

up on Senator Crapo’s point, tax reform is not like health care. I 

mean, we have done it before, number one. Nobody is going to go 

out and say, I want you to keep the tax code I love, and that kind 

of thing. 

I just want to get your thoughts about 1986, because there you 

had an instance where Democrats and Ronald Reagan got together, 

and in the 2 years after they passed the bill, 6.3 million non-farm 

jobs were created in America, which is twice as many—twice as 

many—as were created between 2001 and 2008 when tax policy 

was partisan. 

So tell me your thoughts about why we cannot pick up, again, 

in a bipartisan way with the 1986 model, because many witnesses 

have sat in your seat. Chairman Baucus, to his credit, has had a 

ton of hearings, and we are going to have a lot more. I am asking 

them all about 1986, and most people think that that model is still 

valid today. What are your thoughts on that? 

Secretary GEITHNER. I do think it is. I mean, another thing from 

that experience is that it took 3 years, I believe. It requires the 

President, but also leadership on both sides of the aisle, both 

Houses. I do not think this is a tax system that is going to suit the 

needs of the country looking forward, and I think it is going to be 

very hard for us to achieve the kind of fiscal sustainability we need 

working within the current tax system. 

Now, we do not have the advantage we had in 1986 of being able 

to eliminate a bunch of very, very expensive tax preferences and 

raise the corporate tax burden to pay for lower individual rates. We 

do not have that opportunity available to us now. That will make 

it a little bit harder for us. The remaining tax expenditures in both 

the individual and the corporate side that are expensive are very, 

very broad-based. Your own work has highlighted this. 

So I think it will be harder to do politically, but as the President 

said, I think we are going to have to get there. One of the virtues 

of—I do not think of this as a virtue really, but one of the realities 

presented by the deadlines imposed by the expiry of the Bush tax 

cuts 2 years from now is, it will force us to decide not just what 

to do with those tax cuts, but whether we can, whether we should 

use that as an opportunity to force comprehensive reform. 

Senator WYDEN. It will if we move quickly to get real tax reform 

on the agenda. My concern is, in the lame duck session of the 2012 

Congress, we will have exactly the same debate that we had in the 

2010 session. The only point I would make with respect to what is 

different between 1986 and now, as Chairman Baucus has pointed 

out, we have added more than 15,000 tax breaks. It is now taking 

the American people 6 billion hours annually to just fill out all 

these forms, so there is plenty of stuff that we can look to in terms 

of these narrow breaks that give away a lot of money, to use them 

to hold down rates. 

20 

A question on the corporate reform issue. First, I am glad you 

are looking at it. I particularly would like to see us take away the 

tax breaks for shipping jobs overseas and use that money to substantially lower the rate for people who do business in this country. 

I think we can get it into the middle 20s and do it in a bipartisan 

way. 

But here is my concern. If all we do is the corporate rate, the 

first thing we are going to see is, we are leaving out 80 percent of 

the businesses. We are leaving out the sole proprietorships and the 

partnerships, scores of these small businesses. Dr. Bernanke and 

others have pointed out that we actually may end up with a bit 

more distortion because of the interaction between the individual 

provisions of the code and the corporate provisions. So you have the 

businesses all paying, for the most part, as individuals because 

they are pass-throughs. We have Dr. Bernanke on record saying it 

is important to do this together because of the interactions. How 

are we going to do that if we just go the corporate route alone? 

Secretary GEITHNER. I understand that challenge. I will tell you, 

my view is that you can do corporate without doing individual at 

the same time. But to do corporate, you probably have to look at 

the broader classes of income that are out there. I think fundamentally, Congress has to revisit this basic question about whether it 

makes sense for us as a country to allow certain businesses to 

choose whether they are treated as corporations for tax purposes 

or not. It is not a fundamentally sustainable balance now. 

But I think you could do corporate ahead of individual, and I 

think we have a chance to do it now. Although I agree with you, 

you cannot wait until the lame duck session in 2012 if you are 

going to have a chance of getting this done, so we have to begin 

the process now. 

Senator WYDEN. Mr. Chairman, a lot of hearings to have to examine all this. 

The CHAIRMAN. Right. 

Senator Coburn? 

Senator COBURN. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here. Let me just start by 

saying, do you feel it is all right or safe for us, over the next few 

years, to run trillion-dollar deficits? 

Secretary GEITHNER. Speaking as the Secretary of Treasury, I 

would say that it is absolutely critical to us that we find a way to 

lock in a set of fiscal reforms over a multi-year period of time that 

the world will look at as offering a credible path to bring down 

these deficits over time. I do not believe that is something we can 

defer, and it is not something you can do year by year. 

Again, it is not something you can achieve if you just look at one 

year or one piece of the budget. One of the virtues of what you did 

in the Commission was say it has to be comprehensive, it has to 

be multi-year, you have to lock people in to changes that they can 

start to plan for. But I think that we will weaken the country and 

we will impede, impair, and weaken the recovery, put it at risk, if 

we do not demonstrate to the world that we have the political will 

to lock in some reforms now. 

Senator COBURN. Do you have plans to lengthen the maturity of 

our debt? 

21 

Secretary GEITHNER. I would be happy to report to you in writing 

in more detail on this stuff, but we have substantially lengthened 

maturity over the last 18 months. 

Senator COBURN. You are at 59 months, right? 

Secretary GEITHNER. We are. That is somewhat lower than the 

average of other countries, but we are a little special as a country 

in this context, for a variety of reasons. But I think our view is that 

we have an opportunity to go further, and we are going to do that. 

Senator COBURN. And your worry behind that is because you are 

worried about a possible liquidity crisis? 

Secretary GEITHNER. I am actually not worried about that. I am 

very confident that we can avoid that. Again, one of the great 

things about the United States, we saw this in the crisis, is that, 

even at a time when we were at the verge of catastrophic financial 

failure, facing the risk of a Great Depression, people still believe 

in the end that the U.S. will get its act together and do the right 

thing. We have to earn that confidence over time. So, I am not worried about that. It is just a prudent way to proceed. 

Senator COBURN. That is why it is important for us not to run 

trillion-dollar deficits, and send a signal to the international financial community that we are going to fix this. 

Secretary GEITHNER. That is right. If we cannot, then interest 

rates will go up. Private assets will be crowded out, and the recovery will be weaker. 

Senator COBURN. Let me ask one more question about the budg- et. I looked at the budget, and it is $1.1 trillion savings over 10 

years. If you take the projected deficit over the next 3 years and 

apply your present rates that you are paying, we are going to go 

in the hole $400 billion. Correct? 

Secretary GEITHNER. Well—— 

Senator COBURN. Well, the interest cost is going to be $1.4 trillion over the next 3 years on the deficits, just for those first 3 

years. We know we are still going to run deficits at the end of your 

budget. 

Secretary GEITHNER. Right. 

Senator COBURN. And there is a savings of $1.1 trillion over 10 years, but our additional interest costs are going to be $1.4 trillion 

over just the first 3 years. So in essence, we are actually going in 

the hole. I am not making a commentary on the efforts that you 

are putting forward on the budget. Just the plain fact is, we are 

still swimming backwards when you consider interest costs. 

Secretary GEITHNER. Deficits matter. They are expensive, they 

are unsustainable, and they will hurt the economy over time. You 

have to bring them down very substantially over the next 3 to 5 

years. But again, it requires a multi-year plan with a set of commitments people can plan on. 

Senator COBURN. I am with you. I was on the Deficit Commission. I am there. I am wanting, as my colleagues have said, the 

President to lead more than he has. I think the only way we get 

out of it is if he does so. 

Let me just talk about one other thing. Are you really very comfortable with the assumptions in this budget in terms of GDP 

growth, and would you tell us why you feel we are going to have 

this kind of GDP growth, also the kind of revenue growth that you 

22 

are projecting? It has been a long time since we have had 3 years 

in a row of double-digit revenue gains for the Federal Government. 

Would you comment on that, please? 

Secretary GEITHNER. Yes. I should say, I am never, ever comfortable with any assumption, any forecast about the economy’s— 

there is too much uncertainty about these things, but you have to 

make a basic judgment for planning. These assumptions in this 

budget are, in my view, reasonable and quite conservative. 

I will give you one example. I will give you two examples. The 

growth rate assumed over the 10-year period of time is substantially lower than the average of the past several recoveries. That 

is one example of a realistically conservative assumption. That is, 

again, because this is a recovery following a financial recession. 

Another example is, the deficit estimate for this year is way 

above CBO’s estimate, very conservative estimate, almost certainly 

too high. But it will not be perfect. What is good about our country, 

about our system in this context, is that CBO will make its judgments, and CBO will be nonpartisan, and they will be careful, too, 

and their judgments will bind. 

Senator COBURN. Let me ask one follow-up question. When you 

look at this, do you do inside-the-Treasury dynamic scoring on 

what you believe is going to happen versus static scoring so you 

can get comfortable with where we are going? 

Secretary GEITHNER. We look at, as does CBO, the impact of 

these policies on behavior and growth rates. 

Senator COBURN. I think that is a yes, then. 

Secretary GEITHNER. No, I am not sure. Dynamic scoring has a 

special sensitivity for people in how they talk about it, but of 

course we look at the impact of policies on growth rates and behavior. 

Senator COBURN. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. 

Secretary Geithner, it is a pleasure to have you before the committee. I think we all agree that we need a credible plan to deal 

with the deficit. To have a credible plan, the Congress needs to 

work with the administration, come together on a plan. Democrats 

and Republicans need to come together. One thing is also clear, 

that we cannot do it on the discretionary spending side. Senator 

Nelson pointed out how the health savings are likely to be more 

than what CBO has projected. I just want to concur in that, just 

the intuitive nature of getting people out of emergency rooms, getting them into preventive care. 

Yesterday, I pointed out to the committee with the Secretary of 

Health, I went to a community health center close by that is expanding. It is doing prenatal care. It is going to end up having 

healthier babies and help save us money. None of that has really 

been scored by the CBO. 

So I think we can be pretty confident that we are going to 

produce greater savings, provided that we implement the health 

care bill and allow America to get in step with the rest of the world 

in the amount of its economy it spends on health care. We are out 

23 

of step on that. There are a lot of areas where we can make significant improvement. 

But we also need to deal with it on tax reform. We have to have 

tax reform as part of this package, and we could talk about a lot 

of different reasons why. But let me tell you one of the challenges 

I see as we talk about tax reform. That is, when you look at the 

American economy before we went into this recession, in almost 

every indicator we were doing very well, except one. That was our 

national savings rates were very, very low. We all warned that this 

would be a problem. Our personal savings were low, our retirement 

savings were low. We knew that for retirement security we rely not 

just on Social Security, but private savings and private retirement. 

They were low during the best of economic times. 

I remember at hearings talking about this, and the answer you 

usually got was, well, Americans are saving through their values 

in their home, the equity in their home. Well, that is gone. So now 

that we are about ready to talk about serious tax reform—and we 

get to this about every 25 years, if my math is right—I want to 

make sure that, as we look at tax reform, we are not overly influenced by the current situation we are in where we need revenue 

and we have to get Americans more confident to spend, to help our 

economy. I just want to make sure that we are going to also focus 

on a tax code that will reward savings, help us with national savings, as well as retirement savings. 

Secretary GEITHNER. Senator, I agree with that. I think that you 

are right. When you think about tax reform, you have to look at 

the long-term incentives you are creating, not just for investment 

but for savings. I think you are right that any credible reform 

would have to look carefully at how you preserve, design, and reform incentives for savings and for things like investments in education, college savings. I think those things are important. 

I think you are right to emphasize that. We have to again make 

sure that you are looking at the long-term requirements of the 

economy, not just the immediate challenges we face in helping the 

economy recover as a whole. It is encouraging that in the early 

stage of the crisis you are seeing the private savings rate improve 

so much. Private savings rates were about a negative 2 percent before the crisis, and now they come up to between 4 and 6 percent 

or so. That is a big improvement in our current account imbalance. 

Now our borrowing from the rest of the world has come down to 

about half its peak as a share of the economy. So we are saving 

more as a country. Consumers are reducing debt burdens. That is 

helpful today. But I agree with you that, when you look at tax reform as a whole, you have to look at ways to make sure you have 

better incentives for savings and investment. 

Senator CARDIN. I would point out, the reasons why we are saving more today is credit is more difficult, and Americans are concerned about the future. But when our economy starts to grow, the 

optimism of Americans is such that we could fall back into the 

same type of economic issues. So we need to develop policies that 

encourage more savings, particularly retirement savings, which are 

not only secure long-term savings, but also help us deal with retirement security without putting additional pressure on governmental 

programs. So, I would encourage you to do that. 

24 

I was just going to ask another question quickly on a different 

subject. That is, our trade deficit continues to worry me. This is an 

issue we had before the recession. You have jurisdiction over currency issues with China. I just want you to know that many of us 

are very concerned, and remain concerned that, if we are going to 

be able to deal with our trade imbalance, we need to continue to 

get reform in China to allow their currency to fluctuate. 

Secretary GEITHNER. I completely agree with that, as you know. 

I welcome very much the attention and support many of you on 

both sides are bringing to this issue, because I think it is important 

that China understand that this matters a lot to the basic health 

not just of our economy, but the world economy as a whole. China 

is letting their currency gradually appreciate, but it is only moving 

at about 0.5 percent a month now against the dollar. 

But because their inflation rates are much higher than ours, if 

you look at the actual competitive balance now, it is appreciating 

substantially more rapidly than that. That is very good because it 

means that companies now, as they are choosing where they build 

their next plant, where they lock in long-term contracts, they have 

to plan for the reality that the competitive playing field is going to 

be shifting in our direction. But we have to make sure that happens. 

Senator CARDIN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Kyl? 

Senator KYL. Thank you, Mr. Chairman. 

Mr. Secretary, in a colloquy with Senator Baucus, I heard you 

say that you thought that the effective tax rate for the United 

States was about the same as the effective tax rate of our major 

trading partners. That is actually not true, at least according to 

World Bank statistics. 

The last year for which we have those statistics is 2009, and the 

difference is dramatic. For the United States, the effective tax rate 

for corporations is 27.6 percent; for the other countries, 15.9 percent—a dramatic difference. If you are going to lower the effective 

tax rate and do this in a budget-neutral way, the effect is that you 

are not changing the effective rate. What have you actually accomplished for American competitiveness if you attempt to do it that 

way? 

Secretary GEITHNER. Well, Senator, I think that when we say 

that the average effective rate of our major competitors is around 

the high 20s, it is—— 

Senator KYL. It is 15.9. 

Secretary GEITHNER. It depends on the mix you look at. Again, 

if you include—— 

Senator KYL. All of the OECD countries. 

Secretary GEITHNER. Well, if you include the very small countries 

that have very low tax rates, like Ireland, or include Singapore, 

things like that, it would be much lower. But for the large, major 

economies, it is sort of the high 20s. Now, you raise a very important question, which is, if you are going to just lower the statutory 

rate to the average effective rate now—— 

25 

Senator KYL. May I just interrupt you? Your statement is false. 

There is only one country that is higher than the United States, 

and that is New Zealand. If you look at major European countries—well, Canada, 9.8; France, 8.2; even Greece, 13.9, nowhere 

near our 27.6. 

Secretary GEITHNER. Well, again, that is a factual matter. I will 

be happy to show you what we believe the—— 

Senator KYL. All right. Well, these are World Bank numbers. 

Secretary GEITHNER. We are major shareholders in the bank. 

Senator KYL. Yes. Right. I know you respect their numbers. 

Secretary GEITHNER. They are not perfect, but generally they are 

very good. But again, I think the point you are raising is, how low 

do you need to go to make a difference. Is that your question? 

Senator KYL. Sure. How do you help American competitiveness 

if all you do is affect the statutory rate, but not the effective rate? 

Secretary GEITHNER. I think I make the argument I think people 

on your side would normally make in this case. If you have a tax 

code where fundamentally people in this room are deciding where 

investment should go, you are going to have lower growth rates as 

a country. Right now, we have a system where certain industries, 

certain activities are very favored. That means overall tax burdens 

are higher than they need to be, and it distorts the allocation of 

investment and makes us less competitive. So you can make a big 

difference by cleaning up the system, lowering the rate, broadening 

the base. 

Senator KYL. Sure. In fact, the President’s statement was, ‘‘The 

tax system has been loaded up with revenue-side spending such as 

special deductions credits and other tax expenditures that will help 

well-connected special interests but do little for middle-class families or our Nation’s economic growth.’’ I totally agree. A bipartisan 

agreement here. 

So how does the President’s proposed tax expenditures for clean 

industry—why are they not part of the problem here? 

Secretary GEITHNER. A very fair point. As you are right to point 

out, we make an exception for certain types of investments we 

think we want to favor. For example, we propose to favor a permanent R&D tax credit. We propose to favor tax benefits to help people get their kids through college. We propose to favor investments 

in clean energy technology because it helps shift us to less carbonintensive forms of energy. But you are right that we are not pure. 

Senator KYL. Yes. And you understand the criticism? Each one 

of us here has our favorites, too. 

Secretary GEITHNER. Sure. 

Senator KYL. And that is what is wrong. I think the President 

is right on to say that a tax code which has politicians picking and 

choosing, because we all have different ideas about who should be 

favored here, is the least best and that a flatter, more general code 

would be better. 

Let me just ask you, in the spirit of bipartisanship here, if you 

agree with the following statements about tax reform: we should 

have a pro-growth tax code. Now, I know there will be some difference about exactly what that means. 

Secretary GEITHNER. I would use the same phrase. 

Senator KYL. Right. On balance, tax rates should be permanent. 

26 

Secretary GEITHNER. I agree with that, too. 

Senator KYL. Tax spending, what we were just talking about, is 

a poor way to raise revenue. 

Secretary GEITHNER. Well, it reduces revenue, I think. 

Senator KYL. Yes. 

Secretary GEITHNER. Tax spending. 

Senator KYL. Yes. I mean—— 

Secretary GEITHNER. It reduces revenue. 

Senator KYL. Right. You may be promoting various causes, but 

it is not a good way to raise revenue. 

A simplified tax code is better than complex tax code. You already made that point. 

Secretary GEITHNER. I agree with that, too. 

Senator KYL. And finally, American businesses should have tax 

rates that are better than our competitors’. 

Secretary GEITHNER. No, I wouldn’t say quite that. 

Senator KYL. Are at least competitive with our competitors? 

Secretary GEITHNER. More competitive with. Yes. 

Senator KYL. All right. That is true whether or not the businesses are structured as C corporations, S corporations, or other 

flow-through entities. 

Secretary GEITHNER. I would tread carefully in that direction, 

but I agree with you, as I said earlier, that you have to look at 

business tax that is outside the corporate sector if you are going 

to do something sensible here. 

Senator KYL. Yes. And I think the reason for that is, and I think 

you may have said this or inferred it, because you do not want the 

tax code to be the driving force for the form that the entity organizes under. Is that correct? 

Secretary GEITHNER. That would be ideal. I agree with that, and 

you said it better than I did. 

Senator KYL. Well, on that high note, Mr. Secretary, thank you. 

The CHAIRMAN. Thank you, Senator Kyl. 

I might say that I did, earlier, say that it is my understanding 

that the average effective rate in the United States for United 

States corporations is about in the middle. I got my information 

from the OECD. I asked what I regard is a very objective, reputable group to say to me, what is the fact, what is not the fact. 

You cite totally different figures. I do not know which figures are 

accurate, but that is the whole point of our hearings. 

We are going to have tax reform hearings, and we are going to 

find out just what is actually, as near as possible, the U.S. effective 

rate. I am guessing it depends on various factors, that is, what is 

in the numerator, what is in the denominator. That is, what income do American companies report compared with what income 

they actually get or report? I mean, some of them might be in tax 

havens, et cetera. So it may be a bit difficult to get the correct answer. My information was from OECD. I asked OECD what the effective rate is, and I wanted to be honest about it. I wanted to get 

an authoritative source for it, and that is the data they gave to us. 

But we will find the right answer when we do the hearings. 

Secretary GEITHNER. Mr. Chairman, can I just make one more 

point? Not to take the glow of bipartisanship out of the room, but 

I think the issue where we are going to have a challenge is that 

27 

we think this has to be revenue-neutral. We do not want to add to 

the burden on corporations in America because they exist in a more 

competitive world, but we also do not think we can ask other businesses, other individuals to pay a higher rate so we can lower the 

effective rate on the business community as a whole. So revenue 

neutrality will be a necessary test for us for a credible reform effort, because again we do not have unlimited resources, we have 

unsustainable deficits, and that will be a challenge for us. 

The CHAIRMAN. There is also another challenge we have just 

lightly touched on, and that is pass-throughs. 

Secretary GEITHNER. That is right. 

The CHAIRMAN. In this respect, but in many respects—not too 

many years ago there were 7,000 companies listed on stock exchanges. Today there are only 4,000 worldwide, which means companies are not reporting. Business entities are not reporting as 

much today as they were then, and the trend is for fewer companies to be listed on stock exchanges. They organize as partnerships 

and LLCs, and all those kinds of things. So, that is something we 

are going to have to address. Thank you very much. 

Next, Senator Carper. Oh. Senator Thune. Sorry, he just walked 

in. Senator Thune, you are next. 

Senator THUNE. Sorry about that, Tom. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for being here. I want to ask, and this 

is talking about sort of a difficult question to answer. But the administration has talked about, when they are defending the individual mandate, talked about it in terms of being a penalty when 

answering questions about whether or not the President, through 

the individual mandate, raised taxes. But it has alternatively described it—alternately described it, I should say—as a tax when defending its constitutionality in the courts. So you are the head of 

the Treasury Department. What do you believe it is? Is it a tax or 

a penalty? 

Secretary GEITHNER. You know what I believe. But unfortunately, I do not get to decide in the end. The lawyers will decide 

this, and the lawyers and financial people, economists, disagree on 

lots of things. 

Senator THUNE. All right. 

The budget, many of us had hoped would be, I think, more bold 

in terms of entitlement reform, tax reform, other things—and that 

has been touched on a little bit by some of my colleagues, and there 

is a lot of rhetoric about reducing the corporate tax rate—but nothing in here addresses that. There are a number of other tax provisions, changes in tax law that they have proposed, some of which 

were proposed last year. One has to do with the issue of limiting 

deductions for charitable contributions. 

Now, that is something that the Senate, last year, weighed in on. 

We had a vote on that on the floor. It was 94–3. Given the importance of the organizations we are talking about who do so much to 

aid those in our country who need help, do you believe now is the 

time to decrease the incentive to give to these organizations? 

Secretary GEITHNER. I do. I think it is the reasonable thing to 

do. Again, let us just clarify what we are proposing. Not to make 

an example of the two of us, but let us say that we live in the same 

28 

community and we give to the same church. We each give $100 a 

year, or $1,000 a year. Let us do $1,000 a year. Let us say we were 

generous. Let us say you make a million dollars a year and I make 

$100,000 a year. You get back $35 in the current system on that, 

I get back somewhere in the 20s. Why does that make sense? Why 

is that fair? So what we are proposing is a very simple thing, to 

say that we suggest that you should still get a tax expenditure, a 

tax break for that, but only 28 cents on the dollar. 

Now, there are lots of other ways to think about how to bring our 

deficits down over time, but we think that is a reasonably practical, 

concrete step. It only affects 2 percent of the wealthiest Americans. 

We would be happy to try to do comprehensive reform too, but that 

is a start. Again, we do not like doing this. The only reason we are 

doing it is because, as many people have recognized in this room, 

we have unsustainable deficits. We have to bring them down over 

time. That is going to force us to do things we would otherwise not 

like to do. 

Senator THUNE. And I do not disagree. I think that people who 

give to charities, they do not give because of tax policy. But I do 

think it impacts how much they give. I think you could see a significant drop-off in charitable giving if a change like that is proposed, because the people on the higher end to whom you are referring are, in many cases, the people who are contributing to a lot 

of these organizations. 

I have a question that deals with an issue we are going to be facing here in the not-too-distant future, and you have referred to it. 

You sent Congress a letter regarding the debt limit, a warning letter. I notice that you referred to several ‘‘extraordinary measures’’—spending the investment of the government securities investment funds, spending reinvestment of the Exchange Stabilization Fund, those types of things. 

If you go back historically, these are tools that have been used 

rather frequently. I mean, since 1984, Treasury has called back 

Treasury deposits held by commercial banks, has drawn down the 

emergency reserve fund at the Federal Reserve, prematurely redeemed debt held by government pensions and trust funds to pay 

cash benefits. 

If you look at exchanged debt instruments with the Federal Financing Bank in three different years, redeemed debt in the Exchange Stabilization Fund six different times, suspended new investments in the Civil Service Retirement Disability Fund, or prematurely redeemed securities held by that fund 9 different years, 

and suspended reinvestment in the G fund in 11 different years. 

So is it not reasonable to conclude then that these are not necessarily extraordinary measures, but relatively routine accounting 

mechanisms that have been used by several administrations? 

Secretary GEITHNER. It does not matter really what you call 

them. The question is, how much time do they buy us? The problem is, because the deficits are so high and our debt is so high, 

they do not buy us as much time as they did in the past. So they 

buy us between 6 and 8 weeks or so, maybe a little longer, but not 

that much. They will not remove the obligation Congress faces of 

raising the debt limit. 

29 

Senator THUNE. And I do not disagree that at some point you 

face that ultimate decision, but these are things that I think have 

been used in the past, could be used to buy some amount of time. 

You say 6 to 8 weeks is what you can—— 

Secretary GEITHNER. Well, we will be very open with the Congress about how much time that buys us. It is a question of math, 

it is not a question of discretion. We want to make sure everybody 

understands what this flexibility gives us, what it does not. But 

again, they will not relieve the Congress of the obligation of raising 

the debt limit. I want to say, I welcome the comments made by 

many people on both sides, recognizing that we are a country that 

meets its obligations. Of course, we would never contemplate leaving the markets with any uncertainty about our commitment to 

meet those obligations. 

Senator THUNE. Mr. Chairman, my time has expired. Thank you. 

Thank you, Mr. Secretary. 

The CHAIRMAN. Thank you, Senator. 

Senator Carper? 

Senator CARPER. Mr. Secretary, good to see you. Always good to 

see you. Thanks for your service. I want to preface my question by 

just making a comment. We have a couple of people in this room, 

certainly Senator Crapo and Senator Baucus, who have spent a lot 

of time with respect to this Deficit Commission headed up by Erskine Bowles and Alan Simpson. I am grateful for those efforts and 

hope that their proposal and your proposal will actually have 

legs—my sense is that it will—as we look for ways to begin to trim 

the sails on the deficit and get it under control. 

One of the things I am urging you to consider is, a lot of people 

think we operate here in Washington as, I call it, the culture of 

spend-thrift. What I have been pushing for is for us to change that. 

Tom Coburn has been working on this with me, and I have been 

working with him, trying to change the culture to a culture of 

thrift. Everything I do, I know I can do better. I think that is probably true for all of us. Virtually every Federal program that we 

run, we could probably find ways to get better results for less 

money. What we need to do is to look in every nook and cranny 

of the Federal Government to see if that is indeed the case. 

The question—I am going to bounce back over to the Environment and Public Works Committee too, but I do want to ask at 

least one question before I do that. Here is my question: when you 

look at manufacturing jobs, we are actually seeing an economic recovery that is actually being led by manufacturing. We do not always see that. Sometimes it is housing, sometimes it is consumer 

demand. But it is manufacturing. The job numbers for January 

were not hugely encouraging, but for manufacturing they were 

some of the best numbers I think we have seen in, gosh, a dozen 

years or so. 

When you look at what you all are proposing in the President’s 

budget on either the spending side or the revenue side, would you 

talk specifically to helping us to continue to encourage that recovery in manufacturing? 

Secretary GEITHNER. Maybe I could step back a little bit and 

think about the broad strategic imperative we face. We have about 

one-fifth the global economy, about one-twentieth, 5 percent, of the 

30 

population of the world. The world of Brazil, India, China, emerging markets, is going to be growing much, much more rapidly for 

a long period of time. They are at the early stage of that boom. 

What we want to make sure of is that—and they need things that 

we are uniquely good at as a country. 

We want to make sure that, as much as possible, the investment 

necessary around the world to meet that demand for goods and 

services is met by investment in the United States, by things we 

are creating and building in this country. To make that possible, 

we have to do a better job at certain basic fundamental things: education, innovation, infrastructure, promoting exports, trade agreements that expand market access. Those are simple things to say 

and hard things to do, but that is where you have to start. 

Again, when we think about these fiscal choices we face, which 

are very difficult, we have to recognize the fact that we have to be 

driven by what is going to be good for long-term growth, what is 

going to make sure that we raise the chance that we meet a larger 

share of that demand in the world with investment in the United 

States—jobs we create here, things we create here, ideas generated 

here. Again, that requires those fundamental improvements and reforms. And we can afford those things. They are not unaffordable 

to us. We can meet those challenges at the same time we are trying 

to restore gravity to our fiscal situation. 

Senator CARPER. All right. Thank you. I do not know if this issue 

has already been raised, but as we think about how to trim spending on the domestic discretionary side—and I look across the dais 

here, and I see Senator Coburn. I mentioned some of the folks who 

have spent a lot of time on supporting and helping to mold the recommendations of the Deficit Commission. He has done yeoman’s 

labor, and I want to commend him for that and thank him. 

But we are trying to figure out how we restrain the growth of 

spending on the discretionary defense and non-defense side. How 

do we do it with respect to entitlements? How do we collect additional revenues? As you know, the tax gap has been out there, has 

been haunting us for a long time. I think the last time I saw a report on it, it was 2001. IRS was saying there was about a $300- 

billion tax gap. I do not know if it has been updated. I am told it 

is probably greater today than before. You all are doing some 

things in your budget to help us go after a piece of that. Could you 

just talk about a couple of those ideas that you think ought to generate bipartisan support? 

Secretary GEITHNER. Well, it is true we do list a number of them, 

but to be honest, they are not dramatic proposals for reform. They 

will help, at the margin, reduce that tax gap. But to make a meaningful difference in the tax gap you have to do much more difficult, 

much more fundamental changes to, frankly, how we treat small 

business income in particular. It is very hard to do. 

You can make much more progress, and this committee has done 

very important things in this area, to try to close loopholes, close 

tax shelters, things like that. But the largest part of that tax gap 

comes from the way we treat or do not treat small business income 

today. That has proven, as you know and this committee knows, 

very, very difficult to do politically. 

31 

Senator CARPER. Yes, it has. I would just say, my understanding 

is that, when income tax is actually withheld and there is a 

W–2 submitted for income, that there is about a 99-percent compliance. I am told that when income is reported through like a 1099, 

that there is a compliance of over 90 percent. When neither of 

those occurs, the compliance in these cash businesses can be as low 

as 50 percent. I think you are right. If we want to be serious about 

it, that is where we need to do our work. What did Willie Sutton 

say, why did he rob those banks? He said, ‘‘That’s where the money 

is.’’ 

Thank you. 

The CHAIRMAN. Thank you, Senator Carper. 

It is just interesting, the tax gap. I do not know it is so much 

small business as it is cash accounting, which is just underreporting, over-expensing generally in the cash economy. I do think 

information returns help, but we have to figure out how to make 

information return reporting not unnecessarily burdensome on 

small businesses. I do not think there has been enough thought to 

that, because a lot of small businesses thought, my gosh, $600 per 

transaction, each one reported, some companies just are not set up 

for that. That has to be thought through more carefully. 

Could you give us your current thinking about the free trade 

agreements? I personally favor the Colombia agreement, I favor the 

Panama agreement. TAA has to be extended. I, frankly, favor the 

Korean agreement, so long as Korea opens up its market on beef 

a little. I am not asking for the moon. Could you just tell me—tell 

us—a little bit how the administration intends to handle that and 

set them up and get them passed? 

Secretary GEITHNER. We would like to pass all of them alongside 

Trade Adjustment Assistance, and we want to do it this year. We 

are close to submitting an agreement with Korea that is a very 

strong agreement, much stronger than it was. Each of these agreements has the virtue of substantially expanding exports and adding 

substantially to job creation in the United States. 

I mean, it is important for people to recognize in these agreements that the countries we are doing these agreements with have 

higher trade barriers than the United States. These agreements 

bring those barriers down. We benefit when that happens. They are 

overwhelmingly in our favor economically. If we do not do it, what 

it means is that business just goes to other countries. It just makes 

no sense as a country, so we need to find a way to pass them. 

We are working very closely with you and with your colleagues 

in the House to try to figure out, what is a strategy that is going 

to get enough votes to get these through. But of course, we want 

them to be strong agreements. They are not going to pass unless 

they are strong agreements. We look forward to working with you 

on how to do that. 

The world is watching to see whether we find a way to rebuild 

a political consensus in the United States on agreements like these, 

and our hand strategically in Asia and in emerging markets will 

be much stronger if we can demonstrate through these agreements 

that we found a way to rebuild that consensus on trade. 

The CHAIRMAN. I appreciate that. In fact, with respect to Colombia, it is our information that, because we do not have any barriers 

32 

to Colombian exports in the United States, but Colombia does in 

ours, it is a $1-billion annual net gain if we could get that agreement with Colombia. And I might say to a lot of people in my 

State, in Montana, our grain producers are very concerned. They 

want that agreement, because the Canadians are now starting to 

sell much more aggressively into Colombia at the expense of American producers. 

Secretary GEITHNER. I agree with you. I think you make the case 

well. 

The CHAIRMAN. And I do not think it is well-known that these, 

on net, are very much in the United States’ best interests. That is 

not well-known at all to people. 

Secretary GEITHNER. So we are going to work to try to strengthen these and make sure that we can maximize a chance to get 

them passed, and of course look forward to working with you on 

how best to do that. 

The CHAIRMAN. Including beef. 

Secretary GEITHNER. Obviously we want to make sure that we 

are expanding opportunities for American beef producers around 

the world, not just in east Asia. Of course, I look forward to working with you on that as well and know how important that is to 

you. 

The CHAIRMAN. But this is a Korean agreement, it is not an 

around-the-world agreement. 

Secretary GEITHNER. No, it is not just in Korea. But I am saying 

that we want to look beyond Korea too, because the world is a lot 

bigger than Korea. 

The CHAIRMAN. I understand. But I am very serious about better 

access of American beef into Korea. 

Secretary GEITHNER. Yes. Again, the President shares that commitment, and we know how important it is to you, and we are 

working on it. 

The CHAIRMAN. Let us solve it. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

The Secretary said that tax reform must be revenue-neutral. 

Now, the question is, how do you measure revenue? 

Secretary GEITHNER. On the corporate side. Yes. 

Senator HATCH. Yes. How do you measure the revenue neutrality? You can measure it against current law. If that is the 

measure, then in terms of comprehensive reform it means an 

across-the-board increase of 10 percent. I think you can count me 

and others on this side out if that is the case. 

Now, another measure would be against current policy, and that 

is much more workable. It is a distinction, in my opinion, that matters. I just want you to be aware of our feelings on that. 

Let me ask you this, Mr. Geithner. In your prepared testimony 

you discuss an administration proposal to put State employment 

insurance programs, in your words, ‘‘on a firmer financial footing.’’ 

When you say ‘‘firmer financial footing’’ you are referring to the administration’s proposal to raise unemployment taxes by nearly $46 

billion. 

The proposal would increase the taxable wage base from $7,000 

to $15,000, but the proposal also states that the Federal unemployVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
33 

ment tax rate would be cut by more than half, leaving the impression that the proposal is revenue-neutral. But the revenue tables 

reveal that the proposal will raise nearly $46 billion. Now, please 

explain to us how the proposal raises nearly $46 billion when the 

Federal tax rate would be reduced by half, at the same time that 

the wage base is doubled. 

Secretary GEITHNER. Well, Senator, you said it mostly right. The 

reason why, according to some estimates, it will raise revenue over 

time is based on estimates of what the States would do. But at the 

Federal level, what we are proposing to do is to broaden the base, 

which is more fair, and lower the rate. 

And again, we are doing this because we think it makes sense 

to buy time for the States and for employers to adjust to this burden more gradually over time and to put in place a reform system 

that is, again, more fair. We think this is a more fair system over 

time, but we recognize that there is a lot of concern about this proposal, and we would be happy to work with you and your colleagues on how best to try to get the same kind of balance, which 

is more time for States and for employers to adjust to this burden 

as we dig out of this crisis, a better reform system that is more fair 

for everybody. 

Senator HATCH. Well, your prepared testimony describes the ad- ministration’s budget proposal to save $16 billion by giving the 

Pension Benefit Guaranty Corporation the authority to raise pension insurance premiums for companies. I am concerned about that 

because the PBGC insures payments to retirees and under-funded 

pension plans of companies that have failed, much like the FDIC 

insures bank accounts when a bank fails. I am concerned about 

that. 

The PBGC protects retiree pensions with an insurance fund, paid 

for with insurance premiums, not taxpayer dollars. But your testimony says that the PBGC insurance premium proposal will reduce 

the deficit. Now, I would like to submit this in writing for you to 

answer, because it is a little more detailed than that, and I am 

very concerned about it. 

Let me just ask this last question. The Treasury Department, 

just on Friday, released a report called, ‘‘Reforming America’s 

Housing Finance Market.’’ Now, the report states that, ‘‘The housing market remains fragile, and it will take years to fully recover,’’ 

and the ‘‘home prices remain weak.’’ 

Presumably, those are conditions the Treasury Department finds 

uncomfortable or undesirable. However, the Treasury Department’s 

Green Book might lead one to think that the Treasury Department 

wants to exacerbate the problems of a fragile housing market and 

of weak home prices. 

Specifically, I am referring to the proposal which proposes a 28- 

percent cap on the itemized deduction for home mortgage interest. 

Now, is limiting the benefit of the home mortgage deduction consistent with the Treasury Department’s goal of protecting the fragile housing market, or is that not actually the Treasury’s goal? 

Secretary GEITHNER. It is consistent, in my view. In my judgment, if Congress were to enact that proposal, we could withstand 

the impact, if any, of that on the broader housing market. Again, 

what that proposal does is limit modestly the existing deductions 

34 

enjoyed by the most fortunate 2 percent of Americans. It is a very 

modest change, and I think the economy can handle it. 

Senator HATCH. Well, given that the most common mortgage in 

the United States is a 30-year mortgage, if there were to be any 

limiting of the mortgage deduction, should such a limitation not 

have a long lead-in time to give those who take advantage of the 

deduction plenty of opportunity to prepare? After all, a homeowner 

may think that he or she will get this benefit for the next 30 years, 

and then to give them only a few months’ notice that the deduction 

will be limited may be inadequate and unfair. That is assuming 

that there were to be any limiting of the deduction at all, which 

I am certainly not proposing. 

Secretary GEITHNER. Well, in general, and we were very careful 

in our report to make clear on this, for all these reforms to the 

housing finance system—which of course we have to do—we have 

to make sure we phase them in gradually over time, because we 

have to recognize that we have a long way to go in repairing the 

damage done by the crisis to the housing market. So we agree that 

you want to lay out a path with gradual reforms people can adjust 

to. 

Senator HATCH. Senator Schumer? 

Senator SCHUMER. Thank you, Mr. Chairman. 

Thank you, Secretary Geithner, for the outstanding job you are 

doing. 

I would first like to ask you a couple of questions about an issue 

on my mind as of late, which is the New York Stock Exchange 

merger. As you know, I think generally this is a good deal for New 

York and for U.S. financial markets, but I have one concern that 

I feel very strongly about, which is the name. 

I believe that NYSE should be part of, and come first, in the 

name of the new parent for three reasons: first, it is a symbol of 

New York’s continued status as the financial capital of the world. 

Second, it is the most trusted and respected brand worldwide, and 

it would benefit the new entity to be called NYSE. There is no better brand when it comes to exchanges, so it is the right thing to 

do from the business’ perspective. Third, because there are still 

many details of this merger that have to be implemented, and if 

Deutsche Boerse should force a different name, it would be an indication that politics may trump substance when those decisions are 

made, that they are using geopolitical muscle. 

So I want to ask you, do you agree that the NYSE name should 

be a part of, and come first, in the new company? 

Secretary GEITHNER. As you know, Senator, I do not make that 

judgment, ultimately. 

Senator SCHUMER. Of course. 

Secretary GEITHNER. But I think you made the arguments very 

well. I agree very much that this is in some ways the world’s iconic 

stock exchange. That happened in part because we had the best 

property rights, best disclosure, best investor protection regime in 

the world, and were the envy of the world for a long period of time. 

I want to underscore again our commitment to make sure that we 

are building—rebuilding—a financial system that is the envy of the 

world. I think New York will remain at the center of that system 

for a long time to come. 

35 

Senator SCHUMER. So again, to reiterate, even though you do not 

make the decision, and neither do I, you think it would be best for 

the NYSE name to be first? 

Secretary GEITHNER. I think you made the argument well. Again, 

that is a decision the companies are going to have to make. I think 

there is a good chance that they will decide, as you suggested, that 

that would be good for business. 

Senator SCHUMER. You agree with that? Yes, you do. Come on. 

[Laughter.] 

Secretary GEITHNER. As I said, how could I say it more strongly? 

Senator SCHUMER. All right. Good. I will take that as a yes. 

Senator HATCH. Would you quit badgering the witness? [Laughter.] 

Senator SCHUMER. Thank you. He is my friend. 

Secretary GEITHNER. I think we are in agreement. 

Senator SCHUMER. Yes. All right. 

Do you think the overall merger is a good thing? 

Secretary GEITHNER. You know, Senator, I have not looked at it 

that carefully yet. It is really not my authority, it is the SEC’s authority. But I have heard many people who have looked at it express the same sentiment you did, which is it looks like good business, good for New York, good for the system, good for both exchanges. 

Senator SCHUMER. Fine. Thanks. 

Second, on China currency. The bottom line is that we have seen 

some movement in the yuan upward. Not enough for my satisfaction, not enough for most Americans’ satisfaction, but some. Do you 

feel this upward movement will continue? Do you feel that those 

in the Chinese government who want to see it continue have the 

upper hand against those who do not? 

Third, do you think China can really survive as an economic 

power if it does not allow the renminbi to actually revalue? They 

are having huge inflation problems, in part caused by their currency problems. They are having all kinds of discombobulations. It 

hurts America, but it is now hurting them. 

I guess my question is, have we reached a changing point in 

China where they have no choice? They should have done this a 

long time ago; they have no choice now. I do not want to give the 

impression I do not think our legislation is necessary; I have seen 

too many fits and starts. But I want to know your view of the conditions in China and what they will lead to. 

Secretary GEITHNER. I think you have it exactly right. It is moving, but very gradually in nominal terms against the dollar. But 

because their inflation rates are so much higher than ours, it is actually appreciating in real terms against the United States at a 

rate, if continued—roughly 10 percent a year, a little more, and if 

that were sustained—that would bring about a major shift in the 

competitive balance in our favor over time, which is necessary and 

important not just to us, but for all of China’s trading partners. 

I think they have reached the judgment themselves internally 

that they have no choice but to let that process happen over time, 

because again, if they were not to, they would be left with the risk 

of much more inflation, much more risk of the type of financial criVerDate Nov 24 2008 15:36 Jun 12, 2012 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 R:\DOCS\74426.000 TIMD
36 

sis we went through, and they want to make sure they avoid that 

outcome. 

But again, right now what you are seeing is very important, 

which is that companies make decisions with a long fuse. They 

have to look forward in the future. It is like a quarterback has to 

pass to where the receiver is going, and they look at the competitive landscape today and they see inflation in China rising, the currency rising, wage rates rising, and they are going to change their 

decisions about where they build their next plant, where they buy 

from in the future. That will help, again, reinforce this recovery we 

are seeing here in the United States. 

Senator SCHUMER. Clearly, any of us on this side, bipartisan, do 

not think it is quick enough, and we intend to move them along. 

Secretary GEITHNER. And I share that view. 

Senator SCHUMER. But I think the balance is beginning to 

change. 

Secretary GEITHNER. Right. 

Senator SCHUMER. Thank you, Mr. Chairman. 

Senator HATCH. Thanks. 

Senator Crapo? 

Senator CRAPO. Thank you, Senator Hatch. 

Mr. Secretary, I would like to go back to an issue that I think 

Senator Coburn covered with you. I had to step out of the room for 

a minute then, but it deals with the economic assumptions behind 

the President’s budget. 

We are still working through all of this, but my understanding 

from the information I have seen at this point is that the economic 

assumptions used in developing this budget are about 10 or 12 percent higher than CBO’s economic assumptions and about 20 percent higher than blue chip assumptions in the private sector. Is 

that your understanding as well? 

Secretary GEITHNER. No, but I think it is very important to discuss. I would like to come at it this way. We are assuming growth 

over the next 5 to 10 years that is significantly lower than the average recoveries of past recessions, so we are trying to be realistic 

and conservative. 

Senator CRAPO. But is comparing it to past recessions going to 

give you a real feel for what is going to happen in reality? 

Secretary GEITHNER. Well, I will give you a bunch of other comparisons. If you look at the average of the members of the Federal 

Open Market Committee, their forecasts, we are sort of at the middle of those. Now, we are a little higher than CBO’s, but that is 

in part because of the way CBO has to make assumptions. They 

have to assume all the Bush tax cuts expire on schedule all at once 

together, and that would hurt growth in that period of time. 

So we do not make that assumption because we want to extend 

the middle-class tax cuts. So, I think it is a little more balanced 

than you suggested. We think they are actually quite realistic and 

quite conservative. But in the end, of course, it is CBO’s estimates 

which will govern. 

Senator CRAPO. Well, let us just take CBO’s. Would you agree 

that, if we used the same assumptions that CBO put out in January as they evaluated the economy, if we just assume that their 

opinion has not changed since January and those assumptions 

37 

were used, would $1.1 trillion of debt reduction that you see in this 

budget still exist? 

Secretary GEITHNER. Well, I agree with you. You will see this 

when CBO puts out their estimates. If CBO was to estimate the 

economic effect of our proposed policies, if enacted by Congress, on 

their assumptions about the underlying dynamics of the economy, 

they will show somewhat higher deficits than what we are estimating in the President’s budget. Somewhat higher. Not dramatically higher, but somewhat higher. 

Senator CRAPO. Let me come at this from a little different perspective. Would you agree that there are approximately $1.6 trillion in tax increases in the proposed budget over 10 years? 

Secretary GEITHNER. I would, but I would draw your attention to 

the more than $3 trillion in tax cuts that are in the budget, because, if you add up what we are doing for middle-class Americans 

on the business side, small businesses, they substantially outweigh 

those more modest tax changes that apply to just a limited number 

of the most fortunate Americans. 

Senator CRAPO. I think that might get us into a discussion as to 

whether a payment of the Federal Government to an individual is 

a tax cut. But I understand the way—— 

Secretary GEITHNER. The big difference really is just what assumptions you make about what we call the middle-class tax cuts. 

Again, we propose to extend them. You can call that a tax cut or 

you can call it a tax change, but the changes you refer to are a 

combination of limiting tax expenditures for the top 2 percent and 

allowing the rates for the top 2 percent to expire. 

Senator CRAPO. All right. So, back to the question then. Regardless of how we debate the definition of tax cuts and tax increases, 

if there are approximately $1.6 trillion of tax increases and the 

debt over 10 years is only being retired by $1.1 trillion, then it 

seems to me that the approach of the budget is to try to deal with 

the debt with revenue increases rather than spending restraint. 

Secretary GEITHNER. No. I think I would disagree with that. We 

propose a balance of spending restraint and tax changes to achieve 

that deficit reduction, much like the Commission did as a whole. 

In fact, I think if you look at the Commission recommendations on 

the tax side, they raise somewhat more revenue than we do, but 

not significantly more revenue than we do, just a little bit more 

revenue than we do in this context. But again, as you did in the 

Commission, we are proposing a comprehensive approach that 

looks at all the key drivers of these near-term deficits, the 5- or 10- 

year deficit. 

Senator CRAPO. Well, let me go back to the question I started out 

with you in my first round of questioning, and that is the notion 

of utilizing tax expenditures in this budget the way they are being 

utilized without achieving, in my opinion, much if any reform of either the corporate or the individual tax system. 

I am very concerned about that, frankly, because it seems to me 

that we do need to have major tax reform on both the individual 

and corporate side. If we utilize the revenue from tax expenditures 

in the way the budget proposes, we take away significant potential 

for tax reform. I would just like you to address that question again. 

38 

Secretary GEITHNER. I think you are exactly right. There are two 

different strategy choices we can make about how we think about 

tax reform. One is to change individual features, specific features 

of the current system, corporate and individual, to get a better balance of incentives, help bring down our deficits as a whole. The 

other is to do comprehensive reform that lowers rates, broadens the 

base, and in that context make sure we are meeting our long-term 

fiscal commitments. There are merits to both approaches. 

What we did in the budget is, we did not propose comprehensive 

reform in a detailed way on corporations or individuals in the 

budget. Absolutely. We did not claim we were going to do that. 

What we did say is, if we have to work within the current system, 

here are a set of changes which we think get the incentives better 

for investment, are more fair, and are consistent with our fiscal obligations. 

But I understand the case, as you made in the past, for coming 

at this question through the path of comprehensive reform, because 

in that context you can maybe have a better chance to make more 

substantial fundamental shifts in the tax code that would be better 

for incentives, better for growth, and more fair, more simple. If we 

can find a way to do that, we would welcome that. 

Senator CRAPO. Well, I see my time is running out, or has run 

out. But let me just say, I believe the choice you have made in the 

budget significantly undercuts the opportunity for meaningful tax 

reform on both the corporate and the individual side, and I would 

just encourage you to evaluate that. 

Also, the President has said a number of times that he believes 

we need tax reform. I want to state again to you publicly that I 

think that the President needs to get engaged and get out and lead 

on this issue. That is not to say that Congress does not need to be 

a part of that leadership as well, but we need the President engaged. 

Secretary GEITHNER. Senator, could I just respond on this one 

question? 

Senator HATCH. Sure. 

Secretary GEITHNER. I agree with you. As I said before, there is 

no effective, no credible path to tax reform that does not require 

the executive and Congress working together, and ultimately requires usually somebody in my job to lay out a set of proposals in 

this context. I suspect that we are going to get to that point sooner 

on corporate than we will on individual, but we will meet that challenge. Again, we are trying to figure out how to build consensus 

now before we take that next step so that we maximize the chance 

we get it done. 

But just one quick point. I think the virtue of what we did in the 

budget is to help people face more clearly what you can do in the 

current system or you cannot. In many ways, for the reasons you 

are saying, showing people what you can do if you are constrained 

to operate within the current system might make people more interested in doing something comprehensive. Certainly on the corporate side I think that is the case. 

Senator CRAPO. Well, I hope so. As you know, it is my strong encouragement that we do move toward meaningful and comprehensive tax reform. 

39 

Thank you. 

Senator HATCH. Mr. Secretary, it is not just on the corporate 

side. You have all kinds of pass-through companies that have to be 

considered here as well. I know you know that. 

Let me just say this. If we are ever going to do anything about 

entitlements, it is going to take presidential leadership. There is no 

way that Congress is going to do that without being led. I think 

the President, sooner or later, cannot just say, let Congress do 

what it wants to do. My experience is that, if you go that route— 

Congress can foul up a three-car funeral, as far as I am concerned. 

It is going to take executive leadership, and it is going to take both 

parties. 

So the President should take into consideration how some of us 

feel, and it is going to take sacrifice by both parties, but it still cannot happen without presidential leadership. You and I both know, 

without doing some entitlement reform, we are never going to get 

where we need to get. 

Secretary GEITHNER. I think that is good advice, Senator. I agree 

with you. I think the President agrees with you, too. 

Senator HATCH. Well, but the reports in the paper, today’s headline is that he is not going to get involved. 

Secretary GEITHNER. No, no. I would not interpret it that way. 

But again, I want to underscore what we said at the beginning, 

which is that the deficits we face over the next 5 to 10 years are 

not driven by our entitlement commitments, they are driven by 

other sets of challenges. We have to fix those. 

Senator HATCH. Well, they are driven by both, both sets of challenges, or a multiplicity of challenges. I think entitlements are part 

of it. I do not think there is any question about that. 

Secretary GEITHNER. I am not in favor of deferring those things. 

I just feel like it is important for people to recognize, unless we put 

in place a multi-year commitment to bring down those deficits over 

the next 3 to 5 years, then we are going to put at risk future 

growth and expansion. What we are suggesting is that we try to 

lock that in as we try to build better consensus for dealing with the 

long-term entitlement reform so we can build on the savings in the 

health care bill. 

But I understand your perspective. Of course, this is just fundamentally a political challenge. It is not beyond our capacity as 

a country. We are going to be able to figure out how to get our way 

through this, we just should move now so we do not let the cost 

build more over time. 

Senator HATCH. Well, thank you. You have been here a long 

time, and I do not want to keep you any longer. So we just want 

to thank you for your testimony and hope that we can—we are 

going to submit questions for you, and we hope that you will return 

the answers a lot quicker than they have been in the past. Some 

of the responses have taken months to get. 

Secretary GEITHNER. I am confident we can do that. And of 

course, we will respond as quickly as we can. 

Senator HATCH. Well, thanks so much. We appreciate you, and 

appreciate you taking the time here today. 

With that, we will recess until further notice. 

[Whereupon, at 12:05 p.m., the hearing was concluded.] 

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