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| <title> - THE PRESIDENT'S FISCAL YEAR 2012 BUDGET</title> | |
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| [House Hearing, 112 Congress] | |
| [From the U.S. Government Publishing Office] | |
| THE PRESIDENT'S | |
| FISCAL YEAR 2012 BUDGET | |
| ======================================================================= | |
| HEARING | |
| before the | |
| COMMITTEE ON THE BUDGET | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED TWELFTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD IN WASHINGTON, DC, FEBRUARY 15, 2011 | |
| __________ | |
| Serial No. 112-4 | |
| __________ | |
| Printed for the use of the Committee on the Budget | |
| Available on the Internet: | |
| http://www.gpoaccess.gov/congress/house/budget/index.html | |
| U.S. GOVERNMENT PRINTING OFFICE | |
| 64-728 WASHINGTON : 2011 | |
| ----------------------------------------------------------------------- | |
| For sale by the Superintendent of Documents, U.S. Government Printing | |
| Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC | |
| area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC | |
| 20402-0001 | |
| COMMITTEE ON THE BUDGET | |
| PAUL RYAN, Wisconsin, Chairman | |
| SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland, | |
| MICHAEL K. SIMPSON, Idaho Ranking Minority Member | |
| JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania | |
| KEN CALVERT, California MARCY KAPTUR, Ohio | |
| W. TODD AKIN, Missouri LLOYD DOGGETT, Texas | |
| TOM COLE, Oklahoma EARL BLUMENAUER, Oregon | |
| TOM PRICE, Georgia BETTY McCOLLUM, Minnesota | |
| TOM McCLINTOCK, California JOHN A. YARMUTH, Kentucky | |
| JASON CHAFFETZ, Utah BILL PASCRELL, Jr., New Jersey | |
| MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California | |
| JAMES LANKFORD, Oklahoma TIM RYAN, Ohio | |
| DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida | |
| REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin | |
| BILL FLORES, Texas KATHY CASTOR, Florida | |
| MICK MULVANEY, South Carolina HEATH SHULER, North Carolina | |
| TIM HUELSKAMP, Kansas PAUL TONKO, New York | |
| TODD C. YOUNG, Indiana KAREN BASS, California | |
| JUSTIN AMASH, Michigan | |
| TODD ROKITA, Indiana | |
| FRANK C. GUINTA, New Hampshire | |
| ROB WOODALL, Georgia | |
| Professional Staff | |
| Austin Smythe, Staff Director | |
| Thomas S. Kahn, Minority Staff Director | |
| C O N T E N T S | |
| Page | |
| Hearing held in Washington, DC, February 15, 2011................ 1 | |
| Hon. Paul Ryan, Chairman, Committee on the Budget............ 1 | |
| Prepared statement of.................................... 2 | |
| Questions submitted for the record....................... 66 | |
| Hon. Chris Van Hollen, ranking minority member, Committee on | |
| the Budget................................................. 3 | |
| Prepared statement of.................................... 4 | |
| Hon. Jacob J. Lew, Director, Office of Management and Budget. 5 | |
| Prepared statement of.................................... 8 | |
| Responses to questions submitted for the record.......... 66 | |
| Hon. John A. Yarmuth, a Representative in Congress from the | |
| State of Kentucky, questions submitted for the record...... 81 | |
| THE PRESIDENT'S FISCAL YEAR 2012 BUDGET | |
| ---------- | |
| TUESDAY, FEBRUARY 15, 2011 | |
| House of Representatives, | |
| Committee on the Budget, | |
| Washington, DC. | |
| The committee met, pursuant to call, at 10:00 a.m., in room | |
| 210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of | |
| the Committee] presiding. | |
| Present: Representatives Ryan, Simpson, Campbell, Calvert, | |
| Akin, Cole, Price, McClintock, Chaffetz, Stutzman, Lankford, | |
| Black, Ribble, Flores, Mulvaney, Huelskamp, Young, Amash, | |
| Rokita, Guinta, Woodall, Van Hollen, Schwartz, Kaptur, Doggett, | |
| Blumenauer, McCollum, Pascrell, Ryan of Ohio, Wasserman | |
| Schultz, Moore, Castor, Tonko, and Bass. | |
| Chairman Ryan. Director Lew, welcome back, I understand | |
| there is a traffic problem that tied you up, those things can | |
| happen. The President is fortunate that you agreed to a return | |
| assignment at Office of Management and Budget. This one is | |
| going to be a little different than the last one, I think, | |
| because the fiscal situation is so much worse. You have come | |
| under a darkening fiscal outlook. We are aware of the | |
| challenges that you face in putting this budget together, and | |
| we thank you for your hard work and for coming here today. | |
| Having said all of that, the budget of the United States is | |
| more than just about arithmetic. It is a statement of national | |
| priorities. It is a gauge of our national health. Because we | |
| face a crippling burden of debt, this year's budget in | |
| particular presented the President with a unique opportunity to | |
| lead our country. | |
| The President has disappointed us all by declining that | |
| opportunity. He punted. Instead of confronting our debt head- | |
| on, the President has presented us with a budget that spends | |
| too much, borrows too much, and taxes too much, and that costs | |
| jobs and opportunities. His budget would double the amount of | |
| debt held by the public by the end of this term, and triple it | |
| on the 10th anniversary of his inauguration. | |
| To be sure, our country was already on an unsustainable | |
| fiscal trajectory before he took office. Our debt is the | |
| product of acts by many Presidents and many Congresses over | |
| many years. Both of our political parties share the blame in | |
| where we have come to. Nevertheless, the President's policies | |
| have accelerated us down this disastrous path. He has made our | |
| spending problems worse with policies such as the failed | |
| stimulus and a brand-new open-ended health care entitlement. He | |
| has argued for massive tax increases that would stifle economic | |
| growth and job creation, and make our fiscal picture worse. His | |
| budget alone contains $1.6 trillion in higher taxes on American | |
| families, businesses, and entrepreneurs. In our nation's most | |
| pressing fiscal challenges, the President has abdicated his | |
| leadership role. | |
| First, he punted to a bipartisan Fiscal Commission to | |
| develop solutions to the problem. Then, when his own commission | |
| put forward a set of fundamental entitlement and tax reforms, a | |
| commission comprised of a majority of Democrats, he ignored | |
| them. He even failed to take the commission's advice on less | |
| sensitive subjects, such as discretionary spending. His budget | |
| would increase discretionary spending by $353 billion, relative | |
| to his commission's proposals. | |
| Former Clinton Chief of Staff, and co-chair of the Fiscal | |
| Commission, a man who I have great respect for, a Democrat, | |
| Erskine Bowles said, quote, The budget goes nowhere near where | |
| they will have to go to resolve our fiscal nightmare. The | |
| President's budget disregards the drivers of our debt crisis | |
| and the insolvency of our entitlement programs. Every day that | |
| passes without leadership on this crucial challenge is another | |
| day of uncertainty for job creators, and a darkening economic | |
| prospect for millions of Americans living in the shadow of our | |
| growing and unsustainable debt. | |
| The politically safe response, I suppose, is to do nothing. | |
| I wonder about that, though. Unfortunately, this is the path | |
| the President has chosen. We feel that it is our responsibility | |
| to do things differently, to lead where he has fallen short, | |
| and that is exactly what we plan to do. | |
| With that, I will yield to Ranking Member Van Hollen for an | |
| opening statement. | |
| [The statement of Chairman Ryan follows:] | |
| Prepared Statement of Hon. Paul Ryan, Chairman, Committee on the Budget | |
| Director Lew, welcome back. | |
| The President is fortunate that you agreed to a return assignment | |
| to OMB under a darkening fiscal outlook. We are aware of the challenges | |
| you faced in putting this budget together, and we thank you for your | |
| hard work. | |
| The Budget of the United States is about much more than arithmetic. | |
| It is a statement of national priorities--and a gauge of our nation's | |
| health. | |
| Because we face a crippling burden of debt, this year's budget in | |
| particular presented the President with a unique opportunity to lead | |
| our country. | |
| The President has disappointed us all by declining that | |
| opportunity. He punted. | |
| Instead of confronting our debt head on, the President has | |
| presented us with a budget that spends too much, borrows too much and | |
| taxes too much. His budget would double the amount of debt held by the | |
| public by the end of his term--and triple it by the tenth anniversary | |
| of his inauguration. | |
| To be sure, our country was already on an unsustainable trajectory | |
| before he took office. Our debt is the product of acts by many | |
| presidents and many Congresses over many years. Both parties share the | |
| blame. | |
| Nevertheless, this President's policies have accelerated us down | |
| this disastrous path. He has made our spending problems worse with | |
| policies such as the failed stimulus and the new health care | |
| entitlement. | |
| He has argued for massive tax increases that would stifle economic | |
| growth and make our fiscal picture worse--this budget alone contains | |
| $1.6 trillion in higher taxes on American families, businesses and | |
| entrepreneurs. | |
| And on our nation's most pressing fiscal challenges, the President | |
| has abdicated his leadership role. First, he punted to a bipartisan | |
| commission to develop solutions to the problem. | |
| Then, when his own commission put forward a set of fundamental | |
| entitlement and tax reforms, he ignored them. Erskine Bowles, the | |
| Democratic chairman of the fiscal commission, said the White House | |
| budget request goes ``nowhere near where they will have to go to | |
| resolve our fiscal nightmare.'' | |
| He even failed to take the commission's advice on less sensitive | |
| subjects, such as discretionary spending: His budget would increase | |
| discretionary spending by $353 billion relative to the commission's | |
| proposals. | |
| The President's budget disregards the drivers of our debt crisis | |
| and the insolvency of our entitlement programs. | |
| Every day that passes without leadership on this crucial challenge | |
| is another day of uncertainty for job creators and darkening economic | |
| prospects for millions of Americas living in the shadow of our growing | |
| debt. | |
| The politically safe response, I suppose, is to do nothing. | |
| Unfortunately, this is the path the President has chosen. | |
| We feel that it's our responsibility to do things differently--to | |
| lead where he has fallen short. And that's exactly what we plan to do. | |
| With that, I will yield to Ranking Member Van Hollen for an opening | |
| statement. | |
| Mr. Van Hollen. Thank you, Chairman Ryan, welcome Director | |
| Lew. I know that President Obama, like President Clinton, will | |
| be well-served by having you at the helm of Office of | |
| Management and Budget. And I thank you for being here to | |
| discuss the President's budget. And while we are still | |
| reviewing some of the details, I want to commend the President | |
| for putting forth a budget that reduces our deficit while also | |
| investing in our future. | |
| This is a tough-love budget. It cuts non-security | |
| discretionary spending by $400 billion, taking that category of | |
| spending to the lowest share of GDP since the Eisenhower | |
| Administration. And starting this year, it steadily decreases | |
| the deficit, and brings the budget to primary balance by the | |
| year 2017. But the President's budget cuts the deficit while | |
| making critical investments in areas like education, clean | |
| energy, infrastructure, and scientific innovation. | |
| Last week, Chairman of the Federal Reserve Ben Bernanke | |
| testified before this committee about the importance of | |
| targeted national investments to help grow the economy and keep | |
| America competitive. He highlighted the need to pursue policies | |
| to foster economic growth, quote, By encouraging investment in | |
| the skills of our workforce as well as new machinery and | |
| equipment, by promoting research and development, and by | |
| providing necessary public infrastructure. This budget does | |
| that. | |
| As we debate the best way forward, our conversation must | |
| include a comprehensive review of our national balance sheet. | |
| It is simply short-sighted to think we can try to balance our | |
| budget through cuts in domestic discretionary spending alone, a | |
| category that represents only 12 percent of the overall budget. | |
| We must look to other areas, including comprehensive tax | |
| reform, and eliminating special interest breaks in the tax | |
| code. The President's budget moves in the right direction by | |
| putting an end to taxpayer dollars going to subsidies for big | |
| oil companies at a time when gas is costing American families | |
| more than $3 a gallon, and oil companies are making huge | |
| profits; there is no reason to subsidize those companies and | |
| short-change investments in education and Head Start, as some | |
| of our colleagues are proposing to do today on the floor of the | |
| House. | |
| This budget extends tax cuts for middle class tax families, | |
| but rejects tax breaks for those at the very top. It takes a | |
| balanced approach, much like the budgets under President | |
| Clinton. Under the Clinton Administration, the country enjoyed | |
| real economic growth of 3.9 percent per year, and the economy | |
| added 20.8 million private sector jobs. That balanced approach | |
| allowed us to not only stop running deficits, but actually | |
| achieve surpluses and begin to reduce our nation's debt. | |
| Unfortunately, those surpluses disappeared under the previous | |
| Bush Administration. They cut taxes for the wealthy and turned | |
| a $5.6 trillion surplus into a sea of deficits, lost 653,000 | |
| private sector jobs over that eight year period. | |
| In January, 2009, when the President raised his hand and | |
| was sworn in, he was handed an economy in free-fall that was | |
| losing 700,000 jobs a month, and a record $1.3 trillion | |
| deficit. Unfortunately, some of the first acts of the new | |
| Congress were to eliminate the PAYGO rule, and add $230 billion | |
| to that deficit in connection with health care reform. | |
| Having spent the first two years working to rescue the | |
| economy, working with Congress and the American people, the | |
| President's budget is now focused on strengthening the economy | |
| with a plan of targeted investments and deficit reduction. It | |
| stands in stark contrast, I might say, to the approach that we | |
| are seeing by our colleagues on the floor of the House, which | |
| is to slash important programs immediately, disregarding the | |
| impact on the fragile economy and workers. | |
| It is critical that our nation's budget strike the right | |
| balance with both spending and revenue, and I believe the | |
| President's budget makes an important effort to hit the right | |
| note. It is a starting point. I must say, it is interesting to | |
| hear many of our colleagues on the Republican side criticize | |
| the President for not putting more of the ideas of the | |
| Bipartisan Deficit-Debt Reduction Commission on the table, when | |
| in the House, the representatives to that commission voted | |
| against it. | |
| That being said, and I am going to conclude, Mr. Chairman, | |
| in order to tackle our longer-term fiscal challenges beyond the | |
| 10-year period of this budget, it is important that the White | |
| House and the Congress, Republicans and Democrats, come | |
| together to seriously discuss and consider the ideas in the | |
| Commission's proposal. Compromise is not a dirty word. Getting | |
| things done requires give and take. We should begin that | |
| conversation now. Thank you, Mr. Chairman. | |
| [The statement of Mr. Van Hollen follows:] | |
| Prepared Statement of Hon. Chris Van Hollen, Ranking Minority Member, | |
| Committee on the Budget | |
| Thank you very much, Chairman Ryan. | |
| Welcome, Director Lew. I know that President Obama, like President | |
| Clinton, will be well-served by having you at the helm of the Office of | |
| Management and Budget. | |
| Thank you for being here today to discuss the President's budget. | |
| While we are still reviewing some of the details, I want to commend the | |
| President for submitting a budget that reduces our deficit, while also | |
| investing in our future. This is a tough love budget. It cuts non- | |
| security discretionary spending by $400 billion over the next decade-- | |
| taking that category of spending to the lowest share of GDP since the | |
| Eisenhower Administration. And, starting this year, it steadily | |
| decreases the deficit and brings the budget to primary balance by 2017. | |
| But the President's budget cuts the deficit while making critical | |
| investments in areas like education, clean energy, infrastructure, and | |
| scientific innovation. Last week Federal Reserve Chairman Ben Bernanke | |
| testified before this committee about the importance of targeted | |
| national investments to help grow the economy and keep America | |
| competitive. He highlighted the need to pursue policies to foster | |
| economic growth 'by encouraging investment in the skills of our | |
| workforce as well as new machinery and equipment, by promoting research | |
| and development, and by providing necessary public infrastructure.' | |
| This budget does that. | |
| As we debate the best way forward, our conversation must include a | |
| comprehensive review of our national balance sheet. It is simply short- | |
| sighted to think we can try to balance our budget through cuts in | |
| domestic discretionary spending alone--a category that represents only | |
| 12 percent of the overall budget. We must also look to other areas, | |
| including comprehensive tax reform and eliminating special interest | |
| breaks in the tax code. The President's budget moves in the right | |
| direction by putting an end to taxpayer dollars going to subsidies for | |
| big oil companies. At a time when gas is costing American families more | |
| than $3 a gallon and oil companies are making huge profits, there is no | |
| reason to subsidize big oil companies and short-change funding for Head | |
| Start and education, as our Republican colleagues are proposing to do | |
| today on the House floor. President Obama's budget also extends tax | |
| cuts for middle class families, but rejects tax cuts for the wealthiest | |
| 2 percent of Americans. At a time of huge deficits, we cannot afford to | |
| ask our children to pay for tax breaks for the folks at the very top. | |
| The President's budget takes a balanced approach, much like the | |
| budgets under President Clinton. Under the Clinton Administration, the | |
| country enjoyed real economic growth of 3.9 percent per year and the | |
| economy added 20.8 million private-sector jobs. That balanced approach | |
| allowed us to not only stop running deficits, but actually achieve | |
| surpluses and begin to reduce our nation's debt. Unfortunately, those | |
| surpluses were squandered under the Bush Administration. The Bush | |
| Administration cut taxes for the wealthy and turned a $5.6 trillion | |
| surplus into a sea of deficits and lost 653,000 private-sector jobs | |
| over eight years. In January 2009 the Obama Administration was handed | |
| an economy in free fall that was losing over 700,000 jobs a month and a | |
| record $1.3 trillion deficit. | |
| Having spent its first two years working to rescue the economy, the | |
| President's budget is now focused on strengthening the economy with a | |
| plan of targeted investments and deficit reduction. The President's | |
| approach stands in stark contrast to the House Republicans' plan being | |
| debated on the House floor today. That plan would recklessly slash | |
| important programs immediately--disregarding the impact to American | |
| workers and our fragile recovery. The President's Bipartisan Commission | |
| charged with reducing our national debt and deficit stated that 'in | |
| order to avoid shocking the fragile economy, the Commission recommends | |
| waiting until 2012 to begin enacting programmatic spending cuts.' The | |
| Rivlin-Domenici Commission rendered the same advice. Deep cuts now will | |
| not create a single job; in fact, Mark Zandi and other economists have | |
| warned against deep spending cuts that would put thousands of American | |
| jobs at risk. President Obama, on the other hand, has laid out a long- | |
| term, responsible path to fiscal sustainability. He has proposed | |
| significant but targeted cuts that stand in contrast to the House | |
| Republicans' hatchet job on the budget that will cost many Americans | |
| their jobs. | |
| It is critical that our nation's budget strikes the right balance | |
| with both spending and revenue, and I believe the President's budget | |
| makes an important effort to hit the right note. It is an important | |
| starting point. That being said, in order to tackle our longer-term | |
| fiscal challenges--beyond the 10 year period of this budget--it is | |
| important that the White House and the Congress, Republicans and | |
| Democrats, come together to seriously discuss and consider the ideas in | |
| the Commission's proposal. Compromise is not a dirty word. Getting | |
| things done requires give and take. We should begin that conversation | |
| now. | |
| Chairman Ryan. Mr. Lew, the floor is yours. | |
| STATEMENT OF JACOB J. LEW, DIRECTOR, | |
| OFFICE OF MANAGEMENT AND BUDGET | |
| Mr. Lew. Thank you, Mr. Chairman. Ranking Member Van | |
| Hollen, members of the Committee, thanks for having me here | |
| today to present the President's 2012 budget. It is a real | |
| honor to be here again after 10 years, presenting the | |
| President's budget, and I thank the Chairman and the Ranking | |
| Member for the very kind personal words that they opened with. | |
| I have a great deal of respect for each of them, and look | |
| forward to working together in a bipartisan way as we move | |
| through the long and difficult process. | |
| After emerging from the worst recession in generations, we | |
| face another historic challenge. We need to demonstrate to the | |
| American people that we can live within our means and invest in | |
| the future. We need to work our way out of the deficits that | |
| are driving up our debt, and at the same time make the tough | |
| choices to make sure that we are in a position to out-educate, | |
| out-build, and out-innovate our competitors. That is what it is | |
| going to take to return to robust economic health and to grow | |
| jobs in the future. | |
| This is the seventh budget that I have worked on at the | |
| Office of Management and Budget, and the most difficult. It | |
| includes more than $1 trillion in deficit reduction, two-thirds | |
| of it from lower spending, and it puts the nation on a path | |
| towards fiscal sustainability so that by the middle of the | |
| decade, the government will no longer be adding to our national | |
| debt as a share of the economy. By the middle of the decade, we | |
| will be able to pay our current bills and remain in primary | |
| balance for many years after that. | |
| The President has called this budget a down-payment. | |
| Because we still have work to do to pay down the debt and | |
| address our long-term challenges. But we can't start to pay | |
| down the debt until we stop adding to it. And that is what this | |
| budget does. | |
| The budget lays out a strategy for significant deficit | |
| reduction, the most deficit reduction in a comparable period | |
| since the end of World War II. It will bring our deficit down | |
| to about three percent of the economy by the middle of the | |
| decade, and stay there for the rest of this budget window. | |
| Changing the trajectory of our fiscal path is a significant | |
| accomplishment, but to do this it will take tough choices, and | |
| I would like to highlight just a few of them. | |
| Our budget includes a five-year, non-security discretionary | |
| spending freeze that will reduce the deficit by over $400 | |
| billion over the next decade, and bring spending in this | |
| category of the budget to the lowest level since President | |
| Eisenhower sat in the Oval Office. To achieve savings of this | |
| magnitude, it is not enough to just deal with programs that are | |
| outdated, or ineffective, or duplicative, though we do start | |
| there. It is also necessary to make reductions in programs | |
| that, absent the current fiscal situation, we wouldn't be | |
| looking for reductions. Programs like low-income energy | |
| assistance and Community Development Block Grants. | |
| In national security, which we are not freezing, we are | |
| also making real cuts. Defense spending over the past decade | |
| has been growing faster than inflation, and we can no longer | |
| afford that. The budget cuts $78 billion for the Pentagon's | |
| spending plan over the next five years, which will bring | |
| Defense spending down to zero real growth. It cuts weapon | |
| programs that Secretary Gates and the military leadership says | |
| we don't need, and we can't afford. We are also capturing | |
| savings that come from bringing our troops home from Iraq, | |
| which, when you add it in, brings defense spending down by more | |
| than five percent, compared to the President's budget of last | |
| year. | |
| Of course, cutting discretionary spending alone can't solve | |
| our fiscal problems. This budget also deals with mandatory | |
| spending and with revenue, and it takes significant steps to | |
| address our long-term fiscal challenges. For example, this | |
| budget shows that we can pay for solutions to two problems that | |
| we have been all too willing to kick down the road by putting | |
| on the national credit card. One is preventing a nearly 30 | |
| percent reduction in reimbursements to doctors in Medicare, to | |
| keep doctors in the system and treating patients. Another is | |
| preventing an increase in taxes on middle class families | |
| through the Alternative Minimum Tax, commonly known as the AMT. | |
| In December, there was bipartisan agreement to pay for a | |
| one-year extension of the so-called Doc-Fix, which was not | |
| required by budget rules, but it was the right thing to do. In | |
| this budget, we build on that, and we have $62 billion of | |
| savings to pay for the next two years of this fix. And those | |
| three years of paying for the Doc-Fix establishes a clear | |
| pattern and creates a window so we can work together, so that | |
| we can address this in the future without adding to the | |
| deficit. | |
| With regard to the Alternative Minimum Tax, we have offsets | |
| in the budget to pay for three years of what is called a patch. | |
| And we could pay for it by limiting the amount that those in | |
| the highest tax bracket can receive for itemized deductions. It | |
| is a big step towards cutting back on spending in the tax code, | |
| and it is consistent with the Fiscal Commission | |
| recommendations. If we continue on this path of paying for the | |
| AMT patch after 2014, it alone will reduce the deficit by one | |
| percent of GDP by the end of the decade. These both are down- | |
| payments on long-term reform to reduce the deficit further, and | |
| the administration looks forward to working with Congress to | |
| permanently cover these costs once and for all. | |
| Similarly, as the President said in the State of the Union, | |
| we are eager to work together on a deficit-neutral corporate | |
| tax reform that will simplify the system, eliminating special | |
| interest loopholes and level the playing field, and lower the | |
| corporate tax rate for the first time in 25 years. And while it | |
| does not contribute to our deficits in the short or medium | |
| term, the President has laid out his principles to strengthen | |
| Social Security, has called on Congress to work in a bipartisan | |
| fashion, to keep this compact with future generations. | |
| As we take these steps to live within our means, we also | |
| invest in the areas critical to future economic growth and job | |
| creation: education, innovation, clean energy, and | |
| infrastructure. And even in these areas, the budget cuts | |
| programs in order to fund high-priority investments. For | |
| example, in education, we maintain the increased maximum Pell | |
| Grant level, which is enabling nine million students to pay for | |
| college education, and we pay for it with a $100 billion in | |
| savings that primarily come from eliminating summer-school Pell | |
| Grants and eliminating the graduate student in-school loan | |
| subsidy. | |
| In the area of innovation, we support $148 billion in | |
| research and development investments, including $32 billion for | |
| the National Institutes of Health. And we need visionary goals | |
| to bring about a new clean energy economy to help pay for these | |
| investments. Lower priority programs are cut, and we eliminate | |
| 12 tax breaks for oil, gas, and coal companies, that will raise | |
| $46 billion over 10 years. | |
| And to build the infrastructure we need to compete, the | |
| budget includes a proposal for a $556 billion surface | |
| transportation re-authorization bill. Not only does this plan | |
| include the consolidation of 60 duplicative, often-earmarked | |
| programs into five, and it demands more competition for funds, | |
| but we insist that the bill be paid for, and we look forward to | |
| working in a bipartisan manner to do that. | |
| Mr. Chairman, I am under no illusions how difficult it is | |
| to make the tough choices needed to put us on a sustainable | |
| fiscal path. As we make these choices, I believe that it is | |
| important that we not cut areas that are critical to helping | |
| our economy to grow, and making a difference for families and | |
| businesses. | |
| Finally, cutting spending and cutting our deficits requires | |
| us to put political differences aside, and working together. I | |
| look forward to working with you and crafting a set of policies | |
| that enable us to live within our means and invest in the | |
| future. And I look forward to answering your questions. Thank | |
| you very much. | |
| [The statement of Mr. Lew follows:] | |
| Prepared Statement of Hon. Jacob J. Lew, Director, | |
| Office of Management and Budget | |
| Chairman Ryan, Ranking Member Van Hollen, and Members of the | |
| Committee, thank you for inviting me to testify this morning about the | |
| President's Fiscal Year 2012 Budget. | |
| As the President has said, now that the country is back from the | |
| brink of a potential economic collapse, our goal is to win the future | |
| by out-educating, out-building and out-innovating our competitors so | |
| that we can return to robust economic and job growth. But to make room | |
| for the investments we need to foster growth, we have to cut what we | |
| cannot afford. We have to reduce the burden placed on our economy by | |
| years of deficits and debt. | |
| This is the seventh budget I have worked on at OMB and the most | |
| difficult. It is a budget of shared sacrifice across the Federal | |
| government. It is a budget that makes tough choices to begin to tackle | |
| our major fiscal challenges. It is a budget that transitions from | |
| rescuing the economy to investing in our future. It is a budget that | |
| lives within our means in order to compete effectively in the world | |
| economy. | |
| then and now | |
| The world has changed since I last served at OMB. When I left OMB | |
| in January 2001, we had balanced the budget and projected a surplus of | |
| $5.6 trillion over the next decade. In fact, we projected that the U.S. | |
| would effectively be debt-free by 2013. Unprecedented economic growth | |
| was certainly a key driver of budget surpluses. But in a virtuous | |
| cycle, a commitment by the President and the Congress to maintain a | |
| surplus reinforced expectation of Federal fiscal responsibility, which | |
| had a positive impact on interest rates and further helped to spur | |
| economic growth. This surplus was the result of year after year of | |
| fiscal discipline including budget agreements in 1990, 1993 and 1997. | |
| Presidents and congressional majorities from both parties reached | |
| across the aisle to make tough policy choices. | |
| When I returned as OMB Director last November to a projected | |
| deficit of $10.4 trillion--a sixteen trillion dollar swing in just over | |
| ten years--the fiscal picture could not have been more different. Large | |
| deficits were driven by two main factors: first, the worst economic | |
| downturn in a generation and policy response necessary to rescue the | |
| economy, and second, the decision in prior years to give two large tax | |
| cuts without offsetting them and to create a Medicare prescription drug | |
| benefit without paying for it. | |
| <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT> | |
| Clearly, the challenges we face today are very different than those | |
| we faced more than a decade ago, when many of us worked together to | |
| balance the budget. | |
| our record | |
| Bringing the Economy Back from the Brink | |
| It is useful to begin by reviewing the state of our economy, | |
| because it shows how far we have come but also how far we need to go. | |
| When the President took office the economy was in freefall. Real | |
| gross domestic product (GDP) was dropping at an annual rate of 4.9 | |
| percent after falling at an annual rate of 6.8 percent the previous | |
| quarter. The economy was losing an average of 783,000 private sector | |
| jobs per month. A steep decline in the stock market combined with | |
| falling home prices led to a significant loss of household wealth. | |
| Between the third quarter of 2007 and the first quarter of 2009, the | |
| real net worth of American households declined by 28 percent--the | |
| equivalent of one year's GDP. | |
| In the last year, we have seen some encouraging signs that the | |
| trajectory has changed and that a recovery is beginning to take hold. | |
| An economy that had been shrinking for nearly a year is now growing | |
| again--over the past six quarters, through the first quarter of FY | |
| 2011, real GDP has grown at an average rate of 3.2 percent. After | |
| nearly two years of job losses, more than one million private sector | |
| jobs were added to the economy in 2010. Capital and credit markets are | |
| functioning and gaining strength. And after teetering on the brink of | |
| liquidation just two years ago, America's auto industry is posting | |
| healthy gains and returning money to the taxpayers who helped it | |
| through a period of turmoil. | |
| What changed? | |
| Just 28 days after taking office, the President signed into law the | |
| Recovery Act to create and save jobs and to invest in an economy able | |
| to compete in the 21st century. Approximately one-third, or $288 | |
| billion, of the Act's funds went to tax cuts for small businesses and | |
| 95 percent of working families. Another third, or $224 billion, was | |
| used for emergency relief for individuals and state and local | |
| governments. The final third was invested in projects to create jobs, | |
| spur economic activity, and lay the foundation for future sustained | |
| growth. | |
| This investment had a powerful impact. The White House Council of | |
| Economic Advisers (CEA) estimates that the Recovery Act raised the | |
| level of GDP as of the third quarter of 2010 by 2.7 percentage points, | |
| relative to what it would have been absent intervention, and raised | |
| employment relative to what it otherwise would have been by between 2.7 | |
| and 3.7 million jobs in the same time frame. | |
| And we have acted together to build on this growth. In March 2010, | |
| the President signed the Hiring Incentives to Restore Employment (HIRE) | |
| Act that provided subsidies for firms that hired workers who were | |
| unemployed for at least two months and other job creation incentives. | |
| In August, he signed into law $10 billion in additional aid to States | |
| to prevent the dismissal of 160,000 of teachers, police officers, and | |
| firefighters nationwide. In September, the President signed the Small | |
| Business Jobs Act. At the end of 2010, the President signed into law a | |
| bipartisan agreement on taxes that prevented a tax increase for middle- | |
| class families, extended unemployment insurance benefits for millions | |
| of Americans hardest hit by the recession, provided powerful incentives | |
| for business investment and job creation, and temporarily reduced the | |
| payroll tax which also would help spur macroeconomic demand. Economists | |
| from across the political spectrum agree that this bill will boost | |
| economic growth in 2011 by 0.5 to 1.2 percentage points. | |
| From the Recovery Act to our financial stabilization plan, the | |
| President's tough choices over the past two years have helped to save | |
| the economy from a second Great Depression. But we are keenly aware | |
| that the recovery is not happening fast enough for the millions of | |
| Americans who are still looking for jobs, and our immediate task is to | |
| accelerate economic growth and job creation to get our fellow Americans | |
| back to work. That is why the President has proposed an up-front | |
| investment of $50 billion in building new roads, rails, and runways to | |
| upgrade our infrastructure and create new jobs. It is why the President | |
| is making key investments in innovation, clean energy, and education | |
| that will create jobs and make our workforce more competitive. And that | |
| is why the President laid out a commonsense approach to regulation that | |
| is pragmatic and evidence-based, and that will protect our health and | |
| safety and help lay the groundwork for economic growth and job | |
| creation. | |
| restoring a sound fiscal policy | |
| While taking steps to rescue the economy, the President has also | |
| worked to restore accountability and fiscal responsibility. In his | |
| first Budget, the President confronted directly the fiscal situation we | |
| inherited, eliminating trillions of dollars in budget gimmicks. He made | |
| a commitment to restoring fiscal responsibility, while recognizing that | |
| increasing the deficit in the short term was necessary to arrest the | |
| economic freefall. The President pledged to cut the deficit he | |
| inherited in half as a share of the economy by the end of his first | |
| term, a commitment this Budget keeps. He signed into law pay-as-you-go | |
| (PAYGO) legislation that returned the tough budget rules of the 1990s | |
| to Washington. The principle behind PAYGO is simple: all new, non- | |
| emergency entitlement spending and revenue losses must be offset by | |
| savings or revenue increases, with no exception for new tax cuts. | |
| In addition, the President signed into law the landmark Affordable | |
| Care Act (ACA), enacting comprehensive health insurance reforms that | |
| will hold insurance companies more accountable, lower health care | |
| costs, guarantee more health care choices, and enhance the quality of | |
| health care for all Americans while reducing the deficit. According to | |
| CBO analysis, the Affordable Care Act will save more than $200 billion | |
| over the next ten years and will reduce the deficit by more than $1 | |
| trillion over the second decade. This is more deficit reduction than in | |
| any legislation since the 1990s. At the same time, the ACA's savings | |
| provisions tackle the single biggest contributor of our nation's long- | |
| term deficits--rising health care costs. | |
| While taking major steps to bring down our deficits, the President | |
| also demanded that the Government spend every taxpayer dollar with as | |
| much care as taxpayers spend their own dollars. The President proposed | |
| legislation to create an expedited rescission authority so that | |
| unnecessary spending can be struck swiftly and constitutionally. | |
| Through his Accountable Government Initiative, the Administration has | |
| launched a host of initiatives to streamline what works, cut what does | |
| not, and eliminate wasteful spending. These initiatives include | |
| focusing agencies on identifying and delivering on their top | |
| priorities, a comprehensive strategy to reform Government contracting | |
| that will save $40 billion by the end of 2011, an initiative to reduce | |
| the amount of improper payments made by the Government by $50 billion, | |
| a review and reform of information technology use and procurement, an | |
| initiative to reduce administrative overhead by billions and improve | |
| performance, and an effort to dispose of billions of dollars of | |
| unneeded and under-utilized real property assets. | |
| Each year since entering office, President has asked his | |
| Administration to go line-by-line through the Budget to identify | |
| programs that are outdated, ineffective, or duplicative. In his first | |
| two Budgets, the President identified more than 120 terminations, | |
| reductions, and savings, totaling approximately $20 billion in each | |
| year. These terminations ranged from a radio navigation system for | |
| ships made obsolete by GPS to new F-22 fighter jets. While recent | |
| administrations have seen between 15 and 20 percent of their proposed | |
| discretionary cuts approved by the Congress, the Administration saw 60 | |
| percent of its proposed discretionary cuts become law for 2010. | |
| Finally, in April 2010, the President created the bipartisan | |
| National Commission on Fiscal Responsibility and Reform, and charged | |
| the Commission with identifying policies to improve the fiscal | |
| situation in the medium term and to achieve long-term fiscal | |
| sustainability. The Commission made an important contribution, | |
| beginning the process of building a bi-partisan consensus on the nature | |
| of the challenge we face and expanding the debate to include a broader | |
| range of options. While the Administration doesn't agree with every | |
| recommendation in the report, there are many areas of this budget that | |
| reflect the work of the Commission. | |
| living within our means and investing in the future | |
| Now that the country is back from the brink of a potential economic | |
| collapse, our goal is to win the future. But we cannot do so if we are | |
| saddled with increasingly growing deficits. This Budget builds on | |
| recent progress and lays out a comprehensive and responsible plan that | |
| will put us on a path toward fiscal sustainability for the rest of the | |
| decade--a down payment that will build a strong foundation to tackle | |
| our long-term challenges. | |
| The projected deficit this year is nearly 11 percent of GDP, the | |
| highest level since World War II, reflecting the severity of the | |
| recession and our temporary measures to generate jobs and growth. The | |
| Budget lays out a path of rapid deficit reduction--the most deficit | |
| reduction in a comparable period since World War II. In the second half | |
| of the decade and beyond, debt is no longer growing as a share of GDP-- | |
| a key indicator of fiscal sustainability. Redirecting our fiscal path | |
| on this downward slope is a significant accomplishment, one which will | |
| take tough choices and shared sacrifice--and is essential for the long- | |
| term competitiveness of the American economy. | |
| <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT> | |
| The first step to reducing our deficit is maintaining a strong | |
| economy, which is a key priority for the Budget. As the baseline | |
| projections show, with economic growth we begin to make substantial | |
| progress at reducing the deficit even before we make additional policy | |
| changes. However, even with a sustained recovery, simply continuing | |
| current policies does not get the job done--it would leave us with | |
| deficits of between 4 and 5 percent of GDP--with debt growing at an | |
| unsustainable rate through the end of the decade and beyond. | |
| To stay on a path towards sustainable deficits on the order of 3 | |
| percent of GDP, we make tough choices across all areas of the Budget to | |
| identify more than $1 trillion in savings--two thirds from spending | |
| reductions. This requires decisions beyond just separating the good | |
| programs from the bad. It means broadly sharing sacrifices in all areas | |
| of the Budget in order to make critical investments in areas most | |
| important to growth and competitiveness. And it means reducing spending | |
| in areas where we continue believe there is still important work to do. | |
| It cannot be achieved by simply looking at discretionary spending--we | |
| need to look at mandatory and revenue policies as well. An overview of | |
| key decisions in the FY 2012 Budget is as follows: | |
| <bullet> Non-security discretionary. The Budget proposes to freeze | |
| non-security discretionary spending for five years, which saves more | |
| than $400 billion over the next decade and brings this category of | |
| spending to its lowest level as a share of the economy since Dwight | |
| Eisenhower was in office. | |
| <bullet> Security discretionary. The Budget reflects tough | |
| decisions in areas outside of the non-security freeze--bringing Defense | |
| spending down from a long period of significant real growth to zero | |
| real growth, saving $78 billion over the next five years relative to | |
| last year's plan. Reflecting the winding down of military operations in | |
| Iraq, the Overseas Contingency Operations (OCO) budget for DOD in 2012 | |
| will be about 26 percent lower than levels in the President's 2011 | |
| request. As a result, the overall defense budget, including OCO, will | |
| be down by 5.2 percent from last year's request. | |
| <bullet> Health care. The Budget fully pays for a two-year | |
| extension of current Medicare physician payment rates with $62 billion | |
| in health care savings, preventing a payment cut of over 25 percent. | |
| The Budget also proposes incentives for States to implement medical | |
| malpractice reforms to further reduce the growth of health care costs. | |
| <bullet> Revenues. The Budget pays for three years of AMT relief by | |
| cutting the value of tax expenditures for high-income taxpayers by 30 | |
| percent. The Budget also opposes any further extension of the | |
| unaffordable upper-income tax cuts to two years. | |
| <bullet> Fiscal stewardship. The Budget includes several proposals | |
| to reduce the risk of future liabilities. These include giving the | |
| Pension Benefit Guaranty Corporation (PBGC) the ability to adjust | |
| premiums to reflect all risks facing the pension insurance system and | |
| proposing reforms to encourage State responsibility and improve the | |
| solvency of the Unemployment Insurance Trust Fund. | |
| shared sacrifices, hard choices | |
| To be competitive in the 21st Century, the United States cannot be | |
| weighed down by crippling budget deficits, ineffective programs that | |
| waste tax dollars, and a government that is not accountable to the | |
| American people. | |
| Five-year non-security freeze. It would be short-sighted to cut | |
| spending across the board and shortchange critical areas for growth and | |
| competitiveness--such as education, innovation, and infrastructure--or | |
| carelessly slash programs that protect the most vulnerable. This means | |
| that some cuts must be deeper to make room for key investments. In his | |
| 2011 Budget request, the President proposed a three-year, non-security | |
| discretionary freeze. As the economic recovery takes hold, the | |
| President believes that it is important to go further and is now | |
| proposing a five-year, non-security discretionary freeze. This is an | |
| extension of the freeze proposed last year, based on 2010 enacted | |
| levels. This freeze would be the most aggressive effort to restrain | |
| discretionary spending in 30 years and, by 2015, would lower non- | |
| security discretionary funding as a share of the economy to the lowest | |
| level since Dwight D. Eisenhower was president. Over the decade, the | |
| five-year freeze saves more than $400 billion. | |
| Program terminations, reductions, and savings. In part to meet this | |
| freeze, the Budget includes over 200 terminations, reductions, and | |
| savings totaling more than $33 billion in savings for 2012 alone. On | |
| their own, these cuts will not solve our fiscal problems, but they are | |
| a critical step to creating a more responsible and accountable | |
| Government and a key component of a comprehensive deficit reduction | |
| strategy. It is never easy to end or cut programs; they all have | |
| advocates. Some programs are duplicative, outdated and ineffective. But | |
| we also had to choose programs that, absent the fiscal situation, we | |
| would not cut: | |
| <bullet> Low-Income Housing Energy Assistance Program (LIHEAP). The | |
| Budget cuts LIHEAP by more than $2 billion, returning LIHEAP funding to | |
| 2008 levels, prior to the energy price spikes. However, in this | |
| difficult fiscal environment, we cannot afford to maintain the | |
| expansion to the program. | |
| <bullet> Community Services Block Grant (CSBG). CSBG has helped to | |
| support community action organizations in cities and towns across the | |
| country. These are grassroots groups working in poor communities, | |
| dedicated to empowering those living there and helping them with some | |
| of life's basic necessities. These are the kinds of programs that | |
| President Obama worked with when he was a community organizer, so this | |
| cut is not easy for him. Yet for the past 30 years, these grants have | |
| been allocated to virtually the same organizations, using a formula | |
| that does not consider how good a job the recipients are doing. The | |
| Budget proposes to cut financing for this grant program in half, saving | |
| $350 million, and to reform the remaining half into a competitive grant | |
| program, so that funds are spent to give communities the most effective | |
| help. | |
| <bullet> Grants-in-Aid for Airports. The Budget lowers funding for | |
| the airport grants program to $2.4 billion, a reduction of $1.1 | |
| billion, by eliminating guaranteed funding for large and medium hub | |
| airports. The Budget focuses the traditional Federal grants to support | |
| smaller commercial and general aviation airports that do not have | |
| access to additional revenue or other outside sources of capital. At | |
| the same time, the Budget would allow larger airports greater | |
| flexibility to generate revenue with increased non-Federal passenger | |
| facility charges. | |
| These cuts are not limited to a few agencies. Rather, these cuts | |
| reflect shared sacrifice across the Federal government--even for | |
| agencies that are central to out-competing, out-building, and out- | |
| educating in the 21st century. For example, the Department of Education | |
| has made difficult decisions in order to maintain historic increases | |
| for Pell Grants, which are critical to creating future generations that | |
| are well-educated and globally-competitive. The Administration would | |
| put Pell Grants on firm financial footing through steps that include | |
| eliminating the in-school interest subsidy for loans to graduate | |
| students and ending the new year-round Pell Grant, which offers | |
| students a second Pell Grant in one year, but has cost ten times more | |
| than anticipated. The Budget also eliminates 13 discretionary programs | |
| at the Department of Education and consolidates 38 K-12 programs into | |
| 11 new programs that emphasize using competition to allocate funds. | |
| Federal civilian employee pay freeze. Federal workers are patriots | |
| who work for the Nation often at great personal sacrifice. They deserve | |
| our respect and gratitude. But just as families and businesses across | |
| the country are tightening their belts, so too must the Federal | |
| government. On his first day in office, the President froze salaries | |
| for all senior political appointees at the White House. In his Budget | |
| last year, the President proposed extending that freeze to other | |
| political appointees, and he eliminated bonuses for all political | |
| appointees across the Administration. Starting in 2011, the President | |
| has proposed and Congress enacted a two-year pay freeze for all | |
| civilian Federal workers. This will save $2 billion over the remainder | |
| of 2011, $28 billion over the next five years, and more than $60 | |
| billion over the next 10 years. | |
| Savings in discretionary security programs. The President's Budget | |
| also demands cuts and savings in security programs. DOD, in particular, | |
| has seen an average increase to its base budget of 7.4 percent a year | |
| over the past decade. Moving forward, DOD is pursuing a variety of | |
| strategies to set the course for zero real growth in defense spending, | |
| and saving $78 billion in its base budget (including $13 billion in FY | |
| 2012) relative to FY 2011's request for the next five years. Secretary | |
| Gates will oversee a package of terminations, consolidations, and | |
| efficiencies in operations to slow this growth, and these savings will | |
| be used to fund programs and efforts critical to the armed forces and | |
| the security of the Nation. Reflecting the winding down of military | |
| operations in Iraq, the Overseas Contingency Operations (OCO) budget | |
| for DOD in 2012 will be about 26 percent lower than levels in the | |
| President's FY 2011's request. As a result, the overall defense budget, | |
| including OCO, will be down by 5.2 percent from last year's request. | |
| Administrative savings. Allowing waste is never right, and it is | |
| especially intolerable in a time of tightening belts and tough | |
| decisions. Continuing the President's Accountable Government | |
| Initiative, the Budget cuts $2 billion in administrative overhead like | |
| travel, printing, supplies, and advisory contract services; establishes | |
| a process to quickly sell excess and under-utilized Federal real | |
| estate; and embraces competitive grant programs based on the Race to | |
| the Top model. This model is applied to programs from early childhood | |
| education through college; to allocate grants for transportation; to | |
| bring innovation to workforce training; and to encourage both | |
| commercial building efficiency and electric vehicle deployment. | |
| Reorganize government. We live and do business in a global economy, | |
| but the organization of our government has not kept pace with the | |
| private sector advancements of the 21st century. Many of our government | |
| organizations have strayed from their original or core missions, | |
| evolving out of inertia rather than in response to the changing needs | |
| of the groups they serve. This has resulted in duplicative and | |
| ineffective programs that persist and grow over time, and an | |
| organization of functions that doesn't always make sense. For example, | |
| as the President stated in his State of the Union address, there are | |
| twelve different agencies that deal with exports. Americans deserve a | |
| streamlined, efficient and well-functioning Federal government that is | |
| responsive to the needs of its citizens and of the private sector. | |
| The Budget reflects the President's commitment to reorganizing the | |
| Federal government to ensure that our resources are being used | |
| effectively and efficiently, with a particular focus on making the U.S. | |
| more competitive. In the coming months we will be working to identify | |
| where we can merge, consolidate and cut in order to better facilitate | |
| the needs of all American companies, entrepreneurs, and innovators and | |
| give these engines of economic growth a leg up in the global economy. | |
| The President plans to submit a proposal to Congress to enact the | |
| changes necessary to reorganize the Federal government in a way that | |
| best serves the goal of a more competitive America. | |
| investments in our future | |
| The best antidote to a growing deficit is a growing economy, which | |
| spurs expanded employment, higher revenue collection, and lower demand | |
| for spending on safety net programs like unemployment insurance | |
| nutrition assistance. Putting the Nation on a sustainable fiscal path | |
| and getting our deficits under control are critical to making the | |
| United States competitive in the global economy, and the Budget lays | |
| out a strategy to do this. At the same time, it also recognizes that we | |
| cannot cut back on investments that will fuel future economic growth | |
| particularly since sustained and robust economic growth plays a very | |
| significant, long-term role in reducing deficits. While the Budget | |
| identifies cuts and savings and asks for shared sacrifices across the | |
| government, it also invests in areas critical to helping America win | |
| the race for the jobs and industry of the future. | |
| We must target scarce Federal resources to the areas critical to | |
| winning the future: education, innovation, clean energy, and | |
| infrastructure. | |
| Educate a competitive future workforce. In an era where most new | |
| jobs will require some kind of higher education, we have to keep | |
| investing in the skills of our workers and the education of our | |
| children. This Budget continues to support the President's commitment | |
| to once again have the highest proportion of college graduates in the | |
| world by 2020, and continues the reform agenda not just by devoting | |
| significant resources to where they are needed, but also by ensuring | |
| that those funds are being invested in programs that deliver results | |
| efficiently and effectively. This Budget calls for: | |
| <bullet> Maintaining the Pell Grant maximum award at $5,550. Since | |
| 2008, the Administration has increased the maximum Pell Grant by $819, | |
| ensuring access to postsecondary education for over 9 million students | |
| from low-income families. | |
| <bullet> Supporting reform of K-12 education with expanded Race to | |
| the Top and other innovative, evidence-based programs that encourage | |
| innovation and reward success, and expands the Race to the Top concept | |
| to early childhood education with $350 million to establish a new, | |
| competitive Early Learning Challenge Fund for States. | |
| <bullet> Establishing a Workforce Innovation Fund that will | |
| encourage States and localities to break down barriers among programs, | |
| test new ideas, and replicate proven strategies for delivering better | |
| employment and education results at a lower cost per outcome. | |
| Investment in R&D and transformational technologies. To compete in | |
| the 21st century economy, we need to create an environment where | |
| invention, innovation, and industry can flourish. That starts with | |
| continuing investment in the basic science and engineering research and | |
| technology development from which new products, new businesses, and | |
| even new industries are formed. We must focus in areas that show the | |
| greatest promise for job creation to position ourselves to get ahead of | |
| our competitors and be a leader in emerging industries. This Budget | |
| makes significant investments in clean energy technology and research | |
| and development to nurture the United States as a world leader in | |
| innovation. To meet these goals, the Budget calls for: | |
| <bullet> Providing $148 billion for research and development. This | |
| level of funding continues the effort to double investments in basic | |
| research at the National Science Foundation, Department of Energy | |
| Office of Science, and the National Institute for Standards and | |
| Technology (NIST); provides robust investment in biomedical research at | |
| National Institutes of Health (NIH); and doubles energy efficiency | |
| research and development. | |
| <bullet> Making the Research and Experimentation (R&E) tax credit | |
| permanent to give businesses the certainty they need to make these | |
| important investments. In addition, the Administration proposes to | |
| expand the credit by about 20 percent, the largest increase in the | |
| credit's history, and simplify it so that it is easier for firms to | |
| take this credit and make the investments our economy needs to compete. | |
| <bullet> Bolstering economic rejuvenation in hard-hit areas of our | |
| country with new Growth Zone program. Growth Zones will deliver | |
| expanded tax incentives for investment and employment and a more | |
| streamlined access to government assistance to 20 new areas facing | |
| economic distress as well as growth potential. | |
| <bullet> Providing $8.7 billion for clean energy technology | |
| research, development, demonstration, and deployment. This includes | |
| more than doubling energy efficiency investments and increasing | |
| renewable energy investments by over 70 percent. The Budget seeks to | |
| reinforce new approaches to energy research by adding three new energy | |
| innovation hubs and expanding investment in the Advanced Research | |
| Projects Agency--Energy (ARPAE). In addition, the budget provides $5 | |
| billion for Section 48C tax credits for renewable energy manufacturing | |
| facilities. | |
| Build a 21st century infrastructure. To compete in the 21st | |
| century, we need an infrastructure that keeps pace with the times and | |
| outpaces our rivals, and for too long we have neglected our Nation's | |
| infrastructure, its roads, bridges, levees, waterways, communications | |
| networks, and transit systems. In the Recovery Act, the Administration | |
| made the largest one-time investment in our Nation's infrastructure | |
| since President Eisenhower called for the creation of a national | |
| highway system. We need to continue to build on those efforts--and to | |
| do so responsibly by paying for what we build. We cannot strengthen our | |
| economy with a modern infrastructure if at the same time it weakens our | |
| fiscal standing. To give America the world-class infrastructure our | |
| economy needs, the Budget: | |
| <bullet> Proposes a six-year surface transportation reauthorization | |
| that increases average annual investment by $35 billion per year, in | |
| real terms, over the previous six year authorization plus passenger | |
| rail funding in those years; this represents a total inflation-adjusted | |
| increase of sixty percent over the life of the bill. To bring the trust | |
| fund under budget enforcement mechanisms, the Budget proposes to | |
| reclassify trust fund spending on surface transportation as mandatory, | |
| subjecting it to PAYGO rules and closing score-keeping loopholes. | |
| <bullet> Provides $1.2 billion for the Next Generation Air | |
| Transportation System, the Federal Aviation Administration's multi-year | |
| effort to improve the efficiency, safety, and capacity of the aviation | |
| system. | |
| <bullet> Invests in smart, energy-efficient, and reliable | |
| electricity delivery infrastructure. The Budget continues to support | |
| the modernization of the Nation's electrical grid by investing in | |
| research, development, and demonstration of smart-grid technologies to | |
| spur the transition to a smarter, more efficient, secure and reliable | |
| electrical system. | |
| <bullet> Builds next-generation wireless broadband network to | |
| provide access to 98 percent of the population, creates a Wireless | |
| Innovation Fund, and establishes an interoperable broadband network for | |
| public safety. These proposals will be fully paid for with proceeds | |
| from proposed ``voluntary incentive auctions'' of underused spectrum | |
| and other spectrum management measures, which will generate more than | |
| $27 billion over the next decade. In addition to funding the programs | |
| above, nearly $10 billion of these proceeds will be dedicated to | |
| deficit reduction. | |
| building on our progress | |
| Now that the recovery is beginning to take hold, taking further | |
| steps to ensure responsibility has to be a priority--not because fiscal | |
| austerity in and of itself is virtuous, but because there is no way | |
| that we can compete and win in the world economy if we are borrowing | |
| without an end in sight. | |
| The President's Budget is a down payment. It puts the government on | |
| a path to reach sustainable deficits over the next ten years. This | |
| means that for the first time in 10 years, the government will again be | |
| fully paying for all of its programs and the debt will stabilize as a | |
| share of GDP. This is an important milestone--but not the finish line-- | |
| on the path to a balanced budget. | |
| We cannot achieve sustainable levels with ever deeper cuts in non- | |
| security discretionary spending, which is simply not a large enough | |
| share of the picture either to cause or to solve the whole problem. The | |
| President has been clear that we must work on a bipartisan basis to | |
| find long-term solutions across all areas of the Budget, including | |
| Medicare, Medicaid, and tax reform. | |
| Continue efforts to restrain the growth of health costs. Health | |
| care comprises one-quarter of non-interest Federal spending, and it is | |
| the key driver of future deficit growth. According to CBO analysis, the | |
| Affordable Care Act will save more than $200 billion over the next ten | |
| years and will reduce the deficit by more than $1 trillion over the | |
| second decade. This is a pivotal achievement, and the President is | |
| resolutely committed to implementing the ACA fairly, efficiently, and | |
| swiftly. But the job is not yet done. The Budget builds on the ACA with | |
| additional proposals to contain health care cost growth: | |
| <bullet> The ACA made important advances in the area of program | |
| integrity, but there are other important opportunities to reduce fraud, | |
| waste, and abuse in Medicare and Medicaid. The Budget includes ideas | |
| pulled from external sources, including recommendations from the | |
| President's Fiscal Commission and from legislation that has received | |
| bipartisan support. The $62 billion in health savings in the Budget | |
| focus on increasing program integrity, efficiency, and accountability-- | |
| not reducing beneficiary access or benefits. For example, the Budget | |
| extends efficiencies from Medicare competitive bidding for durable | |
| medical equipment to Medicaid, and prohibits brand and generic drug | |
| companies from delaying the availability of new generic drugs (``pay- | |
| for-delay ''). | |
| <bullet> At the same time, these health savings pay for two years | |
| of relief from the Sustainable Growth Rate (SGR) formula--preventing a | |
| decrease of nearly 30 percent in physician payments that would hurt | |
| Medicare. This paid-for extension is on top of the three previous paid- | |
| for extensions of the SGR fix, including the one-year extension enacted | |
| in December, establishing a pattern of practice that we hope to | |
| continue as we work with Congress to achieve a permanent fix. | |
| <bullet> Fully implementing the Affordable Care Act achieves cost | |
| savings and promotes efficient care, including reimbursing doctors and | |
| hospitals as Accountable Care Organizations, and adjusting payments to | |
| hospitals with high readmissions or hospital-acquired conditions. | |
| Implementing the Act also has the potential to fundamentally transform | |
| our health system into one that delivers better care at lower cost--a | |
| potential that is not fully captured in the ACA savings estimates. In | |
| particular, the Act incorporates the most promising ideas from | |
| economists and leaders from across the political spectrum to control | |
| health care costs. | |
| <bullet> The President's Budget includes $250 million in grants to | |
| States to reform their laws on medical malpractice through various | |
| approaches such as health courts, safe harbors, early disclosure and | |
| offer programs, or other legal reforms. These grants would be awarded | |
| and administered by the Bureau of Justice Assistance (BJA) in | |
| consultation with the Department of Health and Human Services. The goal | |
| of any reform would be to fairly compensate patients who are harmed by | |
| negligence, reduce providers' insurance premiums, weed out frivolous | |
| lawsuits, improve the quality of health care, and reduce medical costs | |
| associated with ``defensive medicine.'' This proposal is in line with | |
| the Fiscal commission's recommendation for ``an aggressive set of | |
| reforms to the tort system.'' | |
| Make a Down Payment on Tax Reform. To foster a competitive economy, | |
| we must have sensible and affordable tax policy that is consistent with | |
| our overall objectives of deficit reduction and economic growth. Since | |
| the last comprehensive overhaul nearly three decades ago, the tax code | |
| has been weighed down with revenue-side spending in the form of special | |
| deductions, credits, and other tax expenditures that do little for | |
| middle income families, and burdened with generous upper income tax | |
| cuts and more generous estate tax cuts for families making more than | |
| $250,000 a year. To compete and win in the world economy, we cannot | |
| sustain a tax code burdened with these unaffordable benefits. This is | |
| why the President has called on the Congress to undertake a fundamental | |
| reform of our tax system. As progress towards this goal, the Budget | |
| calls for: | |
| <bullet> Allowing the 2001 and 2003 High-Income and Estate Tax Cuts | |
| to Expire. The Administration remains opposed to the permanent | |
| extension of these high-income tax cuts past 2012, as now scheduled, | |
| and supports the return of estate tax to 2009 rates and exemption | |
| levels. These policies save nearly a trillion dollars over the decade | |
| including interest effects. We cannot afford these unpaid-for tax | |
| breaks for the wealthiest Americans and we are committed to limiting | |
| the current extension to two years. | |
| <bullet> Beginning the Process of Corporate Tax Reform. The United | |
| States has the highest corporate tax rate in the world. Part of the | |
| reason for this is the proliferation of tax breaks and loopholes | |
| written to benefit a particular company or industry. The result is a | |
| tax code that makes our businesses and our economy less competitive as | |
| a whole. The President is calling on Congress to work with the | |
| Administration on corporate tax reform that would simplify the system, | |
| eliminate these special interest loopholes, level the playing field, | |
| and use the savings to lower the corporate tax rate for the first time | |
| in 25 years--and do so without adding a dime to our deficit. | |
| <bullet> Paying for the Alternative Minimum Tax (AMT). This Budget | |
| provides for a three year extension of AMT relief, and is offset by an | |
| across-the-board 30 percent reduction in itemized deductions for high- | |
| income taxpayers. This is the first time an extension of AMT relief has | |
| been fully paid for. While our base projections do not assume that we | |
| continue to pay for AMT relief after 2014, the President is committed | |
| to working with Congress to fully pay for AMT relief beyond this | |
| window. Doing so reduces the deficit by an additional 1 percent of GDP | |
| by the end of the decade relative to the deficit reduction in the | |
| Budget. | |
| Take Steps Now to Reduce Future Liabilities. Looming debts and | |
| unfunded liabilities can put taxpayers on the line for bailing out | |
| programs in the future. The Budget promotes fiscal stewardship by | |
| restoring responsibility to key areas. First, the Budget proposes to | |
| give the Pension Benefit Guaranty Corporation (PBGC) Board the ability | |
| to adjust premiums and directs PBGC to take into account the risks that | |
| different sponsors pose to their retirees and to PBGC. This will both | |
| encourage companies to fully fund their pension benefits and give the | |
| PBGC the tools to improve its financial soundness without over- | |
| burdening the companies it ensures, saving $16 billion over next | |
| decade. Second, the 2012 Budget provides short-term relief to States by | |
| providing a two-year suspension of State interest payments on their | |
| debt and automatic increases in Federal unemployment insurance (UI) | |
| taxes. At the same time, the Budget proposes steps to encourage States | |
| to put their UI systems on firmer financial footing and pay back what | |
| they owe to the Federal government. Beginning in 2014, the Budget | |
| increases the minimum wages states can subject to unemployment taxes to | |
| $15,000. Finally, the Budget proposes to gradually reduce the loan | |
| portfolios and eligible loan sizes of Fannie Mae and Freddie Mac and | |
| end the conservatorship of these companies, scaling back government | |
| support in a way that allows private capital to return without | |
| undermining the housing market recovery. | |
| Begin a Dialogue on Social Security Solvency. The President | |
| considers Social Security to be one of our most successful programs, | |
| and indispensable to workers, people with disabilities, seniors, and | |
| survivors. The President has been clear that we need to strengthen | |
| Social Security to make sure that Social Security is sound and reliable | |
| for the American people, now and in the future. The Budget lays out the | |
| President's principles: Reform should strengthen the program and its | |
| protections for the most vulnerable, without putting at risk current | |
| retirees and people with disabilities, without slashing benefits for | |
| future generations, and without subjecting American's guaranteed | |
| retirement income to the whims of the stock market. The President | |
| believes that the best way forward is for leaders of both parties to | |
| come together to discuss the way forward on a bipartisan basis. | |
| Social Security is not contributing to our deficit any time soon. | |
| Our goal is to make sure that current and future generations are | |
| assured that the system will remain sound for the long term as well--to | |
| provide the peace of mind that is one of the important benefits of | |
| insurance. | |
| a way forward | |
| There has been a vibrant national conversation on fiscal | |
| responsibility over the past several months. The President's Fiscal | |
| Commission made important progress in launching a serious bipartisan | |
| discussion last year, and I commend them for resetting the debate on | |
| further deficit reduction. While the President has not embraced all of | |
| their proposals, many of them are included in this year's Budget. | |
| Federal employee pay freezes, medical malpractice reform, a call for | |
| government reorganization, and the elimination of in-school subsidies | |
| for graduate student loans are just a few examples. Our Terminations, | |
| Reductions, and Savings volume includes numerous proposals that were | |
| also recommended for termination or reduction by the Fiscal Commission. | |
| And like the Commission, we make proposals to improve budget | |
| discipline, including subjecting the Transportation Trust Fund to PAYGO | |
| rules and providing for program integrity cap adjustments. We must take | |
| serious steps to both cut spending and cut deficits. We must address | |
| these issues in a bipartisan way. And we must do so in a way that is | |
| consistent with our core values. | |
| The Fiscal Commission was clear that that the only way to tackle | |
| our deficit is to cut excessive spending wherever we find it--in | |
| domestic spending, defense spending, health care spending, and spending | |
| through tax breaks and loopholes. Now that the worst of the recession | |
| is over, we have to confront the fact that our government spends more | |
| than it takes in. That is not sustainable and we need a comprehensive | |
| approach | |
| The five year non-security freeze achieves significant savings with | |
| a dramatic reduction in discretionary spending over the coming decade, | |
| and it will require commitment from both the Administration and | |
| Congress to live within that framework. But we have to remember that | |
| this category of spending represents a little more than 12 percent of | |
| our Budget. To make further progress, we cannot pretend that cutting | |
| this kind of spending alone will be enough. Looking forward, we will | |
| have to make hard decisions to further reduce health care costs, | |
| including programs like Medicare and Medicaid, which are the single | |
| biggest contributor to our long-term deficit. Health insurance reform | |
| will slow these rising costs, which is part of why nonpartisan | |
| economists have said that repealing the health care law would add a | |
| quarter of a trillion dollars to our deficit. Still, we need to look at | |
| other ideas to bring down costs, and the proposals in this year's | |
| Budget are a first step. And we cannot afford a permanent extension of | |
| the tax cuts for the wealthiest two percent of Americans if we are | |
| committed to achieving a sustainable deficit. | |
| This Budget builds on the work of the last two years, and makes a | |
| down payment on a strong American future. Much work remains to be done. | |
| We need to take steps to reduce our future liabilities. And we need to | |
| work to shape our government into one that is more affordable, more | |
| effective, and more efficient. | |
| I look forward to working with both houses of Congress in the | |
| coming months as we work to put our fiscal path back on a sustainable | |
| course. | |
| Chairman Ryan. Thank you. Mr. Lew, before I get into this, | |
| how long do we have you for? I understand you have to testify | |
| over in the Senate later this afternoon. | |
| Mr. Lew. I believe we have until 12:30. | |
| Chairman Ryan. But a little bit longer than that, since you | |
| were a little late, how does that sound? | |
| Mr. Lew. I apologize for being late. I hadn't allowed for | |
| the new security rules. | |
| Chairman Ryan. No, don't apologize. I am just trying to | |
| manage time so everybody gets a shot at their questions. | |
| Mr. Lew. Actually, Mr. Chairman, the issue was, the | |
| gentleman in front of me in line had to take his shoes off as | |
| he went through the metal detector, and it took a few minutes. | |
| Chairman Ryan. Okay. I am reading in the Washington Post | |
| today, an editorial board which is, you know, more often | |
| thought as favorable toward the administration's point of view, | |
| quote, the title of the editorial is, President Obama's Budget | |
| Kicks the Hard Choices Further Down the Road, quote, The | |
| President punted. Having been given the chance, the cover and | |
| the push by the Fiscal Commission he created to take bold steps | |
| to raise revenue and curb entitlement spending, President | |
| Obama, in his fiscal 2012 budget proposal, chose instead to | |
| duck. To duck, and to mask some of the ducking with the sort of | |
| budgetary gimmicks he once derided. | |
| We just heard from the Congressional Budget Office director | |
| and the chairman of the Federal Reserve, one of the best things | |
| we can do for the economy today is put in place a plan that | |
| gets this deficit and debt under control. Why did you duck? If | |
| George Bush brought this budget to the House, I would say the | |
| exact same thing. You know the drivers of our debt, you | |
| understand the issues. I think the fact that the President even | |
| gave us this Fiscal Commission to start with acknowledged, we | |
| agree on the size and the scope and the nature of the problem. | |
| Why did you duck, why are you not taking this opportunity to | |
| lead? | |
| Mr. Lew. Mr. Chairman, I think the President's budget, if | |
| you look at the bottom line, addresses the fiscal challenges | |
| that we face in the short and the medium-term, and he has | |
| called it a down-payment, acknowledging that we need to work | |
| together in the long-term. If you look at what the mandate of | |
| the Fiscal Commission was, it was to bring the deficit down to | |
| three percent of GDP by the middle of the decade. Our budget | |
| does that. | |
| Surely there are things in our budget that we will have | |
| disagreements about. I know that we are going to have a serious | |
| debate about priorities. But the President's budget | |
| accomplishes the goal. And I think if you look at the budget, | |
| it does it with some very, very tough decisions. The spending | |
| reductions are very real, the revenue provisions are very real, | |
| and the mandatory savings are very real. There certainly are | |
| other things that we will need to work on together to address | |
| the long-term challenges, but if our goal is to get to a | |
| sustainable deficit by 2015, I think the President's budget | |
| puts down a comprehensive deficit reduction path. | |
| Chairman Ryan. Okay, using your own table S-4 on page 176 | |
| of your budget, you don't get the primary balance in your own | |
| numbers until 2017, and then immediately thereafter you have | |
| more problems. | |
| Mr. Lew. So, let us look at S-4. If you look at S-4, where | |
| it starts, the deficit is 10.9 percent of GDP. It comes down to | |
| 3.2 percent of GDP in 2015. We then stay between 2.9 and 3.2, | |
| 3.3, in that area around three percent of GDP for the rest of | |
| the decade, and if you had a series that went beyond, it would | |
| go on for years beyond that. I think it is a mistake to think | |
| of three percent of GDP as a bulls-eye. I think if you compare | |
| 10.9 percent to 3.2 or 3.1 or 3.0, it is a world of difference. | |
| And I think we achieved primary balance in this budget. | |
| Chairman Ryan. So let us get into what is behind that | |
| primary balance, behind your claims of balance. And I can go | |
| through the tables. Am I correct that the budget proposes | |
| revenues that are $819 billion greater than your current policy | |
| baseline, and that within your policy baseline, you have an | |
| $807 billion, 10-year tax increase built into it, because it | |
| assumes the expiration of the 2001 and 2003 tax cuts for higher | |
| income earners, and assumes the estate tax reverts back to 2009 | |
| level? Am I correct that that is what your baseline assumes? | |
| Mr. Lew. Mr. Chairman, our baseline assumes, consistent | |
| with where there was bipartisan agreement in December, that we | |
| would permanently extend the middle class tax cuts, and that we | |
| would have estate tax relief. We did not have long term | |
| agreement on the upper income rates, or on the richer estate | |
| tax relief. | |
| Chairman Ryan. I just wanted to make sure we have an equal | |
| understanding. | |
| Mr. Lew. Yeah. We tried to construct a baseline so that the | |
| difference would be clear. | |
| Chairman Ryan. So, adding the additions in the baseline | |
| revenue increases, that is about $1.6 trillion in additional | |
| revenues from where we are today, correct? | |
| Mr. Lew. Well, the upper-income tax cut is $709 billion, | |
| and the estate provision is $98, and then there is some debt | |
| service on top of that. | |
| Chairman Ryan. Right, so 1.6, okay. | |
| Mr. Lew. It is 953, actually, I believe. | |
| Chairman Ryan. What about debt service? | |
| Mr. Lew. It is 709 for the upper-income, 98 for the estate, | |
| and 147 in debt service. | |
| Chairman Ryan. So, let me get to this because you have to | |
| go, and I have a lot of questions, and I am going to send you | |
| more. Your economic assumptions, which are how you achieve | |
| primary balance, which is how you achieve the claims you are | |
| making. I want to walk you through this and ask you why you | |
| make these economic assumptions. | |
| You are expecting very robust growth in the coming years. | |
| Your forecast calls for real GDP growth well above four percent | |
| in 2013 and 2014, much, much higher than the private sector | |
| Blue Chip consensus or Congressional Budget Office, but I find | |
| it interesting that 2013 also marks the year where you are | |
| calling for a big rise in taxes across all segments of our | |
| economy. You basically are raising taxes on successful small | |
| businesses, on investment, as part of the expiration of the | |
| 2001-2003 tax cuts and the health care tax cuts. Specifically, | |
| there is a new 3.8 tax increase on investment. As of 2013, the | |
| top income tax rate will rise from its current level of 35 | |
| percent all the way to 44.8 percent. The tax on dividends could | |
| triple from its current level of 15 percent to 45.4 percent. | |
| And the tax on capital gains will rise from 15 percent to 23.8 | |
| percent. | |
| But you are calling for robust economic growth in that very | |
| year. Do you think that the tax increases that you are planning | |
| on in 2013 on mostly successful small businesses in the | |
| investment community in America, on job creators; you think it | |
| is not going to impact the economy? You think that is the year | |
| when the economy takes off? Because if it doesn't, then you | |
| never reach primary balance, as you are claiming. | |
| Mr. Lew. Mr. Chairman, there was, in December, an agreement | |
| that we should extend certain tax provisions for two years. And | |
| there are some provisions that do take effect, or go out of | |
| effect, because of that. I think if you look at our economic | |
| assumptions, the economic assumptions in the short-term are | |
| actually a little bit more pessimistic than some of the outside | |
| observers. In the long-term they are a little bit more | |
| optimistic, and it is driven by one key difference, which is an | |
| important conceptual difference. The question is will we | |
| recover from this recession the way we have recovered from past | |
| recessions? | |
| If you look historically, financially-led recessions have | |
| had slightly longer periods of recovery, but in the end we get | |
| back to where the economy would have been. We assume that that | |
| is the case. We are within the range of recoveries from past | |
| financially-led recessions, and we think that they are very | |
| prudent, reasonable assumptions. Undoubtedly, and I apologize I | |
| am a lawyer not an economist, so I could get into a level of | |
| detail here which is probably beyond my own training. But | |
| economists can disagree about what year it would happen and | |
| they can disagree about whether or not we will get back to what | |
| was the potential GDP before. We think it is the right thing to | |
| do, to get our economy back. That is one of the reasons we have | |
| put forward a budget that invests in the things that it takes | |
| to keep growing the economy; and we think that education, | |
| innovation, and infrastructure are key to it. | |
| Chairman Ryan. Here is what does not add up to me; you are | |
| saying, in 2013, you are going to have economic growth 1.3 | |
| percent higher than what the Congressional Budget Office | |
| believes, 1.4 percentage points higher than what the Blue Chip | |
| believes, and you are claiming this explosion of growth in a | |
| year where you are raising taxes across the board on | |
| entrepreneurs, small businesses, investors, investment. | |
| History doesn't square with your comments. And if we are | |
| right and you are wrong about this, then you will never reach | |
| primary balance. The $1.7 trillion you are claiming in extra | |
| revenue because of the higher economic growth, you are claiming | |
| above and beyond what the Congressional Budget Office claims, | |
| doesn't materialize then, and we are in a world of trouble. | |
| And I will just finish with this. What is so frustrating | |
| about this is, you know the drivers of our debt are the | |
| entitlement programs. And yet, you are doing nothing to address | |
| that. We are in different parties; that is fine. But when | |
| people elect a President, they expect a President to lead, to | |
| take on the country's biggest challenges before they become | |
| actual crises. And we all know that this debt is becoming a | |
| crisis. And you are not even touching these programs. You are | |
| assuming the economy is going to take off in a year in which | |
| you are raising taxes everywhere, all over the economy. And if | |
| your math doesn't add up, then we are all in a world of hurt, | |
| and this will cost us jobs. | |
| Mr. Lew. Mr. Chairman, if you look at tax provisions, the | |
| vast majority of the revenues that you are talking about are | |
| associated with the tax rate at the top end; the tax rates for | |
| people who earn $250,000 a year or more. I would just note | |
| that, during the last administration I served, and during the | |
| Clinton Administration, at those tax rates we had the longest | |
| period of uninterrupted growth in American history. So they are | |
| not tax rates that have been historically challenging to | |
| growth. If you look inside our budget, where there are new | |
| proposals, we have a lot of tax cut proposals that are designed | |
| to promote the kinds of investment that we need in this | |
| country. And we, net, have $360 billion of new revenue. So it | |
| doesn't amount to a large amount in 2013. | |
| Chairman Ryan. Yeah. I don't know where you are from, but | |
| where I come from, most of our jobs come from successful small | |
| businesses. In Wisconsin, you drive to any city, and there is | |
| going to be an industrial park with a Sub-S, a LLC with 100, | |
| maybe 200, 300 employees. They file taxes as individuals. Most | |
| of the top tax rate is actually small businesses. And when we | |
| are taxing our small businesses at rates above 50 percent in | |
| most states, like Wisconsin, 44.8 percent in this country, | |
| where most of our competitors are taxing their businesses at | |
| rates lower than we are, how do we expect to win global | |
| competition? How do we expect to create jobs when we are taxing | |
| the engine of economic growth and job creation, small | |
| businesses, at rates in excess of 50 percent in most states? | |
| Mr. Lew. I think that if we look at who are the taxpayers | |
| in that class, at $250,000 or above, and where the revenue | |
| goes. I am from New York, a lot of it goes to finance and a lot | |
| of it goes to law. And I think that it is not the case that the | |
| top rate is something that is principally a small business | |
| issue. I think that we have a lot of tax proposals that would | |
| make taxes easier for small businesses. The right way to target | |
| small business is to make sure that we do the things that are | |
| targeted to investment, and not to the kinds of income that | |
| drives people into that top bracket, in the most cases. | |
| Chairman Ryan. All right. Mr. Van Hollen. | |
| Mr. Van Hollen. Thank you, Mr. Chairman. Director Lew, as I | |
| indicated in my opening statement, I think it is an important | |
| achievement that in this budget you reach primary balance by | |
| the year 2017 and begin to stabilize the problem. But I also | |
| indicated that I think we all need to work together, especially | |
| to take actions, now, to deal with what are going to be | |
| projected deficits in the next 20 years, and I think that | |
| conversation should begin now. | |
| But I do want to point out that this is not easy to do when | |
| you have dug yourself as a country in a deep hole, digging | |
| itself out, that there are other alternatives out there. And | |
| the Chairman of the Committee has put forward an alternative | |
| road map, in good faith, in a sincere effort to reduce the | |
| deficit. So it is in that spirit that I just want to point out | |
| that when the Congressional Budget Office, last January, scored | |
| that budget proposal, that deficit proposal, that they | |
| indicated that in the year 2020, the deficit would be 3.7 | |
| percent of GDP. And that the budget would not be in primary | |
| balance under that plan, as of that day. And that, in fact, if | |
| you go out another 20 years, until 2040, the deficit in percent | |
| of GDP is 4.5 percent, and the budget is just then getting into | |
| primary balance. | |
| And I point that out, Mr. Chairman, to show you how hard it | |
| is. As some criticize the President's effort, just recognize | |
| that other sincere efforts that were made actually brought the | |
| deficit into primary balance later than the President's budget. | |
| And there are going to be conversations about different | |
| assumptions, but my point is, these deficit numbers were the | |
| result of a good faith effort, and I think the President has | |
| made a good faith effort. We do all need to get together. | |
| Now I want to discuss the longer-term outlook. I want to | |
| discuss what is happening today on the floor as it draws | |
| contrast with the approach that the Obama Administration is | |
| taken with respect to the deficit. As you indicated, you are | |
| talking about significant cuts in domestic discretionary | |
| spending. As you know from listening to many of my colleagues, | |
| these are going to have a real impact, and a painful impact on | |
| many people's lives. But you have decided that, in order to get | |
| deficit under control, we are going to have to make these tough | |
| decisions, and we agree. | |
| At the same time, today on the floor, there are proposals | |
| to cut immediately and deeply. I just want to read to you a | |
| statement from the President's Bipartisan Deficit Commission, | |
| that we are hearing lots of positive things about, from our | |
| colleagues, about their recommendations and approach. Here is | |
| what they said, and I quote, In order to avoid shocking the | |
| fragile economy, the commission recommends waiting until 2012 | |
| to begin enacting programmatic spending cuts. | |
| Another bipartisan commission, the Rivlin-Domenici | |
| Commission, rendered the same advice. Mark Zandi and other | |
| economists have indicated that deep, immediate cuts, in | |
| contrast to responsible and planned cuts over a period of time, | |
| those deep, immediate cuts, could harm the fragile economy, and | |
| hurt job growth. If you could please comment on the proposals | |
| today, for very deep and very immediate cuts and the impact | |
| they would have on the economy and job growth, in your opinion. | |
| Mr. Lew. Mr. Van Hollen, I think we have a tough balance | |
| that we have to strike. We agree that it would be a mistake to | |
| do drastic deficit reduction in this year that we are in, | |
| beginning in next year. We had bipartisan agreement in December | |
| on the tax bill, largely because of the concern that we needed | |
| to keep the economy moving, that we couldn't afford the drag | |
| that a tax increase in January would have had. At the same | |
| time, we need to focus on reducing spending, we need to focus | |
| on making decisions that will turn the corner on the deficit, | |
| and we can't really wait years to do that. | |
| I think our budget has a frame that we think is the right | |
| frame for making the tough trade-offs. And we are going to have | |
| to work, as we go through the remainder of the legislation for | |
| fiscal year 2011, and then as we work together on next year, to | |
| come up with the right balance. I think it is important that we | |
| have the right balance. You don't need to make the kinds of | |
| cuts that you are describing in order to get on the right path, | |
| but you do need to tighten the belt, which is what our budget | |
| is saying. | |
| And we are watching carefully as the House continues work. | |
| We will be working with the House and the Senate, and then | |
| ultimately together, to do the responsible thing and fund the | |
| government. But I think it is a question of not mixing too many | |
| things together. The long-term challenge is what we have got to | |
| keep our eye on. When I say long-term, in this window of the | |
| next 10 years, we have got to look to the middle of the decade. | |
| And are we on a path towards getting down to a deficit where we | |
| stop adding to the debt? That is what we have tried to do with | |
| the budget. | |
| Mr. Van Hollen. Some of our Republican colleagues have | |
| indicated that, if they don't get their way, in terms of these | |
| very deep and immediate cuts that could harm the economy, that | |
| if they don't get their way on those cuts, that they would shut | |
| down the government. Now, we have seen this movie before, I | |
| know you have. If you could just make clear what some of the | |
| impacts of that would be on things like the Social Security | |
| Administration and other essential functions of government. | |
| Mr. Lew. Well, I take the Congressional leadership at their | |
| word, that we all want to avoid a situation like that. It is | |
| not the right way to run the government, and I think we have a | |
| broad agreement that we have to keep essential services going. | |
| When the government shut down in the mid-1990s, it was very | |
| unpleasant. It was unpleasant when people needed to apply for | |
| passports because a relative was ill or passed away overseas, | |
| and they couldn't get a passport. People started to appreciate | |
| things that they just took for granted, but when the government | |
| shut down, they stopped. | |
| I hope we don't get to the point where we have to go | |
| through that again. And I think if we all work together in a | |
| bipartisan way to look for the things we can agree on, and take | |
| some of the things that we can't agree on, and put them off to | |
| the side, we can accomplish a great deal. | |
| Chairman Ryan. Thank you, Mr. Van Hollen. I will just | |
| simply say for the record, it is not our desire to see the | |
| government shut down, but equally we don't want to rubber-stamp | |
| these elevated spending levels. We want to see a beginning of a | |
| down-payment on spending reductions. With that, Mr. Simpson. | |
| Mr. Simpson. Thank you, Mr. Chairman, and I would just | |
| reiterate what you just said. It is nobody's desire to shut | |
| down the government; what we want to do is reduce spending. And | |
| that is what we are trying to do with the budget that we are | |
| bringing to the floor. Everybody talks about draconian cuts. | |
| You have got to remember, this is on top of enormous increases | |
| that have occurred over the last couple of years, so it is not | |
| as draconian as a lot of people would like. But I appreciate | |
| your testimony; I appreciate your hard work on this budget. I | |
| know it is hard to put together a budget, even if it is one | |
| that most people, I want to say this respectfully, but most | |
| people don't take seriously. | |
| Most people don't think this is ever going to be enacted. | |
| All the right words are used. I think the Ranking Member said, | |
| this is a tough-love budget. If this was the tough-love that my | |
| father had shown me when I was young, I would still be a | |
| juvenile delinquent. Some people think I still am; I understand | |
| that. | |
| I have heard that we have to make tough choices; they are | |
| going to be necessary. We have to live within our means. Let me | |
| ask you, this budget, theoretically, goes to balance in, what, | |
| 16 years? | |
| Mr. Lew. Well, it is going to take a long time to go to | |
| balance, we first have to stabilize the debt. | |
| Mr. Simpson. Is there ever a balance projected out there? | |
| Mr. Lew. To get to balance will require a set of decisions | |
| that are beyond what anyone is discussing right now. | |
| Mr. Simpson. Why is no one discussing that? | |
| Mr. Lew. Well, I will tell you the last time I testified | |
| before this committee, I presented a balanced budget with a | |
| surplus. I understand what it takes to get to a balanced | |
| budget. We have gone through 10 years of a combination of | |
| things that have driven the deficit up. We have had an economic | |
| crisis, but we also had decisions to not pay for what we were | |
| doing. We now have to deal with the results of that, and it is | |
| not going to be a quick process. I know that I left things in | |
| pretty good shape 10 years ago, and I look forward to leaving | |
| things in better shape when I am done this time. | |
| Mr. Simpson. I do not deny that you did. We have a tendency | |
| in this committee to sit and look back at certain indicators | |
| that prove our point of view. All of those don't really matter. | |
| What matters is where we are today, and where we are going to | |
| be in the future. And what the American people are saying is, | |
| get your fiscal house in order. I don't see this getting our | |
| fiscal house in order. I have noticed that everybody says, Well | |
| we are going to have $400 billion in cuts and savings in this | |
| budget, like that is some big deal. Four-hundred billion | |
| dollars, yeah it is a lot of money, that is over 10 years, | |
| right? | |
| Mr. Lew. Yes. | |
| Mr. Simpson. That is like $40 billion a year. The budget | |
| this year's proposal is $3.73 trillion? Forty billion in | |
| savings? Less than one percent, or around one percent in | |
| savings? This is not tough-love. This is continuing the path we | |
| are currently on with no future balanced budget ever, in this | |
| proposal, and the American people are rejecting it, frankly. | |
| Mr. Lew. Congressman, let me just say a couple things. | |
| First, we have put what we believe to be a very serious | |
| proposal, it is comprehensive, forward. We don't think we have | |
| a monopoly on all knowledge and wisdom; we look forward to | |
| seeing the ideas that are put forward. And when you put forward | |
| a budget that reduces the deficit, I am sure there will be | |
| things in it that we can agree on, there will be things that we | |
| can't agree on. This is the first step in the process. I know | |
| that it is easy for pundits on the outside to dismiss the | |
| starting point, but the President's budget is the starting | |
| point. It is a frame, it is a comprehensive frame. And I think | |
| that it does achieve something very important, which is it | |
| stabilizes the deficit at three percent of GDP by the middle of | |
| the decade, and while I totally agree that we need to be on a | |
| path that goes beyond that, and I wish we were on a path where | |
| we could, together, talk about balance. Until we stop adding to | |
| the national debt, we can't talk about getting to balance, and | |
| this budget would get you there. | |
| We won't agree on all the details. And I know that some of | |
| the actions that have been taken in this House do cut spending. | |
| I haven't seen the actions yet that reduce the deficit. And I | |
| look forward to that. I know that it is the beginning of the | |
| process, and we will work together when we see your proposals. | |
| Mr. Simpson. Well we all understand that you are not going | |
| to get to balance by simply cutting spending. The spending is a | |
| portion of how you get there. You also have to look at the | |
| entitlement programs which this budget totally left out, in | |
| terms of reform of the entitlement programs. And everyone, I | |
| think the American people understand, that we have to address | |
| entitlement reform, and leadership has to come from the White | |
| House to do that, quite frankly. | |
| Mr. Lew. Congressman, we agree that we need to reduce | |
| spending. I think if you look in this budget, this is possibly | |
| the toughest budget that certainly a Democratic President has | |
| ever put forward, cutting things that are very, very important | |
| priorities, things that many of us have worked for decades to | |
| grow. We have said we have got to tighten our belt; we have got | |
| to do what every American family does and make the tough | |
| choices. So I think there are real tough choices in this | |
| budget. I don't think that it is fair to say that we haven't | |
| dealt with entitlements. We certainly haven't dealt completely | |
| with entitlements, but $62 billion of savings to pay for | |
| Medicare in the next two years is something. It is real, it is | |
| a first step, it is a down-payment. | |
| I think that if we are going to work together on | |
| entitlements, we also have to acknowledge that Social Security | |
| is not driving the deficit between now and 2021. You know, I | |
| worked on Social Security Reform. In 1983 I was working on the | |
| reform bill. So I deeply, deeply believe that we have an | |
| obligation to current workers, to future retirees, to current | |
| retirees, to have a system that is sound and reliable for | |
| decades and decades to come. But it is not contributing to the | |
| short-term deficit. We should do it because it is the right | |
| thing to do. | |
| Mr. Simpson. Right. Appreciate it, thank you. | |
| Chairman Ryan. Ms. Schwartz. | |
| Ms. Schwartz. Thank you very much. Good to have you here | |
| and thank you for your good work on this first budget that you | |
| are presenting. And I appreciate, and it was more in your | |
| written remarks than what you said here, but you reference, you | |
| did reference how we got here. And I don't want to dwell on | |
| this, but I appreciate the fact that you laid out very, very | |
| clearly that the national debt and the economic crisis that the | |
| President inherited. And the work that the President and the | |
| Democratic Congress did in the last two years to bring us out | |
| of what was obviously a really deep, really broad, and in many | |
| cases, devastating recession for this country. But being clear | |
| that the President inherited a $10 trillion debt; this didn't | |
| all happen in the last two years. And of course, the recession | |
| actually meant that there were few people paying taxes, too; so | |
| this reduced our revenues. | |
| The President's budget really does, I believe, make very | |
| clear that we can't accept the status quo; that where we have | |
| gotten to is a better place. We are beginning to see a growth | |
| in the economy, beginning to see some growth in jobs, which is | |
| good, and we just can't sit on our hands. Nor do I think that | |
| we, and I think you have rejected this, the notion that we can | |
| get to a place where we can balance the budget and grow the | |
| economy simply by spending cuts. My Republican colleague did | |
| acknowledge that, and I appreciate that, because that is their | |
| proposal right now. The only thing we can do is spending cuts, | |
| and actually tax cuts, but that alone is not going to get us | |
| there. And that is what is being presented by the Republican | |
| majority. | |
| But I also will agree, those made by the Republican side, | |
| that budgets are about priorities and values, and I think this | |
| is something that the President has made very clear: that we | |
| cannot only focus on deficit reduction. We need to reduce the | |
| deficit, but if we are going to grow the economy, put people | |
| back to work, then we have to invest in the future. And that is | |
| what I wanted to ask you about. I wanted to acknowledge, of | |
| course, that the budget does reduce the deficit by $1.1 | |
| trillion, and that is real money for most of us. And it is not | |
| easy to get there. And it brings fiscal stability to the nation | |
| in 2017, primary balance, again none of this is easy. | |
| But the budget also does make strategic investments in the | |
| future. For many of us in our districts across the country, if | |
| we are going to see growth in this economy, the focus on | |
| energy, on innovation, on education, on infrastructure, is | |
| important. And every business I talk to says to me, We need, we | |
| look at, we locate, do we have incentives for innovation? Do we | |
| have the kind of infrastructure that allows us to move our | |
| products and our workforce? Is there an educated workforce? | |
| They ask about taxes, too. But they want to know, and it starts | |
| with, where is the infrastructure? Where are the advantages for | |
| innovation? | |
| And so, I think we need to talk about that. Because | |
| otherwise we are really just looking at a slash-and-burn, | |
| willy-nilly, let us just cut spending right now. And again, the | |
| Budget Deficit Commission said, not a good idea in a fragile | |
| economy. So I would like you to elaborate a bit on the tax | |
| credits that are available to businesses to incentivize | |
| research and development, key to our growth. Because it is the | |
| private sector in this country that does create the new | |
| discoveries, the new technologies, the new products. But they | |
| often look to us for that helping hand. | |
| Mr. Lew. Thank you. I think that, if you were to ask most | |
| businesses that are in the high technology area, what is the | |
| single thing we could do that would give them stability looking | |
| forward, it would be to make permanent the R&D Tax Credit. The | |
| uncertainty from year to year is a very difficult way to do | |
| business. And while, in Washington, there is a kind of | |
| conventional wisdom that we know it will be extended because it | |
| has to be extended, if you are a business person trying to make | |
| a decision, trying to go get financing, trying to get | |
| investors, having that ambiguity out there can be life or death | |
| as far as your business is concerned. So I think, putting in | |
| our budget a permanent extension in the context of a fiscal | |
| policy that pays for it, is very important. | |
| I think it is also important to remember that there is a | |
| role for government-funded programs and tax support in R&D. | |
| Basic research in this country has really been very much | |
| enhanced by what we do at the National Institutes of Health, | |
| what we do in the National Science Foundation, what we do in | |
| the Department of Energy, and what has made us the leaders in | |
| innovation is that the technology that is discovered in places | |
| where, frankly, the risk should be shared by all of us, it is | |
| then handed off to a private sector that has the capacity to | |
| implement it more effectively than any other in the world. And | |
| we have tried to balance that. | |
| Chairman Ryan. I hate to cut you off, but I just want to | |
| make sure that every member gets a chance, and it is way over | |
| the five minute limit. | |
| Ms. Schwartz. I appreciate your comments; we will keep | |
| working together on that. Thank you. | |
| Chairman Ryan. Mr. Campbell. | |
| Mr. Campbell. Thank you, Mr. Chairman, and welcome, | |
| Director Lew. | |
| Mr. Lew. Thank you. | |
| Mr. Campbell. In your budget, you propose to increase | |
| federal civilian employment outside of the Department of | |
| Defense by 22,400 people in the coming fiscal year, 2012. | |
| Seriously, you want to increase the number of federal employees | |
| now? | |
| Mr. Lew. Well, we have an awful lot of agencies that are | |
| going down. The increases are very much concentrated in areas | |
| where there are new missions, and they are missions that, I | |
| think, are shared concerns. If we put in place new screening | |
| procedures at our airports, and we put in the machinery so that | |
| we can make sure that no one gets on an airplane with an | |
| explosive. We also need to have the inspectors there, who run | |
| the machines, who know what is in them. I think if you go | |
| through the increases, they are very heavily in areas where | |
| there are new missions that we are undertaking, and I am happy | |
| to get back to you after and go through some of them. | |
| Mr. Campbell. Okay, so you do propose to increase by | |
| 22,000? | |
| Mr. Lew. No, in general, if you look through the budget, | |
| there are a lot of agencies that go down, so we don't have a | |
| general approach. | |
| Mr. Campbell. Twenty-two thousand, four-hundred is the net | |
| increase outside of defense. Another question, Your | |
| predecessor, Dr. Orszag, before this committee on several | |
| occasions, said that the current fiscal trajectory of the | |
| country was unsustainable. Do you share that view? | |
| Mr. Lew. I think this budget stands for the principle that | |
| we have to get our fiscal house in order, and that we have to | |
| take seriously stopping the practice of treating deficits like | |
| they don't matter. And we have put a plan forward that would | |
| get us to primary balance by the middle of the decade. That was | |
| the challenge that he was describing ahead of us at the time. | |
| Mr. Campbell. Absent this budget, you agree that the | |
| current trajectory is unsustainable? | |
| Mr. Lew. If you look at what is driving the deficit down, | |
| part of it is getting the economy moving again. | |
| Mr. Campbell. Director Lew, I understand you are a lawyer, | |
| but is it unsustainable? That word is used by a lot of people. | |
| Mr. Lew. I was going to answer your question; I just need | |
| to break it into the pieces in order to answer your question. | |
| We need to keep the economy growing in order to not have an | |
| unsustainable deficit, because the kind of financial crisis we | |
| are in, the recession, creates enormous problems in our fiscal | |
| policy. We have got policies in place to do that, but then we | |
| can't stay at deficits that are five percent of GDP, which is | |
| roughly where we would be if we didn't make policy. We need to | |
| make policy to bring it down so we can get to primary balance. | |
| We have done that, and I do think that that is what we have to | |
| do to have a sustainable fiscal policy. | |
| Mr. Campbell. So is this budget sustainable? Does it solve | |
| the problem? | |
| Mr. Lew. Those are two different issues. Sustainable is a | |
| step along the way; I think the problem is bigger than that. I | |
| think that, you know, I preferred sitting in this seat when I | |
| could project surpluses in healthy economic times. We are a | |
| long way from being able to do that on either side of the | |
| aisle. We are going to need to work together to get to the | |
| point where we stop adding to the problem, and then we are | |
| going to need to work together to solve the rest of it. | |
| Mr. Campbell. Earlier I believe you did use the word | |
| sustainable with this budget. So do you believe that if we did | |
| this budget, it was enacted for the next 10 years exactly as it | |
| is on this paper, that we would move along fine, we don't have | |
| a debt problem, we don't have a problem? | |
| Mr. Lew. No, I think this budget produces a deficit that is | |
| sustainable for a period of time so that we can then work | |
| together. It is a down payment, and then we need to work | |
| together. | |
| Mr. Campbell. Afterwards the deficit goes up, after the 10 | |
| years of this budget. | |
| Mr. Lew. It starts to creep up, but as you get 20 years out | |
| it starts to be a problem again. There is more work ahead of | |
| us. I totally agree with the notion that we cannot just look at | |
| the next five or ten years, but I am saying we have to start by | |
| looking at the next five or 10 years. | |
| Mr. Campbell. So we do have to deal with the entitlement | |
| programs? | |
| Mr. Lew. The President said in the State of the Union, and | |
| in his budget, that we have to look to the short-term and the | |
| long-term. We need to work together on that. | |
| Mr. Campbell. Why not propose something now? | |
| Mr. Lew. Well, this budget proposes a great deal to get us | |
| to primary balance. It gets us to a place that is sustainable. | |
| And it extends the offer, as the President did in the State of | |
| the Union, to work together. We have tried to leave options on | |
| the table, we have tried to create an environment where we will | |
| be able to work on things that have historically been | |
| challenging, and I think we need to do both. | |
| Chairman Ryan. Mr. Doggett. | |
| Mr. Doggett. Thank you very much, Mr. Chairman, and thank | |
| you for your service. And I want to draw attention to the last | |
| time you came before this committee, because it was an unusual | |
| time in which you did not just talk about a balanced budget, | |
| but as you made reference in an earlier comment, you, working | |
| with President Clinton and this Congress, produced a balanced | |
| budget, something that no Republican President, before or | |
| after, has done in decades. And the unfortunate thing is, | |
| having produced that balanced budget, our Republican colleagues | |
| in the Bush-Cheney administration, when they took over, instead | |
| of building on that success, squandered on that success. They | |
| never met a tax break they didn't like, they believed in the | |
| alchemy that every expert who came here, Republican and | |
| Democrat alike, told them that those tax breaks wouldn't pay | |
| for themselves, they abandoned pay-as-you-go government, they, | |
| in addition to all the tax breaks that they advanced, they | |
| advanced one increase in spending after another, increasing | |
| government spending at an incredible rate, but not wanting to | |
| pay for it. | |
| And so after eight years of running our debt up and our | |
| economy down, they are complaining today that you haven't | |
| solved all the problems that they created in eight years fast | |
| enough. And I think that is basically the circumstance in which | |
| we find ourselves. With reference specifically to this question | |
| you were just asked about the 22,000 increase in government | |
| employees, isn't a large part of that related to the honesty | |
| that this administration brings to federal employment, that you | |
| can contract out and create the appearance that you are | |
| reducing the size of the government, but many of these | |
| contracting out experiments of the last eight years just ended | |
| up costing tax payers more and producing less? | |
| Mr. Lew. That is part of it. And the other kinds of | |
| examples that I have used explain the other part of it. We also | |
| have a very, very large work force, and this is a very small | |
| percentage of the total. | |
| Mr. Doggett. And then I want to ask you about one type of | |
| entitlement spending that I am encouraged to see, and I want to | |
| explore with you a minute about it, that the administration | |
| again seems to be focusing on for the first time, something | |
| prior administrations have not done; and that is the whole area | |
| of tax expenditures, because they really do amount to | |
| entitlements since they are entirely out of the budget process. | |
| You have, for the first time since 1993, of any President, | |
| revised that section of your budget, and it would appear that | |
| tax expenditures, which now rival direct discretionary | |
| expenditures, will receive some type of thorough evaluation by | |
| the administration, and I just ask you first to comment | |
| generally about what you see going forward, and whether perhaps | |
| we will eventually have a tax expenditure budget to allow a | |
| more thorough comparison of the tax expenditures and the direct | |
| expenditures? | |
| Mr. Lew. Congressman Doggett, the issue of tax expenditures | |
| is a very important one. If you look at the work the Fiscal | |
| Commission did, one of the places where I think they made a | |
| real contribution was in having a conversation about spending | |
| on both the revenue and direct spending side. If you look at | |
| the President's budget, the proposal that I described as the | |
| way we pay for the alternative minimum tax extension is a prime | |
| example of how we begin to get that spending on the tax side. | |
| It says that we have a host of provisions in the tax code that | |
| are of more value as you get into a higher and higher tax | |
| bracket, and that we should limit it so that someone who has a | |
| family at 250,000 and above gets the same value as people at | |
| 250,000 and below. It doesn't take the deduction away, it | |
| starts to trim the value of it. We think that is a measured way | |
| to start getting at this issue of spending in the tax code. And | |
| we think it is something that ought to be the basis for being | |
| able to begin a serious conversation. | |
| Mr. Doggett. Have you envisioned, during the coming year, a | |
| thorough and careful evaluation of these tax expenditures, and | |
| implementing what you say in your budget appendix? | |
| Mr. Lew. The President has proposed in his State of the | |
| Union and the budget that we begin to work together on | |
| corporate tax reform and that we have a general bipartisan | |
| consensus. | |
| Mr. Doggett. Just on that point specifically, I am very | |
| pleased that the President, in his State of the Union, and | |
| Secretary Geithner indicated that must be revenue neutral. I | |
| think it actually ought to be revenue increasing to help deal | |
| with this problem, but that is a non-negotiable position in the | |
| administration. We are not going to see us borrow from the | |
| Chinese in order to give tax cuts to corporations, are we? | |
| Mr. Lew. So the principle the President set forth was that | |
| we should broaden the base, lower the rates, so we can be more | |
| competitive, and it is really, principally, a way to drive our | |
| international competitiveness. That is going to be challenging | |
| because once we have all agreed on that broad principle, | |
| broadening the base means that you take away special interest | |
| tax provisions. | |
| Chairman Ryan. Thanks. Mr. Calvert. | |
| Mr. Calvert. Thank you, Mr. Chairman. I just want make a | |
| point; my friends on the other side of the aisle took over the | |
| Congress in 2007, and that is when you see significant spending | |
| increases, and as I understand it, Congress does have something | |
| to do with spending around here. And that is certainly a big | |
| part of it. I want to thank our guest for coming out today, I | |
| understand the traffic was bad, I saw it out there, it was | |
| pretty difficult. A couple of things you pointed out to drive | |
| people to investment. I am a small businessman, was a small | |
| businessman; how do you drive people to investment if you have | |
| significant increases down the road in capital gains rate? | |
| Mr. Lew. I think that the responsibility that we have, | |
| first and foremost, is to keep a healthy, growing economy where | |
| there is demand and there is business activity out there. So I | |
| think that, going to our big frame, the most important thing we | |
| can do to promote investment is to be responsible in the way we | |
| conduct our fiscal policy. Within that, we have made the kinds | |
| of choices that we think are where the government can really be | |
| helpful in terms of driving the economy of the future. When you | |
| talk to business leaders, in my job I fairly frequently talk to | |
| business leaders, I hear over and over again where they have | |
| problems right now is hiring people with the right skills, | |
| engineering skills, technical skills. By producing the | |
| workforce that our businesses need, we are helping to promote | |
| business in this country. | |
| Mr. Calvert. Reclaiming my time, I find it difficult to | |
| believe that--the folks that I did business with--finding | |
| capital gains rates going up significantly is going to make it | |
| easier for them to do business. But I have another question I | |
| want to ask. My other job--I am on the Defense Appropriation | |
| Committee--and I wanted to understand this new account that you | |
| have to cover the diplomatic and development costs of the U.S. | |
| involvement in Iraq, and Afghanistan, and Pakistan. As you | |
| know, in past years that was handled in the regular base- | |
| budget. And I want to know what standards were used to | |
| determine what costs were appropriate for inclusion in this | |
| account, and can you send us a written guidance for the account | |
| for the record? | |
| Mr. Lew. I am happy to get back for the record, but I can | |
| give you a brief answer if you would like. The funding for | |
| military operations overseas are funded through what are called | |
| overseas contingency operations funding. It has not | |
| historically been an issue for the civilian side, but with | |
| things like the withdrawal of troops in Iraq, and the build-up | |
| of a civilian mission that is quite labor-intensive, security- | |
| intensive, it creates the same challenges that the military | |
| does. The simple rule that was used in putting it together was, | |
| to the extent that we have activities that wouldn't carry on | |
| once we normalize our diplomatic footprint, those should be | |
| handled in the base. To the extent that we have activities that | |
| are more like the military surge, they should be in the | |
| overseas account. | |
| Mr. Calvert. I would like to have that. Also, the budget | |
| request, $117 plus billion for Department of Defense's account | |
| for conduct of the war in Iraq and Afghanistan; and that is | |
| obviously dependent on U.S. troop level in Iraq and | |
| Afghanistan, and as you understand, under the SOFA agreement, | |
| the Status of Forces Agreement, we are reducing the force in | |
| Iraq at the end of this calendar year, and Afghanistan has | |
| announced policy to a troop withdrawal in July, 2011, though | |
| the size of that withdrawal is still yet to be determined. On | |
| your assumption, what troop level are you assuming for | |
| Afghanistan and Iraq in this funding request? | |
| Mr. Lew. In Iraq we have a clearly stated policy to | |
| withdraw our troops on schedule, and the funding levels reflect | |
| that policy. In Afghanistan, our policy is that we will begin | |
| to withdraw troops. We have not used the budget as the place to | |
| project specific numbers. That will have to be worked through | |
| by the national security team. | |
| Mr. Calvert. Okay, yet to be determined. Last question, you | |
| expect an additional war supplemental to be asked for here in | |
| the short term? | |
| Mr. Lew. We have requested funds that we know to be needed | |
| for the coming fiscal year. We have not yet seen what the | |
| appropriations are for fiscal year 2011, and we obviously don't | |
| know what the appropriations will be for fiscal 2012, so I | |
| can't give you a guarantee, not knowing what will be | |
| appropriated, but I know we have estimated, to the best of our | |
| ability, what the costs will be. | |
| Mr. Calvert. Thank you, Mr. Chairman. | |
| Chairman Ryan. Ms. McCollum. | |
| Ms. McCollum. Thank you, Mr. Chairman. Mr. Lew, thank you | |
| for being here today. Now, we have three challenges facing us | |
| and they need to be all addressed simultaneously. We need to | |
| reduce the deficit, at the same time we need to grow the | |
| economy, and create jobs that will keep America competitive. | |
| Now, as far as I am concerned, the best way to reduce the | |
| deficit is to get American back to work. But we have tough | |
| choices to make. The big difference between making sound | |
| investments and smart cuts, as President Obama has proposed, or | |
| the path that our Tea Party Republican colleagues are taking on | |
| the fiscal year 2011 budget with ideology, mean-spirited, or | |
| just plain dumb, cuts. Now, Mr. Lew, over the past years, | |
| Congress has provided tax breaks, tax cuts, tax loopholes, and | |
| special tax perks, estimated to reduce revenues by more than $1 | |
| trillion. In December's legislation to extend the Bush tax | |
| cuts, some of the beneficiaries of these tax break earmarks | |
| were NASCAR racetrack owners, Caribbean rum manufacturers, at | |
| the cost of hundreds of millions of dollars in foregone | |
| revenues. | |
| The last point I would like to make before I ask you three | |
| questions is: The discretionary defense spending over the next | |
| five years will approach $3 trillion, not including the cost of | |
| the wars in Iraq and Afghanistan. Yet this budget proposes only | |
| a $78 billion reduction in defense spending, which is nothing | |
| more than a rounding error. Now, I know Congress is part of the | |
| problem. Despite the Pentagon's objections, I am aware the | |
| Republicans have included an alternative engine for the F-35 | |
| Joint Strike Fighter and the F-11 CR at the cost of $45 | |
| million. Now, this is a total waste of taxpayer dollars, and an | |
| example of Congressional pork, and it should be eliminated. | |
| So, Mr. Lew my questions are; the defense discretionary | |
| spending is dwarfing all other domestic investments, keeping | |
| our community safe, and strong, and prospering. Where can | |
| greater defense spending reductions take place over the next | |
| decade? Can you also elaborate on the administration's plan to | |
| close tax loopholes, and end special tax perks, and cut off the | |
| special interest tax giveaways that are adding hundreds of | |
| billions of dollars to the deficit. And then, if you have time, | |
| could you explain more on some of the President's ideas on how | |
| to grow this economy and create jobs? | |
| Mr. Lew. Thank you, Congresswoman McCollum. Let me start on | |
| Department of Defense. We, I think, share on a bipartisan basis | |
| the belief that we have a core responsibility to provide for | |
| national defense. Over the last 10 years, the spending on | |
| defense has been considerably above inflation, and it wasn't | |
| subject to the same kind of rigor that other things were, and | |
| we were also going through extraordinary times. | |
| This is not a judgment being made about the past, but as we | |
| look to the future, this budget says that we have to start | |
| pulling back, but not pulling back in a way that sacrifices our | |
| national security. The policy in this budget says that the | |
| Department of Defense will tamp down its increases so that it | |
| will have no real growth in the five-year window. That is $78 | |
| billion of savings compared to their five year plan for the | |
| last year's budget. We think that is a very important step. | |
| It is an important step which requires tough choices. It | |
| means you can't afford the second engine that you don't need | |
| for the Joint Strike Fighter, it means you can't afford the | |
| Marine Expeditionary Vehicle. There are tough decisions that | |
| have to be made, and I think we have a Secretary of Defense and | |
| a leadership in our military, that is prepared to make the | |
| tough choices, and we look forward to working with Congress. | |
| But they are hard--it means that there are things that are made | |
| now that won't be made in the future, and that is what it is | |
| going to take to start getting our defense budget under | |
| control. | |
| On the question of closing loopholes, the President's | |
| budget includes a number of specific proposals, I mentioned the | |
| oil, gas, and coal provisions in my opening remarks, but we | |
| also have provisions that would take away the tax benefits that | |
| come to companies that export jobs, and we think that it is | |
| important to have policies in our tax code be designed to | |
| reflect what we need to do in our economy. So, in our economy, | |
| for the future, we need to develop the new renewable energy | |
| technology industry. That is going to create jobs in the | |
| future. I am kind of getting to your third question by | |
| answering the second within the five minutes. Ware going to | |
| build the new economy in renewables and in clean energy, and | |
| that is where we need to put our investment. So if you look at | |
| the withdrawal of a special provision for oil, gas, and coal, | |
| and the investment in new technologies, it kind of tells a | |
| story about how we think you invest in the future. | |
| Chairman Ryan. Mr. Akin. | |
| Mr. Akin. Thank you, Mr. Chairman. Just a couple of | |
| thoughts. Years ago, I was taught what was called the Harvard | |
| Case Study Approach to solving problems, and it was taught in | |
| business schools, and the idea was that you are given this | |
| complicated situation, and you could see all sorts of things | |
| that would be a good thing to do, and you got this-this-and- | |
| this, you have all these good ideas, but part of the discipline | |
| was, pick the number one thing. What is the very first and | |
| essential element that you have got to deal with? And that was | |
| frequently the situation then that would determine whether a | |
| company was going to succeed or fail. | |
| As I take a look at many of the things we have discussed | |
| even here this morning, and that you are dealing with in the | |
| budget, we are dealing with, to some degree, some peripheral | |
| things, but it seems like there has been pretty good emphasis | |
| that the elephant in the room is the tremendous growth of | |
| entitlements. I just heard references to the fact that maybe | |
| the defense budget is really the bugaboo here. | |
| But if you take a look at defense as a percent of GDP, | |
| going back to maybe 67 or so, you are looking at close to nine | |
| percent of GDP being spent on defense, it is now dropped to | |
| four-something. And one of the few people on this committee | |
| sitting on armed services; we talk about, Well, we are going to | |
| cut this Expeditionary Fighting Vehicle for the Marines. The | |
| only problem is, if you really believe in Marines, you have got | |
| to get them from the ocean to the shore. So, I am not so sure | |
| that you have already cut the percent of GDP for defense not | |
| quite in half, and in the meantime entitlements have gone from | |
| about 2.5 percent, if you go beyond Medicare, Medicaid, Social | |
| Security, to the other entitlements, you are well up at | |
| whatever it is, 12 percent. And you put entitlement and debt | |
| service together, and all of a sudden, voila, that is what our | |
| revenue is. | |
| So it seems to me that the elephant in the room is the | |
| entitlements, and courageous leadership is going to acknowledge | |
| that fact and say, Okay, now let us have the conversation, and | |
| talk about what we are going to do with those. Because all of | |
| us know we are talking about some heavy cuts in discretionary, | |
| but that is just the tip of the iceberg. So I guess it is | |
| disappointing not to say, Hey, let us at least make this the | |
| main subject the main subject. The second thing that I don't | |
| quite understand is the idea that we are somehow going to shock | |
| the fragile recovery by cutting discretionary income. I guess | |
| that is assuming that that discretionary income, by spending | |
| all that money, it helps the economy. If you could enlighten me | |
| on that line of reasoning, because I don't understand that. | |
| Mr. Lew. Thank you, Congressman. I have a soft-spot for | |
| those business school case studies; I paid my way through | |
| college by working on producing those case studies, so they | |
| have played an important part in my life. The first thing I | |
| would do, looking at a university class on how do you solve the | |
| problem, is say, Where do we need to be on the bottom line? And | |
| bottom line is we need to have a three percent of GDP deficit | |
| in order to say we are not adding to the debt. Then I would | |
| ask, What are you doing to get there? And we have put forward a | |
| plan that gets there. And then, I would say, you separate the | |
| question of what do you need to do for the long term. And that | |
| is exactly what we have done in this budget. | |
| So, I think we are dealing with the short-term and the | |
| medium-term, we are saying in a very direct way that we need to | |
| work together on the long-term, and we are trying to leave as | |
| much open for discussion so there is an environment where we | |
| can actually reach agreement. The easiest thing to do is kind | |
| of polarize the environment. We are deliberately leaving room | |
| for that conversation. | |
| Mr. Akin. Let me just jump in. In order to come up with the | |
| numbers that you have come up with, some of the assumptions | |
| strike me as being a little odd. For instance, some of my | |
| Democrat colleagues have talked about how, when President Bush | |
| took office, everything was rosy and perfect, but I recall | |
| there was quite a recession going in 2000, 2001. I do remember | |
| the numbers in May, 2003 we did three unpopular tax cuts, | |
| capital gains, dividends, and death tax. They weren't popular | |
| because we were tarred-and-feathered as sticking up for the | |
| rich guy. But the trouble was it was those rich guys that owned | |
| the businesses that hired people. And if you destroy the | |
| businesses by overtaxing the owners of small business, then you | |
| don't have any jobs. | |
| So, I took a look at those numbers after capital gains, | |
| dividends, and death tax, and what we saw was that first of all | |
| the GDP jumped, and it had the kind of growth that you want to | |
| make the budget numbers work, but we did it by cutting those | |
| taxes on the small business and the investors. We also saw that | |
| the employment turned right around. We went from un-employing a | |
| lot of people to jobs being created. And last of all, according | |
| to just what Laffer predicted, the government revenues actually | |
| jumped up when we cut the taxes, because of the fact that the | |
| economy got back going. So I don't understand how you make it | |
| work with growth and still raising taxes. | |
| Mr. Lew. I would love to respond but I suspect from the | |
| tapping I don't have time. | |
| Chairman Ryan. Mr. Pascrell. | |
| Mr. Pascrell. Thank you, Mr. Chairman. Thank you for your | |
| service. | |
| Mr. Lew. Thank you, Congressman. | |
| Mr. Pascrell. I find it remarkable, and I say this with | |
| fondness, Mr. Chairman, I am glad you smiled. I say this with | |
| fondness. You have become an existential party. You have | |
| amnesia about how the past and how we got to this place, and | |
| you don't want us to invest in the future. We are stuck with | |
| the here and now. I don't think we are stuck. I think this is a | |
| pretty credible blueprint. And it is not going to be like this | |
| when we finish, but it is a credible blueprint to begin with. | |
| There is a simple juxtaposition going on here. The President's | |
| budget, correct me if I am wrong Mr. Lew, the President's | |
| budget achieves substantial deficit reductions, and achieves a | |
| sustainable debt of three percent of the GDP by 2015. Is that | |
| correct, or incorrect? | |
| Mr. Lew. I would only correct you that it is the deficit. | |
| Mr. Pascrell. I am sorry. A sustainable deficit; that is | |
| what I meant to say. Second question is, isn't it true that in | |
| this President's budget, there is $5 billion in small business | |
| tax cuts for 2012, and if you add up the 10 years there is $116 | |
| billion in real tax cuts for small businesses. Is that correct? | |
| Mr. Lew. There are substantial incentives for small | |
| business. They do add up to a number like that. I don't have | |
| the exact number in front of me. I assume you have the correct | |
| number. | |
| Mr. Pascrell. Okay. Here is my second question then, some | |
| of my colleagues, who I admire, and respect, and that is | |
| nothing to smile about, I mean it. I don't have to agree with | |
| them, right? Some of my colleagues criticized the President's | |
| budget that it does not cut entitlement programs like Medicare. | |
| In fact, Mr. Chairman and I went outside for water, and the | |
| President was providing us with his address at 11 a.m. about | |
| the budget, and that was his first question. Why didn't you | |
| show leadership,--I think those were your words yesterday--Why | |
| didn't you show leadership in going after Medicare and Social | |
| Security? | |
| We know Social Security has very little to do with the | |
| deficit. We would agree with that, correct? I personally | |
| believe we can balance the deficit without cutting Medicare for | |
| seniors. That is my own personal belief. You could do other | |
| things. However, is it not true, Mr. Lew, that federal health | |
| care reform adopted many recommendations from Congress own | |
| independent advisory commission, the Medicare Payment Advisory | |
| Commission, we established that, did we not? | |
| Mr. Lew. Correct. | |
| Mr. Pascrell. And that by having a Medicare Center for | |
| Innovation, Medicare now can test and use new payment models. | |
| We fought to have that in there for a very specific reason, to | |
| not only improve patient care, but lower our national spending | |
| on health care. Would you just respond to that, please? | |
| Mr. Lew. Congressman, I think there are many, many things | |
| that we have done in the last couple years that are very | |
| important in health care. We have real savings in the 10 years, | |
| bigger savings beyond that, and we have put in place mechanisms | |
| like the ones you have described, which give us the ability to | |
| get the best practices, which are the way we are going to | |
| reduce spending overall going forward. A lot of those things | |
| don't score easily, because there is a question about when they | |
| will have results. We believe that they will have results, and | |
| we have to stay on the course of implementing it that we make | |
| sure we get the benefit. | |
| Mr. Pascrell. And many of those were not even scored. | |
| Mr. Lew. Correct. That doesn't mean they are not real. It | |
| just means you first have to demonstrate it. | |
| Mr. Pascrell. Why should we be paying for police to patrol | |
| the streets of Kabul and Baghdad? Why is that exempt when we | |
| say defense appropriations? Why is that exempt, but not cops on | |
| the beat in Patterson, New Jersey, or Camden, New Jersey, or | |
| anywhere? Why? | |
| Mr. Lew. I want to start by saying that we provide funding | |
| to make sure we can keep cops on the street in Camden, New | |
| Jersey, as well. So we don't believe that the choice is you | |
| either do one or the other. One of the things we have tried to | |
| do is preserve funding for the cops program. I think he short | |
| answer to the question of why we should be supporting the | |
| training of the police in Afghanistan, is that in order for us | |
| to get to the point where we can withdraw American troops, | |
| Afghanistan is going to need to have the ability to protect | |
| itself so that we are not put at risk, and that is part of our | |
| plan. | |
| Mr. Pascrell. I was talking about the security in our own | |
| country. Thank you, Mr. Chairman. | |
| Chairman Ryan. A lot of our problem here is we have | |
| witnesses in high demand. I want to make sure every member gets | |
| his chance, so I ask unanimous consent that we reduce our four | |
| minutes each, so that we can make sure that we can accommodate | |
| everybody and still allow Mr. Lew his chance to go over to the | |
| Senate to testify. Without objection. Mr. Cole. | |
| Mr. Cole. Well, I was going to object, because it was my | |
| time. My friend Mr. Price and I think we either need to get | |
| taller or you guys in the front row need to get a lot shorter, | |
| it is very hard to see you there. | |
| Mr. Lew. This has actually changed since the last time I | |
| was here. I find myself leaning forward a lot more. | |
| Mr. Cole. But since my time is short, I have got three | |
| areas I would like to ask you about. The first is, just looking | |
| at your budget; you basically keep 80 percent of the Bush tax | |
| cuts for about 95 percent of the people that received them. | |
| Does that suggest, one, that you don't think those went to the | |
| rich particularly, and two, that you see them as having been, | |
| and continuing to be, beneficial to the economy? | |
| Mr. Lew. You know, we believe that the tax cuts for the | |
| middle class are a good thing, and there was too high a tax | |
| rate burden, and we should continue to do what we can to | |
| minimize the tax burden on the middle class. One thing I would | |
| just point out is that we don't take the benefits of those tax | |
| breaks away from anyone; even if they are above 250,000, we | |
| just say there shouldn't be additional tax breaks. | |
| Mr. Cole. No, I understand that, and again, I applaud the | |
| President for embracing, literally 80 percent of the Bush tax | |
| cuts, something that seems to be forgotten around here | |
| sometimes. We can disagree about 20 percent, but 80 percent we | |
| actually do agree on. Second question, and this gets maybe to | |
| your philosophy, the administration's philosophy, in your | |
| deficit reduction plan over several years, you have some tax | |
| increases, you have some spending restraints. Roughly, what is | |
| the balance that you strike between tax increases and spending | |
| cuts or restraints? | |
| Mr. Lew. Well, I apologize that it is a little bit of a | |
| complicated answer, just because baselines make how you measure | |
| complicated, and I want to be clear. We start with a baseline | |
| that assumes that the tax rate in the top bracket stays where | |
| it will be when the provisions enacted last December expire. | |
| From that baseline, we have net $360 billion of additional | |
| revenue. But I say net because we have $392 billion of tax | |
| cuts, so after you pay for the tax cuts, net $360 billion of | |
| new revenues. | |
| Mr. Cole. And how much in spending restraint? | |
| Mr. Lew. We have $751 billion in mandatory and non-security | |
| discretionary savings, and we do count debt service as spending | |
| because we have to pay for debt service. | |
| Mr. Cole. Obviously we would probably disagree over whether | |
| letting those tax cuts run out amounts to a tax increase or | |
| not, but let me put that aside. Let me get to the last point I | |
| wanted to ask you about and this really does get down to, | |
| actually, some questions my friend Mr. Akin raised. Look, we | |
| all know entitlement spending is going to be a major focus. | |
| As an appropriator I will be thrilled the day we finally | |
| move to tax expenditures and entitlement expenditures, because | |
| that is where the problem is. But since you have expressed a | |
| lot of the President wants to do this, doesn't want to take | |
| options off the table. I am like everybody else, I am really | |
| disappointed we haven't seen more, at this point, but can you | |
| tell me when that discussion would begin, is the President | |
| going to propose a format in which it would take place, does he | |
| think he should lead with a proposal of his own, or wait for | |
| Congress to put one on? I am sort of mystified about how we get | |
| to the elephant in the room that Mr. Akin was talking about. | |
| Mr. Lew. The President has put quite a lot on the table in | |
| the budget that we presented yesterday, and it is the first | |
| step in the process. We have a lot of work to do together, both | |
| in terms of finishing the work on 2011, getting to work on | |
| 2012. I have to tell you from my own personal experience, | |
| having watched and been part of the deficit reduction efforts | |
| in the late 70s, 80s, 90s, when we have had real success in a | |
| bipartisan basis, it is come from people working together | |
| behind the scenes and in an environment where there could be | |
| the kinds of open conversations where there is trust. And I | |
| think if we concentrate on developing that kind of a | |
| conversation, we will again produce the best results for the | |
| American people. | |
| Mr. Cole. Thank you gentlemen. Thank you, Mr. Chairman. | |
| Chairman Ryan. Ms. Castor. | |
| Ms. Castor. Thank you, Mr. Chairman. Welcome. I would like | |
| to show you a chart, here. | |
| <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT> | |
| I understand you were the head of Office of Management and | |
| Budget in the last few years of the Clinton administration, | |
| where there were burgeoning debts and growing deficits, but at | |
| the end of the Clinton administration, is it true that you left | |
| when we had a projected 10 year surplus of $5.6 trillion? | |
| Mr. Lew. I would just correct that I was director of Office | |
| of Management and Budget three years in a row when we had | |
| surpluses. We didn't have deficits, we had surpluses. We were | |
| paying down the debt, so that is what that chart says. | |
| Ms. Castor. I stand corrected. And then when President | |
| Obama took office, we were facing an $8 trillion, 10-year | |
| deficit. It must be entirely frustrating to you, it must have | |
| been frustrating, during that eight year period, to watch what | |
| happened to the surpluses left at the end of the Clinton | |
| administration. | |
| Mr. Lew. I don't exaggerate when I say it breaks my heart. | |
| I think that you look at what drove the deficit up, some of it | |
| was beyond our control, in terms of the economy. When there is | |
| a recession, there is a loss of revenue and there is certain | |
| spending that you have. Some of it was because of wars, which | |
| you don't necessarily choose, but if you go to war, that is an | |
| extraordinary circumstance. Some of it was because we just | |
| suspended the basic common sense of paying for what we did. And | |
| we had tax cuts and spending increases that weren't paid for, | |
| and that is what has created the long-term problem we are | |
| dealing with now. These other things correct themselves; the | |
| economy is recovering, and we are going to see revenues and | |
| spending get back to their more normal levels. The wars will | |
| come to an end; we are pulling our troops home from Iraq. The | |
| other creates a problem that we have to deal with. | |
| Ms. Castor. And that is why I am grateful that you have | |
| taken on this new challenge. We all agree, the government has | |
| got to live within its means. But we must remain mindful that | |
| we are coming out of the most severe recession in our | |
| lifetimes, and we have got to build on the economic foundation | |
| for the future, and that is why I am particularly focused on | |
| job creation, and jobs, and our workforce. My district is home | |
| to one of the largest universities in the country, and a lot of | |
| community colleges, and private universities, and I am 100 | |
| percent behind you on what this budget does to maintain the | |
| maximum Pell grant for students. It remains at $5,550 for | |
| students. You all know that the Pell Grant helps over nine | |
| million students across America afford college. | |
| Now, over the last couple of days there is been a lot of | |
| confusion in the press, however, over what is happening with | |
| the Pell grant. It appears President Obama maintains the | |
| maximum Pell grant, at $5,550 for 2012, for students, and you | |
| pay for it by cutting the relatively new year-round Pell grant | |
| that allowed some students to qualify for two Pell grants. I | |
| wasn't aware that they could do that. | |
| Are you also aware that in contrast to what the President's | |
| budget is trying to do, right now on the floor of the House, | |
| the Republican continuing resolution has proposed cuts in the | |
| Pell grant by $845 per student for 2011? I think that is moving | |
| in the wrong direction when we want to ensure that we have the | |
| most competitive workforce across the globe. So could you | |
| explain your budget and why you viewed this as a priority, and | |
| your view of the Republican efforts to diminish support for | |
| students, and how it will hurt our national goal of supporting | |
| an educated workforce that can out-compete others? | |
| Chairman Ryan. And I ask you to explain that in six | |
| seconds, otherwise give the rest in writing, please. | |
| Mr. Lew. We think Pell grants are an enormously important | |
| program. We have taken the tough steps in this budget to pay | |
| for it, and when you look at where some of the increases in | |
| spending since 2008 and now are, Pell grants is one of the | |
| biggest, and we think it is one of the best investments we can | |
| make in our future. | |
| Chairman Ryan. All members, if you ask your question at the | |
| end of your time allotted, you are taking away from our fellow | |
| colleague. So that is why I am being judicious with the gavel, | |
| here, so everybody gets a chance. Mr. Price. | |
| Mr. Price. Thank you, Mr. Chairman. Director Lew, thanks so | |
| much for joining us. Some of our friends on the other side of | |
| the aisle, one of them said on our side there is an amnesia | |
| about the past. So I want to visit a little bit of the amnesia | |
| that goes around to the other side. You said that the last time | |
| you were before this committee it was a good time because you | |
| had produced a balanced budget. What party was in control of | |
| the House of Representatives at that time? | |
| Mr. Lew. I am proud to say we worked on a bipartisan, | |
| balanced budget agreement. | |
| Mr. Price. But the answer to that would be Democrat or | |
| Republican? | |
| Mr. Lew. We worked with Republican leadership. | |
| Mr. Price. Republican leaders. Thank you very much. | |
| Mr. Lew. The Republicans and Democrats in Congress. | |
| Mr. Price. Can you tell me, Director Lew, what the debt was | |
| in this country at the end of 2006? | |
| Mr. Lew. I would have to look that number up. I have a lot | |
| of numbers in my head, I don't have that number in my head. | |
| Mr. Price. If I told you that the debt at the end of 2006 | |
| when the Republicans ended their control of Congress--the House | |
| of Representatives--was $8.4 trillion. Would you say that was | |
| about right? | |
| Mr. Lew. When we took office it was approaching $10 | |
| trillion. | |
| Mr. Price. When Speaker Pelosi began her reign would be | |
| about right in 2007, correct? And the debt right now, Director | |
| Lew? | |
| Mr. Lew. The debt right now, I can look that up. | |
| Mr. Price. About $14 trillion? | |
| Mr. Lew. $14 trillion. | |
| Mr. Price. Somewhere in that range. So about $6 trillion in | |
| the last four years under Democrat leadership in the House, is | |
| that correct? | |
| Mr. Lew. You know, I think that one can go through these | |
| numbers, and we can look it up in the book, and we can | |
| establish what the numbers are. I think one has to understand | |
| what was going on in these periods. | |
| Mr. Price. Absolutely. | |
| Mr. Lew. We were going through the worst economic | |
| conditions since the Great Depression. | |
| Mr. Price. I will reclaim my time Director, I am sorry. I | |
| only get four minutes. And as the elephant in the room has been | |
| discussed, it is a remarkable, remarkable display that we | |
| believe has come out of the administration. When I was a kid we | |
| used to play kickball in the street or in the backyard, and | |
| when we turned around and headed to our house, we knew that the | |
| house was going to be there. The house is burning down, Mr. | |
| Director. | |
| And the fact of the matter is that the administration is | |
| playing kickball and not attending to the work that needs to be | |
| done. To put a budget before the American people that doesn't | |
| address the entitlement issues is reckless and irresponsible. | |
| And you talk about, To get to balance, a set of decisions needs | |
| to be discussed, that no one is discussing right now. But I | |
| will tell you who is discussing them, Mr. Director, and that is | |
| our constituents. They are scared to death. And they don't see | |
| any leadership coming out of this administration as it relates | |
| to the entitlements. When does that discussion begin? | |
| Mr. Lew. You know, Congressman, if you look at what was | |
| going on during the period. | |
| Mr. Price. When, Mr. Director, when does that discussion | |
| begin? | |
| Mr. Lew. I am happy to answer that discussion if you give | |
| me a moment. | |
| Mr. Price. I have got four minutes and the fact of the | |
| matter is that you are not answering the question, and you | |
| haven't answered the question. | |
| Mr. Lew. The President has put down a budget that we think | |
| takes the first, and very important, step of showing how we get | |
| to a sustainable deficit by the middle of the decade. That is | |
| an important step. And the President has also said that we need | |
| to work together on a bipartisan basis to do what we need to do | |
| in the long term, and I think we can't confuse the two issues. | |
| Mr. Price. Does this budget deal with the entitlements that | |
| [inaudible]. | |
| Mr. Lew. This budget begins to, but those entitlement | |
| issues did not cause the increases that you have just | |
| described. The worst economic recession since the Great | |
| Depression drove those numbers. We need to get the economy | |
| moving, and we need to take the steps that we have put forward | |
| in this budget and then more, on a bipartisan basis, working | |
| together. | |
| Mr. Price. We look forward to that. As you well know, and | |
| as you have stated here, this budget does not deal with the | |
| entitlement issues. I want to turn my attention very quickly to | |
| the tax issues. The assumptions under this budget assume that | |
| the tax increases will occur for those making more than | |
| $250,000 in two years; is that correct? | |
| Mr. Lew. It assumes that the tax rates that are in current | |
| law will remain in effect. | |
| Mr. Price. So that a tax increase for small businesses | |
| occurs within this budget window, is that correct? | |
| Mr. Lew. It means that individuals, families that earn over | |
| $250,000 a year will pay the same taxes that they did during | |
| the end of the 1990s when the economy was growing at the | |
| fastest rate. | |
| Mr. Price. And the amount of tax increase in this budget is | |
| about $1.6 trillion, is that correct? | |
| Mr. Lew. Again, it gets to this question of measurement. I | |
| have tried to be very clear that there is a portion that we are | |
| not taking credit for because it is in the baseline, and I am | |
| happy to work through those numbers. | |
| Chairman Ryan. Thank you, we already established the 1.6 | |
| number. Mr. Tonko. | |
| Mr. Tonko. Thank you, Mr. Chair. Director Lew, thank you | |
| for joining today. | |
| Ms. Moore. Mr. Chair, excuse me. What happened to me? I | |
| just want to know. | |
| Chairman Ryan. Ms. Moore, as you know, the rule is in the | |
| order in which you show up, so we have Tonko, Bass, Moore, | |
| Wasserman Schultz, Ryan, and Blumenauer on your side of the | |
| aisle. | |
| Ms. Moore. Okay, I just wanted to make sure I hadn't | |
| disappeared. | |
| Chairman Ryan. No, you are still there, Gwen. | |
| Ms. Moore. Okay, got you. | |
| Mr. Tonko. Thank you for providing insight on the | |
| President's proposed budget. Also, I am aware that you are a | |
| fellow New Yorker. Last month, members of the New York | |
| delegation in the House, myself included, wrote to you about | |
| extending the Federal-State Health Reform Partnership. As you | |
| know, this innovative partnership between New York and the | |
| federal government has led to significant modernizations and | |
| improvements for several hospitals and health systems. | |
| Established by former Governor Pataki and Secretary Leavitt to | |
| improve New York's outdated health care system, the funds have | |
| been allocated already, but not all the projects that have been | |
| authorized by the agreement have been finished. The New York | |
| delegation also wrote to urge you and Secretary Sebelius to | |
| extend the waiver for three years, and my concern is that be | |
| agreed to here. It is a common-sense thing to do, and do you | |
| know if the Office of Management and Budget extends the waiver | |
| before it expires late this year? | |
| Mr. Lew. Congressman, I know it is under review. There are | |
| actually two waivers that are under review. I have been at the | |
| Office of Management and Budget for eight weeks, it is one of | |
| the things that I have actually looked at; it hasn't come to me | |
| for a decision yet, we will continue to work with the state as | |
| we review it. | |
| Mr. Tonko. Great. We look forward to working with you on | |
| that. And also, the President's budget, I am very concerned | |
| about the investment in R&D and basic research, and happy to | |
| note that the President's budget proposes to invest some $148 | |
| billion in R&D, in energy efficiency, and key basic research, | |
| contrasted with the Republican spending plan that would slash | |
| R&D. The President's budget also proposes robust investments in | |
| the National Institutes of Health, where doctors and scientists | |
| work to cure cancer, heart disease, and diabetes. Alzheimer's | |
| and other diseases that together claim the lives of millions of | |
| Americans every year are also impacted by that budgeting. The | |
| GOP spending plan on the floor today cuts the National | |
| Institutes of Health budget by about a billion, and medical | |
| research has proven to extend life expectancy, for instance, | |
| from 50 years in 1911 to nearly 80 years now in 2011. Can you | |
| explain the approach taken with R&D and research, basic | |
| research in the President's plan? Some call it spending, others | |
| reference it as investing. | |
| Mr. Lew. I am happy to. We have taken a very close look at | |
| the R&D budget and we have looked kind of beyond some of the | |
| traditional boundaries. There has been a broad consensus that | |
| biomedical research is important. We agree with that. We have | |
| an increase in biomedical research. But we have looked at areas | |
| like energy research, and we have put significant resources | |
| into developing the technologies that will make us the most | |
| competitive country with the technologies of the future. We | |
| have put money into basic research. I think that we have to | |
| have a comprehensive research agenda in order for us to be in a | |
| place where, as the President says, we can out-innovate other | |
| countries. | |
| It has been an area, historically, of enormous strength in | |
| the United States. Even today, we spend more as a country, | |
| public and private combined, on research than any other country | |
| in the world. There are certain aspects of it which don't | |
| happen in the private sector alone, because there is too much | |
| risk, too many experiments and things that aren't going to | |
| become commercially viable, but you need to go through that | |
| process in order to get the material, the knowledge, out there. | |
| And I think we have had a history of very effective partnership | |
| in this country of transferring research from government-funded | |
| research to private-sector development, and we have tried to | |
| put together a budget that will continue what we think is the | |
| best of the American tradition. | |
| Chairman Ryan. Thank you. Mr. McClintock. | |
| Mr. McClintock. Mr. Lew, welcome. I want to join Ms. Castor | |
| and others for complimenting you on the job you did under the | |
| Clinton administration. You guys did an absolutely magnificent | |
| job managing the nation's fiscal affairs. You cut spending by a | |
| miraculous 4 percent of GDP during your years; historic reform | |
| of entitlements ending welfare as we know it; what amounted to | |
| the biggest capital-gains tax cut in American history; four | |
| years of budget surpluses. It is true it was a Republican | |
| Congress, but give credit where credit is due. You guys did a | |
| great job. But I look at this budget, and it seems to be | |
| exactly the opposite. | |
| Mr. Lew. I wanted to just say thank you. | |
| Mr. McClintock. No, with all sincerity, thank you. It was a | |
| great job. But I look at this budget and it is exactly the | |
| opposite: record increases in spending, biggest peacetime | |
| deficit in American history, no effort to address entitlements, | |
| which have grown significantly more challenging over the last | |
| several years. Wouldn't you call this the anti-Clinton budget? | |
| Mr. Lew. No, Congressman. I am very proud of the work I did | |
| in the Clinton administration and I would point out that one of | |
| the reasons that spending was falling as a percentage of GDP is | |
| the economy was growing so fast because we had a good fiscal | |
| policy that promoted confidence and economic growth. I think if | |
| you look at the projections today, spending now and in the | |
| future, we are projecting the retirement of the baby boom. We | |
| are seeing more people become 65 and claiming their benefits. | |
| Mr. McClintock. Actually, that is my very next question. I | |
| want to get to your long-range projection. | |
| Mr. Lew. And I think that it is part of the reality of | |
| projections that even if we cut spending in the policies that | |
| we are making, as we pay the benefits that people are due, | |
| there will be areas of the budget where spending goes up. I | |
| don't think any of us would want to be saying that people | |
| shouldn't be able to collect their Social Security benefits | |
| when they are 65, but that and Medicare for people retiring is | |
| really driving those aggregate spending levels. On the | |
| discretionary side, we are cutting spending. | |
| Mr. McClintock. Exactly right, which is why we are all | |
| baffled that you haven't tackled entitlements that are driving | |
| our long-range projections right off a cliff. But speaking of | |
| those long-range projections, I look at the claims that you are | |
| reducing the deficit in the long-term. You know, we have enough | |
| trouble projecting 10 quarters into the future without | |
| projecting 10 years, but I look at what you are doing here and | |
| you take the current year's war-funding level of $165 billion | |
| this year, pay for operations in Iraq and Afghanistan, | |
| including the surge, you then take this level and project it | |
| out for 10 years and this represents your current policy | |
| baseline. You then assume a policy or placeholder $50 billion | |
| for the war from 2013 to 2021, and then you count the lower | |
| funding in your budget relative to this current policy baseline | |
| as a $1.1 trillion spending cut over 10 years. You take the | |
| related debt service, that is another $1.3 trillion. Are you | |
| guys really planning to stay in Iraq at current levels and to | |
| continue the surge for the next 10 years? It has either a yes | |
| or no question. Yes or no? | |
| Mr. Lew. No, the budget reflects our withdrawal from Iraq. | |
| Mr. McClintock. And you are claiming that as savings. You | |
| take a baseline assuming of $165 billion a year, including the | |
| surge, and then you count everything below that as savings. | |
| Well we are planning to do that anyway. | |
| Mr. Lew. I am happy to respond. We are almost out of time. | |
| The overseas contingency operation account is something that | |
| really solved a problem that the Obama administration | |
| inherited, which was there was no orderly way to fund war | |
| operations, and supplemental appropriations were very much in | |
| disrepute as being a way of not having honest budgeting. | |
| Mr. McClintock. In the five seconds I have got left, that | |
| is an intellectually dishonest way of presenting the budget, | |
| particularly when the other part is $819 billion of tax | |
| increases. | |
| Mr. Lew. That is an important issue, and I would love to be | |
| able to respond in more detail on it. | |
| Chairman Ryan. How about in writing, because I would love | |
| to hear the answer to that one too. Ms. Bass. | |
| Ms. Bass. Thank you. Director Lew, thank you for your | |
| testimony. | |
| Mr. Lew. Thank you. | |
| Ms. Bass. You and the President should be commended for | |
| crafting a $1.1 trillion deficit-cutting budget that strikes | |
| the right balance, frankly, between spending reductions and | |
| targeted investments in infrastructure, innovation, and | |
| education. Prior to Congress, I served in the California | |
| Legislature where we had to make tough choices, such as | |
| eliminating Pell Grants for summer school to sustain the | |
| maximum award for all eligible students. | |
| Having said that, I do want to take a moment to draw | |
| attention to the choices made in the continuing resolution that | |
| will be debated this week. Not only does the spending plan make | |
| devastating cuts to critical programs that families depend on | |
| to get back on their feet, but the continuing resolution would | |
| result in lost jobs of 1,300 police officers, 2,400 | |
| firefighters, and 16,000 private-sector construction jobs from | |
| cutting $1.7 billion from the federal building fund. | |
| The most promising new source of economic growth and job | |
| creation is in our public infrastructure system, from roads and | |
| bridges to broadband and air-traffic control systems to a new | |
| energy grid. I am pleased to see that the budget invests in | |
| these key areas that will spur job creation, and based on this, | |
| what do you believe are the potential numbers of jobs that | |
| would be created by what you and the President are proposing? | |
| Mr. Lew. Congressman, I thank you. I can't give you a | |
| specific job forecast. I think we have all learned that there | |
| is uncertainty in the projections when you get to a pinpoint | |
| number. I think what we know is that when you build roads, when | |
| you build ports, when you build the infrastructure we need to | |
| be competitive in the future, it puts men and women to work on | |
| those projects in real time. And in our Surface Transportation | |
| Reauthorization Proposal, we do propose that $50 billion be | |
| done at the beginning to get a head start and to get people to | |
| work. I would be happy to get back to you with some notions of | |
| what that means in terms of specific jobs, but it is clearly a | |
| lot of jobs. | |
| Ms. Bass. I would appreciate that, even if you could give | |
| us a range. If you could get back to me, I would appreciate | |
| that. Second question, with the cuts that are taken in the | |
| defense part of the budget, I do believe that we can find | |
| additional savings. I wanted to ask you, for example, as I | |
| understand it, there is nearly 270 bases in Germany, 65 years | |
| after World War II ended. And I wanted to know if the | |
| administration has conducted a savings estimate on closing | |
| these bases that probably no longer serve a strategic value, | |
| and if some of them do, I would question whether over 200 do. | |
| Mr. Lew. You know, I think that these are the kinds of | |
| questions the Department of Defense needs to ask, not just | |
| about Europe but about its operations everywhere. What do we | |
| need for our current and future defense, what could we live | |
| without? I don't want to prejudge the answers to any of those | |
| questions, but I think that by putting in this budget the first | |
| step to bringing the Department of Defense back into the normal | |
| budget tradeoffs, where we are saying no real growth. That is a | |
| cut, in terms of what you can buy; it means you have to start | |
| doing less things. That is a step in the direction of asking a | |
| lot of very hard questions. | |
| Ms. Bass. Thank you, and then just finally I wanted to | |
| thank you for your comments earlier, especially about the R&D | |
| credit. Being in California and the Silicon Valley, we hear | |
| that all the time from the tech community, the need for that to | |
| be long-term so that they can do the planning. So thank you | |
| very much for your time. | |
| Mr. Lew. Thank you. | |
| Chairman Ryan. Mr. Chaffetz. | |
| Mr. Chaffetz. Thank you, Mr. Chairman. Director, thank you | |
| for being here and your good work. I do appreciate it, the work | |
| you have done in the past. But what I have a problem with is | |
| this budget. It was suggested earlier that budgets reflect the | |
| priorities and values of those that present them, and I think | |
| in this case it is true. I think it is very true, that this is | |
| a case that is being made by the administration. They want big | |
| government, more government, the bottom line is this doubles | |
| the debt in 10 years, and that it is fiscally irresponsible. | |
| You know, the decisions we make in Congress are all about what | |
| kind of money we are going to pull out of people's pockets and | |
| give to somebody else. I find it reprehensible that we continue | |
| to talk about investments and other things when we are pulling | |
| money from people's pockets to try to give it to somebody else. | |
| The most important thing we can do is allow money to stay in | |
| their own pockets. It is the American people's money, it is not | |
| Congress money, it is not the White House's money. | |
| I want to get very specific at some of the things you said. | |
| This budget is a down payment was one of the things I heard, a | |
| quote from you, I believe, yesterday. This is a down payment on | |
| mortgaging our future, and it exacerbates the problem. It | |
| doesn't actually solve it. | |
| I want to talk about part of your testimony on page six. It | |
| says, quote, To stay on a path towards sustainable deficits. | |
| Sustainable deficits seems like an oxymoron to me. We are on a | |
| trajectory where we can't afford anything. We are paying $600 | |
| million a day just in interest. I would appreciate, at a future | |
| date, to please try to define for us sustainable deficits, | |
| because I think to the average American, to me, it does not | |
| make sense. We have no sustainable deficits. | |
| To further go on with that quote, you say, On the order of | |
| three percent of GDP, we make tough choices across all areas of | |
| the budget to identify more than $1 trillion in savings, two- | |
| thirds from spending reductions. Where does that other third | |
| come from? As I understand it, it is from tax increases, is it | |
| not? | |
| Mr. Lew. I am happy to answer all the questions you just | |
| asked. | |
| Mr. Chaffetz. Just this last one, please. I know our time | |
| is short. | |
| Mr. Lew. The net savings come from a number of provisions, | |
| but a lot of it comes from the provision that would pay for the | |
| alternative-minimum tax, which would reduce the value of tax | |
| deductions for families with $250,000 and above. | |
| Mr. Chaffetz. And a significant portion does come from tax | |
| increases, correct? | |
| Mr. Lew. Well, one-third. | |
| Mr. Chaffetz. A third is coming from tax increases. You | |
| have a statement in here about federal civilian employee pay | |
| freeze. I find this to be terribly disingenuous. The reality | |
| is, when Barack Obama took office to now, we have 145,000 | |
| additional federal workers. To suggest that pay is being frozen | |
| is not an accurate statement. Through step increases, through | |
| bonuses, through others, we have dramatically increased the | |
| federal payroll. The budget that is being proposed, when you | |
| say pay freeze, does that mean that expenditures on payroll | |
| will go up or stay the same? | |
| Mr. Lew. It means that people are not going to get a cost- | |
| of-living adjustment, a raise from the pay that they get right | |
| now. | |
| Mr. Chaffetz. So the total, the line-item going forward, | |
| will our total expenditure from the U.S. Government, will that | |
| go up or will that be the same? | |
| Mr. Lew. Well if we have more people, we will obviously | |
| have to pay the people who we are hiring, but for an individual | |
| federal worker they are going to see their pay frozen. | |
| Mr. Chaffetz. I guess what I am worried about for the | |
| American taxpayer is their expense for federal employees is | |
| going to go up, correct? | |
| Mr. Lew. Well I think if we want people to work at the | |
| airports and check to see that bombs aren't getting on planes, | |
| we have to pay them. | |
| Mr. Chaffetz. We already have 65,000 TSA agents. | |
| Mr. Lew. But we have new technology, and the new technology | |
| requires people to use it. | |
| Mr. Chaffetz. How many is enough? How many more TSA agents | |
| do you need? You have 65,000 TSA agents. | |
| Mr. Lew. Congressman, I am happy to go into detailed | |
| answers. | |
| Mr. Chaffetz. How many more TSA agents do you need? | |
| Mr. Lew. I think as we put new technology at the airports, | |
| we needed to hire people to work that equipment. I can get you | |
| an exact number. | |
| Mr. Chaffetz. We have 65,000. I need to know how many more | |
| people is it going to take? | |
| Mr. Lew. I know that it is not worth buying equipment that | |
| we don't have people to operate. | |
| Mr. Chaffetz. I appreciate it. Thanks, Mr. Chairman. | |
| Mr. Lew. And I would like to answer your other questions if | |
| I have time. I don't know if I have time. | |
| Chairman Ryan. If you could get to the gentleman in | |
| writing, only because we want to watch your time and the rest | |
| of the members time. | |
| Mr. Lew. Sure, okay. | |
| Chairman Ryan. It has now my pleasure to yield time to Ms. | |
| Moore. | |
| Ms. Moore. Thank you so much, Mr. Chairman, and thank you | |
| Mr. Lew for appearing. Now as you can tell, members on both | |
| sides of the aisle are very frustrated, because this is a very | |
| difficult budget. And coming from a cold place like Wisconsin, | |
| it is just chilling to see things cut like the low-income | |
| housing energy assistance program, for example. But I do | |
| appreciate the fact that the administration has attempted to | |
| have somewhat of a balance in terms of revenue and spending | |
| cuts and defense cuts, and entitlement cuts. I just want to ask | |
| you a very simple question: If we cut every dime of | |
| discretionary non-defense spending, would that put us on a | |
| course toward ending our deficits? Every single dime. | |
| Mr. Lew. It has not a big enough part of the budget for us | |
| to solve the problem. | |
| Ms. Moore. Thank you. That is what I want to know, because | |
| there is an attempt to really describe the solution as simply | |
| just cutting everything, not just low-income heating assistance | |
| but everything. | |
| Entitlements, my questions are generated from just | |
| listening here today. I get a little bit nervous when my | |
| colleagues talk about the White House not having dealt with | |
| entitlements. Did you say earlier in your testimony that you | |
| had found, what was it, $65 billion. | |
| Mr. Lew. $62 billion. | |
| Ms. Moore. In savings from Medicare? | |
| Mr. Lew. It is Medicare, Medicaid, federal employees health | |
| benefit programs; it is dozens of different provisions. | |
| Ms. Moore. So thank you. So you did, in fact, deal with | |
| entitlements. The reason I get nervous is entitlements is a | |
| really big category. The Medicare prescription drug program, | |
| can you remind me of how much that cost and was not paid for? | |
| Mr. Lew. Well I can tell you none of it was paid for. The | |
| exact estimate at the time was on the order of $500 billion. | |
| Ms. Moore. $500 billion? | |
| Mr. Lew. I wasn't working on this at the time, I might have | |
| the number wrong. | |
| Ms. Moore. And I wasn't here, and Democrats weren't in | |
| control of Congress. That is an entitlement that needs | |
| reforming. | |
| Social Security, I get very nervous. Can you just clarify | |
| for me who pays for Social Security? It comes out of our | |
| paychecks and employers paychecks, and you said earlier it was | |
| not driving the deficit. Why do they keep lumping Social | |
| Security into this deficit situation that we are in, and saying | |
| that it needs to be dealt with? | |
| Mr. Lew. Well, Social Security is financed by payroll tax, | |
| half by the employer, half by the employee. And if you look at | |
| the Social Security trust fund, it is projected to remain in a | |
| position to pay benefits until 2037, so we don't have any | |
| immediate crisis in Social Security funding. I think that it is | |
| also the case that we are spending more year to year on Social | |
| Security because people are retiring. If you turn 65, you get | |
| benefits. | |
| Ms. Moore. Okay, so thank you. I hate to cut you off but I | |
| keep hearing an awful lot about how the White House is harming | |
| small businesses, the business creators. I am just wondering, | |
| what are they talking about? If I have a hedge fund operating | |
| from my living room with a computer, I am a small business and | |
| I make, you know, several million dollars, am I considered a | |
| small business? A job creator? Like you said, law firms. Who | |
| are these small businesses that we are harming with the tax? | |
| Mr. Lew. I think if you look at the budget proposals we | |
| have, we have targeted assistance for small businesses that | |
| meet the kind of definition that I think most of us would, in a | |
| common-sense way, think of a small business. A small factory, a | |
| small shop, and it wouldn't apply to services like law and | |
| finance. So we have incentives that we propose that would make | |
| the tax code more attractive. | |
| Ms. Moore. You have differentiated here so that we are just | |
| not the mom-pop shop. | |
| Mr. Lew. We don't need to have the overall tax rate on the | |
| wealthiest Americans go back down to the [inaudible] level. | |
| Ms. Moore. Okay, let me ask one final question in my last | |
| five seconds, or just to make a statement maybe. The Bush era | |
| tax cuts, which I think we ought to have gotten rid of, period; | |
| those earning over $250,000 a year still benefit six times as | |
| much as everybody else. | |
| Chairman Ryan. Thank you, Ms. Moore. Ms. Black. | |
| Mrs. Black. Thank you, and thank you Mr. Lew. I want to go | |
| back and continue in the vein of the question related to a | |
| sustainable deficit. You started out by saying that this budget | |
| is just a starting point. I am a little disappointed in that | |
| because my understanding is that as the role of the President, | |
| he is to set forth a plan, not a skeleton. I am disappointed | |
| that there wasn't more of a plan here along the areas of the | |
| entitlement programs, but that is really not the direction I | |
| want to go. The direction that I want to go in is talking about | |
| sustainable deficits. | |
| Now, as has already been said here, we admire the work that | |
| you did during the Clinton administration, and particularly | |
| having a budget surplus, and that it broke your heart that we | |
| are not in that situation. However, it seems as I read your | |
| testimony and what I hear today, that the goal here was to have | |
| a sustainable deficit. And I think our goal should be to be out | |
| of debt, and that we shouldn't have a sustainable deficit but | |
| we should have a balanced budget. Do you agree that we should | |
| be in a situation where our goal should not be a sustainable | |
| deficit, but should be that we would have a surplus and not | |
| spend more money than what we bring in? | |
| Mr. Lew. The reason we call this a down payment is because | |
| we do agree that we need to get beyond stopping the building up | |
| of the debt, and we then need to work on surplus so that we can | |
| pay it down. The problem is you don't get there quickly. You | |
| have to stop putting more onto the bill before you can pay it | |
| down. It is going to take hard work to do that. The three | |
| percent of GDP gets us only to the point where we are paying | |
| our current bills with revenue, and we still have the deficit, | |
| the long-term debt, out there. And then we are going to need to | |
| work together on dealing with that. | |
| Mrs. Black. And I want to go to that too, because if our | |
| goal over the next 10 years is to just have sustainable | |
| deficit, we will never pay down the debt. And frankly, one of | |
| the reasons why I ran is because I look at my six | |
| grandchildren, and I am really sad to think that my goal over | |
| the next 10 years, or my goal of serving for however long I | |
| serve, is just to sustain the deficit and not go toward the | |
| debt. And I think that it is short-sighted for us to think | |
| along those lines. I want to see a plan that gets rid of the | |
| deficit and begins to start to pay on the debt. | |
| Mr. Lew. I think that having presented budgets that had | |
| surpluses and now working on a budget that is a tough budget, | |
| that stops building the debt, I agree that we need to look | |
| beyond getting to the point where we are not adding to the | |
| debt, and we need to look to the point where during good | |
| economic times, we are paying down the debt. It is not a simple | |
| process. We are not going to get there quickly. It took a long | |
| time to dig this hole; it took a lot of decisions to get us | |
| where we are. It is going to take a lot of hard work to get | |
| out. And I think that the notion that this is a starting point, | |
| I don't mean to say it is not a serious starting point. It is a | |
| comprehensive, responsible budget. The President doesn't get | |
| the final word; he gets the first word. He has put his plan | |
| forward. | |
| Mrs. Black. But I want to go back, again, to words that you | |
| used on one of the other comments that you made, and you talked | |
| about all of the things that got us to where we are. But you | |
| said the number-one thing was, we suspended common-sense | |
| spending where we are spending more than what we bring in. And | |
| this budget that we have gotten does the same thing, and I | |
| don't think it gets us to where our goal really should be, and | |
| that is to stop deficit spending and start paying down our | |
| debt. | |
| Mr. Lew. Well this budget actually adheres to the principle | |
| that we need to pay for what we do, and with all respect I | |
| would note that changing the rules of the House so that tax | |
| cuts don't require offsets is not something that is going to | |
| help get to the goal that you are looking for. We need to have | |
| a clearheaded understanding that whether it is a tax cut or | |
| spending increase, if we don't pay for it, it increases the | |
| deficit. | |
| Mrs. Black. Well the more that we take from the people that | |
| are out there creating the jobs, the less jobs we will have, | |
| the less taxes we will collect. Thank you. | |
| Chairman Ryan. Ms. Wasserman Schultz. | |
| Ms. Wasserman Schultz. Thank you Mr. Chairman. Welcome, it | |
| is good to see you. | |
| Mr. Lew. It has good to be here. | |
| Ms. Wasserman Schultz. I think it is interesting that the | |
| gentle lady from Tennessee laments the lack of a plan. Here it | |
| is. This looks like a plan to me. | |
| Mr. Lew. Felt like a plan putting it together. | |
| Ms. Wasserman Schultz. I bet it did. This from the party | |
| that still after six weeks in the 112th Congress, still has no | |
| jobs agenda, still has not put forward a plan to create jobs, | |
| not a single piece of legislation, nothing that has as many | |
| pages as this, 207 pages like this plan does. I think that when | |
| casting aspersions about the lack of a plan, they should look | |
| inward first. But your testimony referred to $62 billion in | |
| savings from increasing efficiency and accountability of health | |
| spending. Now we really focused on cracking down on waste, | |
| fraud, and abuse, and that was a huge priority in the 111th | |
| Congress for Democrats, particularly when we passed the | |
| Affordable Care Act. What are some of the significant policies | |
| in the budget that will contribute to that kind of savings? | |
| Mr. Lew. Congresswoman, there is kind of three baskets of | |
| savings. There is one set, which is about 16 provisions, which | |
| we would call program integrity. It is to make sure that if a | |
| provider has been paid erroneously, we recoup payment. If a | |
| provider submits bills for things that shouldn't be paid or | |
| duplicate bills, we have a process to make sure we pay once and | |
| we pay properly. That saves a little over $30 billion. | |
| We then have a number of provisions that would give | |
| Medicare and Medicaid the ability to take advantage of generic | |
| drugs, particularly generic biologics. That saves a little over | |
| $10 billion. Then we have a couple of changes in the Medicaid | |
| program, one of which would make sure that when we have | |
| expanded coverage and less uncompensated care, we calibrate | |
| correctly the disproportionate share payments that are supposed | |
| to pay providers who are providing uncompensated care. And then | |
| there is another that just lines up the state payment rates so | |
| that there is accuracy in what they are being matched for. | |
| Ms. Wasserman Schultz. The $62 billion in savings to which | |
| I just referred: Is that separate and distinct from the $125 | |
| billion in savings included in the budget related to program | |
| integrity? | |
| Mr. Lew. It is only counted in the budget once, and it is | |
| in the mandatory section, the $62 billion. We may have a | |
| display that shows it somewhere else, but it is only in the | |
| numbers once. | |
| Ms. Wasserman Schultz. Thank you. I want to focus on the | |
| cuts in Community Development Block Grants. In recent years, | |
| Congress has typically provided more than the President | |
| requests for Community Development Block Grants. And that is | |
| obviously a program that helps local governments fund housing, | |
| and sewers, and streets, and economic development, particularly | |
| in low and moderate income neighborhoods. Let me just give you | |
| a couple of examples of it for folks that really don't know | |
| Congressional speak. You know, Community Development Block | |
| Grants funds things like three grants in 2010 to the cities of | |
| Janesville, Kenosha, and Racine, Wisconsin, totaling nearly $4 | |
| million, and $2.4 million in two grants to Lima and Mansfield, | |
| Ohio. So my question is, the President's 2012 budget cuts | |
| Community Development Block Grants by about $646 million, and | |
| that is compared to the CR, where the Republican cuts it $3.1 | |
| billion, below, from the CR, $2.4 billion below the President. | |
| Can you classify the distinction between the President's | |
| approach to Community Development Block Grants cuts and the | |
| cuts in the CR, from the Republicans? | |
| Mr. Lew. The President's budget is a comprehensive budget | |
| where we have made tough tradeoffs. Reducing community- | |
| development block grants by 7.5 percent is a tough decision. We | |
| have got a lot of cities and towns that do good work with this | |
| money. But we didn't think it was necessary to make a deeper | |
| cut than that to hit the target of the $400 billion savings. | |
| Chairman Ryan. Thank you, Mr. Chairman. | |
| Ms. Wasserman Schultz. Thank you. | |
| Chairman Ryan. The gentleman from Appleton, Wisconsin, Mr. | |
| Ribble. | |
| Mr. Ribble. Thank you, Mr. Chairman. Thank you, Director | |
| Lew, for being here today. Just reading out of your testimony | |
| on page five, you say, Now that the country is back from the | |
| brink of potential economic collapse,--I would dare say that | |
| there is about 10 million Americans who wouldn't agree with | |
| that because they don't have a job today--Our goal is to win | |
| the future. But we cannot do so if we are saddled with | |
| increasingly growing deficits. Do you believe that statement, | |
| or was it just put in there as hyperbole? | |
| Mr. Lew. No, I believe it. I think that we were in a state | |
| of free-fall in the economy. We are not content with | |
| unemployment where it is now, or growth where it is now, but we | |
| have gone from negative growth and losing jobs to positive | |
| growth and creating jobs. And I believe that if we don't deal | |
| with the deficit, it is going to become a real threat to our | |
| economy. | |
| Mr. Ribble. So we cannot win the future if we are saddled | |
| with increasingly growing deficits. That is a statement that | |
| you agree? | |
| Mr. Lew. Yeah, no, I definitely agree with that. I wrote | |
| it, and I agree with it. That's a good thing. | |
| Mr. Ribble. Why would the President project a budget that, | |
| for the last five years, whose deficits are $890 billion, $891 | |
| billion, $960 billion, $1.05 trillion, and $1.16 trillion? All | |
| growing deficits. | |
| Mr. Lew. I think if you look at these last few years, there | |
| have been extraordinary things going on because of the | |
| recession. We have had a collapse in terms of revenues because | |
| of lower economic activity, we have had increased expenditures, | |
| some of them automatic stabilizers, some of them actions | |
| Congress and we took together to get the economy moving again. | |
| We have said that we are now at a pivot point. We cannot accept | |
| that as business as usual. It was necessary during the | |
| recession. We had to get out of this recession; if we were | |
| seeing negative growth right now and rising unemployment, that | |
| would be a terrible thing. So we are very proud of the work we | |
| did. We inherited an economy that was not in good shape, and we | |
| have gotten it on the path towards being in much better shape. | |
| The job is not done. And we are now looking to the future, and | |
| that is why we are putting together a budget that we think | |
| invests in the future. | |
| Mr. Ribble. Yeah, but the first five years, you project | |
| decreasing deficits and the last five years, you project | |
| increasing deficits, which will prevent us from winning the | |
| future. | |
| Mr. Lew. I think the deficit, as a percentage of the | |
| economy, stays in that 3 percent range in the entire period of | |
| this budget, and that is what we need to do to be able to pay | |
| our bills and not to put our current expenses on the credit | |
| card. We are going to have to do a lot more to pay down the | |
| debt. We are, and we are not pretending that we can do that all | |
| at once. We need to do that together, but we have got to get | |
| started. | |
| Mr. Ribble. On page seven, you use, It would be | |
| shortsighted to cut spending across the board and short-change | |
| critical areas for growth and competitiveness, such as | |
| education, innovation, and infrastructure, or carelessly slash | |
| programs that protect the most vulnerable. It is a little | |
| incendiary to think that those are the only two choices, but | |
| maybe it wasn't written with that intent. I will tell you what | |
| I believe is careless; when all the adults in this room leave, | |
| cameras are gone and the television announcers go home, I | |
| believe there is going to be a five-year-old sitting here with | |
| the bill. I think that is careless. Thank you sir. | |
| Chairman Ryan. Thank you. Mr. Ryan. | |
| Mr. Ryan of Ohio. Thank you, Chairman Ryan, thank you, Mr. | |
| Lew. I think this is the best budget you could put together | |
| given the circumstances, and I think it is important for us to | |
| remember that it was the President and this administration that | |
| said we need to have a Debt Commission, that made that happen | |
| while a lot of Republicans on the other side were doing the | |
| Potomac two-step, backpedalling away from it. And I think we | |
| need to go back and read those press clippings. You were here | |
| in 1993. Would you say that 1993 budget, when we had great | |
| economic growth during the 90s, 20 plus million new jobs being | |
| created, was it the 93 budget that really got the economy back | |
| on track? | |
| Mr. Lew. Congressman, I would say that what really made a | |
| difference was that from 1990, under President Bush, to 1993 | |
| under President Clinton, to 1997, when there was a bipartisan | |
| budget agreement, we showed continued emphasis on reducing the | |
| deficit, and paying for what we were doing, and getting our | |
| economic house in order. 1990 and 1997 were bipartisan; 1993 | |
| was not. I hope that we are now going back into a period where | |
| we can work together, because I actually believe that people | |
| draw a false distinction between, Is the economy causing us to | |
| get out of the deficit or is it our policies? They are | |
| connected. When we pursue policies that promote confidence in | |
| the future, it is good for the economy. When the economy grows, | |
| it is good for the deficit; a virtuous cycle. | |
| Mr. Ryan of Ohio. I think it is important that we realize | |
| that mature decisions were made in 1990; mature decisions were | |
| made in 1993. In 1993, there wasn't one Republican that voted | |
| for that budget. Vice President Gore had to break the tie in | |
| 1993, and then when we got into the 90s, we had some money to | |
| invest in children's healthcare and R&D, and set the stage for | |
| T-Com revolution and the Internet revolution and everything | |
| else. | |
| Two quick questions. One is, is a concern of yours, we have | |
| got $100 billion in cuts that our friends in the House want to | |
| make immediately in the next few months. We have got about $140 | |
| to $150 billion in cuts being made by states across the | |
| country, $2 billion is going to be pulled out from the federal | |
| employees. Are you concerned that in the short-term, that we | |
| are pulling too much money out of the economy and it is going | |
| to hurt the growth that we have had and the success that you | |
| have had over the last year or two? | |
| Mr. Lew. We have put together a budget that tries to step | |
| on the brakes at the right time, and to not jump too fast into | |
| fiscal consolidation. I think we are going to have to look and | |
| see how the debate develops here in Congress. I think there is | |
| a concern in the states, as they are facing their fiscal | |
| challenges. We were careful in this budget that overall, the | |
| impact on the states, we don't think will create more of a | |
| problem there, though there are some things we reduce, there | |
| are other things we increase. | |
| Mr. Ryan of Ohio. I am concerned. You guys have the veto | |
| pen, and I just want to encourage you to not be afraid to take | |
| a stand, because we have come a long way in the last two years | |
| and we need the President to continue to lead us out of this. | |
| We are doing the right things now, I disagree with what my | |
| friends on the other side are saying. That leads me to my next | |
| and final question, and you have got 35 seconds to try to sum | |
| it up. How do these investments that you are making, R&D, | |
| education, high-speed rail, infrastructure, how do these | |
| investments compare as a percent of the GDP to what China is | |
| doing, what Germany is doing, what some of these other | |
| countries are pumping money into; how do our investments | |
| compare to these other countries, as we try to be competitive | |
| and compete? | |
| Mr. Lew. Well overall, the United States as a private- | |
| public combined, spends more money on research and development | |
| than the next four largest countries put together, so we are | |
| the leaders in R&D. I think in these areas, we frankly have not | |
| kept up with some of our competitors. The infrastructure | |
| investment needs to keep up in order to be able to ship goods | |
| and buy and sell goods. | |
| Chairman Ryan. Thank you. Mr. Flores. | |
| Mr. Flores. Thank you Mr. Chairman, and thank you Director | |
| Lew for joining us today. I want to continue the conversation | |
| that Mr. Price started about amnesia regarding the past. Do you | |
| recall what the unemployment rate was in December, 2006? It was | |
| about 4.4 percent. The unemployment rate in December, 2010 was | |
| in the mid-nines. I would submit that what you claim that you | |
| inherited was due to a legislative process that occurred during | |
| that four-year period, and that wasn't controlled on this side | |
| of the aisle. | |
| I am new to this job, I have been in it about six weeks. | |
| Before I did this, I was a CPA and a CFO and a CEO for a number | |
| of successful companies, and so I know what it is like to sign | |
| the front side out of a paycheck, to make the decision to | |
| commit to hire an employer, to make an investment. This so- | |
| called plan doesn't put me in a position, if I were in that | |
| chair today, to do that. | |
| The other thing is that I know a little bit about | |
| businesses and budgeting, and I have learned some new | |
| terminology. Sustainable deficits is a new term, and then | |
| primary balance, that is another interesting term. When | |
| Chairman Bernanke was here last week, he said that the federal | |
| deficit over the long term should not exceed the interest cost | |
| that we pay on our debt. We have come up with this definition | |
| of primary balance, that it is okay to run a deficit of 3 | |
| percent of GDP. How many businesses and families do you know of | |
| that can operate in primary balance and for how long? | |
| Mr. Lew. We haven't set the goal of stopping at primary | |
| balance. We have said you have to get to primary balance in | |
| order to get beyond that, and I think it is an important | |
| difference. | |
| Mr. Flores. This doesn't get better than primary balance. | |
| Mr. Lew. You are not going to get to balance if you don't | |
| pass through primary balance. | |
| Mr. Flores. Let me submit to you that most families and | |
| most businesses that I know of cannot operate in primary | |
| balance. I commend you for having balanced budgets during the | |
| Clinton administration. That is what I call primary balance, is | |
| where you have zero deficit or a surplus. | |
| Mr. Lew. If I could just respond on the first point. You | |
| know, I think most families have had some experience with | |
| building up balances on their credit card that they really were | |
| facing really hard decisions. | |
| Mr. Flores. They don't do it over 10 years. They don't do | |
| it over 40. | |
| Mr. Lew. They start by cutting up the card, not putting | |
| more on it, and that is what primary balance is. | |
| Mr. Flores. And they start by cutting their net deficit to | |
| zero, and this plan doesn't do that. My questions are this, you | |
| have got average spending during, what was it? Let me rephrase | |
| that. | |
| Mr. Lew. I am going to have to bring historical statistics | |
| with me the next time I testify. | |
| Mr. Flores. I can answer it for you, but do you recall what | |
| spending was as a percent of GDP during the Clinton | |
| administration? | |
| Mr. Lew. It was around 20 percent. | |
| Mr. Flores. Correct. And what is the average spending as a | |
| percent of GDP under this plan? | |
| Mr. Lew. I think that when you look at spending as a | |
| percentage of GDP over time, it does grow as the population | |
| grows, because people become eligible for Social Security and | |
| Medicare. So when one talks about those numbers, you have to | |
| look at what is behind them. | |
| Mr. Flores. It is almost 23 percent, and if we really | |
| wanted to develop a plan to have sustainable deficits of zero | |
| or a primary balance of zero, we should have spending down | |
| around the same level as taxes and that is around 18.3 percent | |
| of GDP over the long-term. | |
| Mr. Lew. You don't get the balance if your revenue and your | |
| spending don't cross. The question is, at what level they cross | |
| providing what we need for the country. | |
| Mr. Flores. I understand. I yield back. | |
| Chairman Ryan. Ms. Kaptur. | |
| Ms. Kaptur. Thank you, Mr. Chairman. Welcome, Mr. Lew. Each | |
| member of Congress arrives here from different life | |
| experiences, and one truth in our family is going back nearly a | |
| century, that when Republicans occupied the White House in | |
| Congress, members of our family were thrown out of work. And | |
| when Democrats regained those offices, our family members | |
| started going back to work. It is one of the reasons I am a | |
| Democrat. I know until all Americans who want to work are able | |
| to become productive again, we won't be able to balance our | |
| budget nor reduce the deficit. No American I know wants to | |
| borrow more money from China or any other foreign country to | |
| keep this economy afloat. The administration budget, in my | |
| opinion, makes a responsible start and takes the deficit | |
| seriously, and so do I. In fact, I have served in this Congress | |
| long enough to have been a part of the solution during the | |
| 1990s that some of my Republican colleagues have referenced, to | |
| balance the budget and grow jobs in this economy. Mr. Lew, you | |
| were a part of that, I think the President has the right man in | |
| your position. | |
| Also this man, Mr. Panetta, who now has the CIA. We sat in | |
| this room, I was a member of the Budget Committee back then. I | |
| know what we did for America, and when we did it, Alan | |
| Greenspan said he didn't think it was a good idea to balance | |
| the budget. That is the most unbelievable statement I ever | |
| heard in my life. Congress did it by making tough choices, by | |
| cutting waste and also curbing special interests. I support the | |
| administration's proposals to get rid of those oil subsidies. | |
| Let them compete in the global economy. In the tough times we | |
| are facing today due to the Wall Street abuses that caused the | |
| recession we are in, the problem with the Republican budget is, | |
| it hurts job creation and it goes after the people who can | |
| least afford to hold their lives together in this economy. | |
| In fact, their budget cuts off almost four million student | |
| loans, it takes away five million meals to the homebound | |
| elderly, it lays off meat and poultry inspectors, and it cuts | |
| 40,000 jobs in preschools and Head Start. I don't think that is | |
| a very good set of proposals, so my questions, really Mr. Lew, | |
| to you deal with jobs, which is where we should be focused in | |
| two areas; one transportation, and the other one energy. For | |
| where I come from, which is not a government platform like | |
| capital cities like the one we are sitting in right now, and it | |
| is not a trading virtual platform like New York or Chicago or | |
| San Francisco, these places that deal in virtual stuff, we are | |
| the real economy in northern Ohio, and for us transportation | |
| and energy are destiny. | |
| So let me ask you, the administration has put some focus in | |
| its budget, despite tough times, on investing in | |
| infrastructure, and also in new forms of energy. That is music | |
| to our ears in our part of the country. We have to compete in | |
| an unsubsidized, free-enterprise economy in northern Ohio. | |
| Could you please tell us a little bit about the investments | |
| that the administration is going to be making in transportation | |
| and in renewable energy, and how this will contribute to job | |
| creation, which we all desperately want? | |
| Mr. Lew. Thank you, Ms. Kaptur. I am going to try in 50 | |
| seconds to do justice to our program, but we have an approach | |
| that is designed to make sure that we build the infrastructure | |
| so that we can have goods come and go between American markets | |
| and shipped internationally from our seaports and our airports. | |
| We have taken a broad view of surface transportation, because | |
| it also means having the kind of modern communications | |
| technology so that northern Ohio becomes part of the virtual | |
| economy because there is no part of the country that is left | |
| behind. That is what it is going to take to win the future. In | |
| R&D, in energy, you know we look at the new technologies in | |
| renewable energy and where other countries are frankly putting | |
| their money down, saying That is the future. If we don't do the | |
| same, we are going to find ourselves left behind. America has | |
| never been left behind before, and we shouldn't start now. | |
| Ms. Kaptur. I wish you could say more. Thank you very much, | |
| Mr. Chairman. Thank you, Mr. Lew. | |
| Mr. Lew. Thank you. | |
| Chairman Ryan. Mr. Mulvaney. | |
| Mr. Mulvaney. Thank you, Mr. Chairman. Mr. Lew, I am also | |
| one of the folks who is new around here, but I am familiar with | |
| budgets, I have written them, I have read them, and I can | |
| assure you, sir, that if you let me play around with the | |
| assumptions, I can make you a budget that looks as good or as | |
| bad as I want it to. I am looking at your assumptions regarding | |
| the revenues in the future, and you have assumed, essentially, | |
| that revenues have become about 19 percent of GDP in the next | |
| couple of years and then steadily increase over the course of | |
| your budget, peaking out above 20 percent. These are the | |
| historical numbers going back to the 1960s, and I suggest to | |
| you sir, or I would ask you, are you making an assumption that | |
| we have only seen once or twice in the last 40 years? | |
| Mr. Lew. You know, the revenue projections are based on a | |
| combination of current law and specific proposals, and it is | |
| driven by what is happening in the economy overall. | |
| Mr. Mulvaney. But the truth of the matter is that you are | |
| assuming numbers that, you are assuming the numbers will be | |
| average. Nineteen percent, 19 percent, 20 percent, and we have | |
| only seen that sporadically once, maybe twice, in the last 40 | |
| years. You take a look at the GDP, another one of your | |
| assumptions, Mr. Ryan mentioned it earlier, the Washington Post | |
| beat you up on it today; you are assuming rates of growth in | |
| the economy that dramatically exceed even what the | |
| Congressional Budget Office is assuming. Against that backdrop, | |
| you are also assuming interest rates dramatically lower than | |
| the Congressional Budget Office. I would suggest to you, sir, | |
| that to assume growth rates that are higher but interest rates | |
| that are lower is internally inconsistent, and I draw your | |
| attention to the fact that you have assumed an interest rate on | |
| the 10-year Treasury note of this year of 3 percent. Do you | |
| know what the 10-year traded at last week? | |
| Mr. Lew. I did not check the [inaudible] rates last week. | |
| Mr. Mulvaney. Three point six five. And your assumption is | |
| that it will be 3 percent this year. The Congressional Budget | |
| Office, by the way, says it will be 3.4; they are already too | |
| low. The Congressional Budget Office also testified that for | |
| every percentage point that they assume the interest rate is | |
| too low, it is $1.3 trillion of additional debt over the course | |
| of the 10 years. You have assumed revenues that are way higher | |
| than average, GDP that is higher than anybody else thinks, and | |
| interest rates that are dramatically lower than anybody else | |
| thinks. And I put it to you, sir, that that is the reason that | |
| this is not a credible document. | |
| And I go back and I look at the past couple of budgets that | |
| the President has offered. Two years ago, he told us the | |
| deficit this year would be $900 billion in his budget. Last | |
| year, he told us the deficit this year would be $1.3 trillion. | |
| Yesterday, he told us it was $1.6. Two years ago, he projected | |
| that the budget deficit next year would be $557. Last year, he | |
| told us that number was going to be $829. Now he is telling us | |
| the number is going to be $1.1. I can't believe the numbers. I | |
| can't do it. And until we can get numbers that we can agree on | |
| are at least in the middle of the assumptions, it is going to | |
| be very difficult for us to focus on policy. | |
| Is it a question? No, sir, it is not. Am I beating up on | |
| you? Perhaps unfairly so. But the point is this; we should be | |
| here talking about policy. We should be here talking about what | |
| the President wants to do to fix the country, and what we want | |
| to do to fix the country. I happen to be one of those | |
| Republicans who does not believe the President doesn't want the | |
| country to succeed. I believe that he does, but we have to have | |
| a discussion about policy, and when you give us numbers that | |
| are simply not credible, it really prevents us from doing that. | |
| I expect better. | |
| Mr. Lew. Can I respond at least quickly? | |
| Mr. Mulvaney. Very briefly. I expect better out of you, and | |
| I have already spoken to the Chairman, I expect better from us. | |
| When you see our budget, you are not going to see unreasonable | |
| assumptions. But yes, sir, you may. | |
| Mr. Lew. The economic assumptions in this budget reflect | |
| what is the middle in terms of where the Federal Reserve Board | |
| looks at what the likely patterns of recovery are. So, there | |
| are mainstream assumptions. | |
| Mr. Mulvaney. Well then you need to walk to the | |
| Congressional Budget Office and tell them that their numbers | |
| are whacked out. | |
| Mr. Lew. And there is a conceptual difference between the | |
| Congressional Budget Office numbers, where they believe the | |
| economy never gets back to the level of strength that it had | |
| before the recession. That hasn't been the experience of past | |
| recessions, even financially-led recessions. It is taken | |
| longer, but we have gotten back. So there may be year-to-year | |
| disagreements, but we think we have very credible economic | |
| assumptions, and I am happy when we have more time, to go | |
| through them in some detail. Thank you. | |
| Mr. Mulvaney. Thank you. | |
| Chairman Ryan. Thank you Mr. Huelskamp. Mr. Huelskamp, will | |
| you just yield for 10 seconds? | |
| Mr. Huelskamp. Yes, sir. | |
| Chairman Ryan. Here is what we think is wrong. You are | |
| assuming 3.9 percent growth in the first five years, 3.2 | |
| percent over 10 years. That is above trend, and only with those | |
| rosy assumptions can you ever get close to the primary balance | |
| you are claiming. That is why when we see blue chip | |
| Congressional Budget Office far below where you are, it sort of | |
| strains the credibility of these claims. That is the point we | |
| are trying to make. | |
| Mr. Lew. Mr. Chairman, I would just say that in the short | |
| term, we actually are slightly less optimistic. In the long | |
| term, we are slightly more optimistic, because of the | |
| difference in approach I just described. | |
| Chairman Ryan. And medium-term, where you hit your | |
| objectives more often. | |
| Mr. Lew. The idea behind the economic projections is, will | |
| we or won't we track the recovery patterns from past | |
| financially-led recessions? We believe we will. That is what | |
| the projection is. So it is to that trend. | |
| Chairman Ryan. Mr. Huelskamp. | |
| Mr. Huelskamp. Thank you Mr. Chairman. Mr. Director, I | |
| appreciate you being here, and back in February 23, 2009, the | |
| Congressional Budget Office at that time outlines a $1.186 | |
| trillion deficit. The very next day, the President made his | |
| promise to pledge to cut the deficit in half by the end of my | |
| first term in office. In your comments, and the President's | |
| yesterday, he made a claim that he was going to meet that | |
| pledge, at least projected. But the numbers show one-half of | |
| the Congressional Budget Office figures are a $593 billion | |
| deficit. What do you predict? | |
| Mr. Lew. If you look at it as a percentage of GDP, we cut | |
| it in half by the end of the first term. | |
| Mr. Huelskamp. That was not the statement of the President. | |
| That is what bothers me, how the President can stand up, and | |
| you can stand here in this document, and claim that you are | |
| cutting the deficit in half, when you did not. | |
| Mr. Lew. We are cutting it in half as a percentage of GDP. | |
| Mr. Huelskamp. That was not the claim the President made. | |
| Would you agree with me? | |
| Mr. Lew. I know what we have done in this budget. I know | |
| what we have said in this budget. We have cut the deficit in | |
| half as a percentage of GDP. | |
| Mr. Huelskamp. I appreciate that. Again, I will just note, | |
| that is not what the President said, and that is not accurate | |
| of what is in your budget, and that is some of my difficulty. | |
| Where I come from, if you are wrong, you are wrong, but to | |
| stand up and again make that claim, I was very disappointed in | |
| that particular claim. But I am also particularly disappointed, | |
| Mr. Director, in another statement in your document where you | |
| state, quote, We are going to stay on a path towards | |
| sustainable deficits. How long are deficits sustainable? | |
| Mr. Lew. We need to get to the place where we stop adding | |
| to the national debt. This is a down payment. We need to work | |
| together to go farther than that. But you have got to walk | |
| before you run. You have got to get rid of the deficit before | |
| you cut the debt. | |
| Mr. Huelskamp. I understand, but this budget never does | |
| that, does it? | |
| Mr. Lew. It gets us on a path where we will able to do it, | |
| yes. | |
| Mr. Huelskamp. The path is unsustainable. Your path in this | |
| budget is unsustainable. The deficit is not sustainable. | |
| Mr. Lew. I look forward to seeing the plan. | |
| Mr. Huelskamp. We are not talking about a proposed plan, | |
| Mr. Lew. That is why I am dissatisfied. The language that is | |
| coming out of this administration is telling the American | |
| people that we can borrow for 10 years or longer, and are going | |
| to call it sustainable. We are going to say 3 percent borrowing | |
| is sustainable. It is not sustainable. There is no way we can | |
| sustain the track that is being presented here, and that is | |
| disappointing, because I know the American people. I know | |
| people that work every day and try to balance their budgets and | |
| they understand that sometimes you go under water awhile. But | |
| to sit here today, and have the President claim, somehow, it | |
| will be all okay, even if we are going to have a $768 billion | |
| deficit in two years and we are going to sustain that forever, | |
| and that is why I am very disappointed that the President | |
| didn't stand. I am very disappointed in that. That is what I | |
| wanted to convey. Because the President has the opportunity to | |
| stand up and provide proposals to save and strengthen Medicare. | |
| And you have said here that those are not contained in here. | |
| But I just want to note, to the American people, the folks | |
| that are listening here, and in the media, this is not | |
| sustainable. You can call it whatever you want. Sustainable | |
| deficits do not work. Primary balance is a figment of our | |
| imagination. Only in Washington could you run a deficit and | |
| claim it is balance, and somehow use the word balance. Mr. Lew, | |
| you couldn't do that anywhere else. They would laugh you out of | |
| the room. And I come at the state level. I served in the state | |
| legislature. We had a requirement; balance. It wasn't a primary | |
| balance. We couldn't run a deficit. This country is on a course | |
| for un-sustainability and I would expect the President to stand | |
| forward and say I am not going to keep my word, but to stand up | |
| and tell the American people, I kept my pledge. He did not. | |
| Mr. Lew. I disagree with you Congressman. | |
| Mr. Huelskamp. He is $193 billion off of his promise. That | |
| is a false claim and I am very disappointed in that. I yield | |
| back the balance of my time, Mr. Chairman. | |
| Chairman Ryan. Do you want to take a second? | |
| Mr. Lew. No, I would be delighted to, Mr. Chairman. | |
| Chairman Ryan. You know it is coming out of your time. | |
| Mr. Lew. I understand. I have missed lunch a lot of days. I | |
| think that if we want to use the kinds of common-sense language | |
| that people understand, we should just do that. We should say, | |
| Can you bring down the debt before you eliminate the deficit? | |
| No. You can't start paying down the debt until you stop adding | |
| to it. That is all we mean by primary balance. We are not | |
| talking about it being okay. We are just saying that you can't | |
| honestly tell people that we can pay down the debt, while you | |
| are still adding to it. | |
| Chairman Ryan. Mr. Young. | |
| Mr. Young. Mr. Director thanks so much for being here | |
| today. I know it has been a long morning and early afternoon | |
| for you. My focus here in Congress is on sustainability, but it | |
| is on sustainable job creation. And in the testimony we | |
| received from Bernanke the other day, he indicated that the one | |
| thing that really is missing from our policymakers in | |
| Washington, the Executive Branch and Congress alike, is that | |
| coherent plan, as he phrased it, and as Moody's recently | |
| phrased it when they downgraded Japan's debt. A coherent plan | |
| to deal with our entitlement programs. That is pointedly absent | |
| from this budget, this roadmap, if you will. I think that is a | |
| dereliction of duty on the part of the President. | |
| Now you have indicated in today's Wall Street Journal, if | |
| they quoted you correctly, that such proposals to deal with | |
| these matters are better left in closed-door settings. Fair | |
| enough. Perhaps that is the political judgment you make. I | |
| actually think we owe it to the American people to own up to | |
| them and to treat them like adults. That is what I intend to | |
| do. What is our pathway into this meeting? How are we going to | |
| begin this conversation? Will a letter be forthcoming? What | |
| will the date of that meeting be? Please enlighten us. | |
| Mr. Lew. Congressman, I don't believe that is exactly what | |
| I said, but what I do believe and what I have said is, we have | |
| put down a plan, which is the President's plan for how we are | |
| going to get to the point where we stop adding to the debt. We | |
| have also said that we need to have an environment where we can | |
| work together on these long-term issues and have conversations | |
| about things that it is frankly hard to have conversations | |
| about. History shows that it is much harder to create an | |
| environment where we can have trust and conversations to work | |
| on a bipartisan basis, than just to take polarizing positions. | |
| We have tried to strike a balance, putting a responsible plan | |
| out there and creating an environment for that conversation. We | |
| just took the first step yesterday. Congress is going to come | |
| forward. You will write your budget and we will engage. It is a | |
| long process. This is the first step. | |
| Mr. Young. What is the next step? | |
| Mr. Lew. Congress will write a budget. We look forward to | |
| seeing what you do and your budget, and how you reach primary | |
| surplus, how you reach deficit reduction, if you bring down the | |
| debt. We really do think that you will have ideas that we want | |
| to take advantage of and we look forward to working together. | |
| Mr. Young. In this remaining minute and a half, let us | |
| narrow down exactly what concerns the President has. People on | |
| this panel here, at least on this side of the aisle, invite and | |
| encourage the dialogue with the White House on this. Is it | |
| people in his own party that are a barrier, and what might I do | |
| as a freshman member of Congress to create the political space | |
| where the President can step up and take a leadership role in | |
| these matters? | |
| Mr. Lew. I have worked on bipartisan negotiations from both | |
| sides of the street, I was in the Speaker's office when the, | |
| with a Democratic speaker when there was a Republican | |
| President, and with a Democratic President and Republican | |
| speaker. I can tell you the hardest part of the process is | |
| developing the trust, where you can talk about the things that | |
| you have to do. I think the attempts to characterize this | |
| budget in the way that we have done it today are things that I | |
| hope people take another look at, because this is a serious | |
| proposal. I know you don't agree with it. I know there are | |
| things that will be in your budget that we don't agree with. We | |
| have to come from those positions, to find the middle where we | |
| can agree. That is how you reach bipartisan agreement. | |
| Mr. Young. Well I would encourage the President, I know he | |
| is watching C-SPAN today, to move forward aggressively on this | |
| matter. We are running out of time. We don't know what the | |
| optimal debt to GDP ratio is, as Bernanke and others have | |
| testified, and I think we need to very quickly embrace this | |
| issue and solve it, as opposed to dancing around it and doing | |
| the Potomac two-step. | |
| Mr. Lew. We look forward to working together. We share the | |
| same long-term goal. We may have different ideas about how to | |
| get there and that is what we need to work through together. | |
| Chairman Ryan. Mr. Rokita. | |
| Mr. Rokita. Thank you, Mr. Chairman. Thank you, Mr. Lew. | |
| Representative Young, Representative Stutzman, and I come from | |
| a state that has a balanced budget. In fact we have a triple-A | |
| bond rating, haven't raised taxes, and our secretary of state | |
| for the last eight years has been running the office on a 1987 | |
| budget, unadjusted for inflation, and by and large, no one | |
| seems to have missed a beat, no one is complaining about lack | |
| of services or anything else. Can you imagine if we could have | |
| Washington work on 1987 dollars? Hold on, don't answer that. | |
| Mr. Lew. I think there would be a lot of people who asked | |
| where their Social Security check was. | |
| Mr. Rokita. No, I don't think so. I don't think so. But we | |
| have to get to that, because you are right. You have | |
| acknowledged here a couple times that we have this pig in the | |
| python, the baby boomers you described, getting older and need | |
| their check, and that is, I think, the frustration here, is | |
| yeah, we all see that. But where is the leadership? You | |
| mentioned a few times that you are a lawyer, I am one too, I | |
| feel your pain. | |
| Mr. Lew. I haven't practiced in a long time. | |
| Mr. Rokita. But, classic basic skills of negotiation | |
| dictate that, when you are kicking off a process, which you | |
| just did yesterday, leadership dictates even, that you kicked | |
| off up here. And it seems that you are right here, and saying, | |
| Okay, you guys fill in the blanks. | |
| Mr. Lew. No, I don't agree with that. I think we kicked off | |
| the process with a comprehensive plan that put an awful lot on | |
| the table, that is, we think, the best way to deal with the | |
| immediate challenges in front of us. And if that is not | |
| something that you agree with, we look forward to seeing your | |
| plan, and then we will work together to find where we can | |
| resolve it. So I don't agree with the characterization. I do | |
| agree that, as the President said, when he said this is a down- | |
| payment, there will be issues that we have to deal with beyond | |
| this, and those are totally consistent. | |
| Mr. Rokita. Okay, so in that regard, let me ask you some | |
| specific things. There has been a bipartisan agreement. Steny | |
| Hoyer, if I am quoting him correctly, said, Democrats agree | |
| that spending cuts are necessary to tackle our deep budget | |
| deficit. So we have got bipartisan agreement that we have got | |
| to start cutting spending. Given the reality that spending cuts | |
| are coming, has Office of Management and Budget approved any | |
| agency's spending in excess of fiscal year 2010 levels? | |
| Mr. Lew. We are currently operating under a Continuing | |
| Resolution. Under the Continuing Resolution, we neither can | |
| begin or terminate activities. So we have been operating under | |
| the terms of something that provides for funding, in most | |
| cases, at fiscal year 2010 levels. It is an imperfect way to | |
| run the government, we should have full-year spending bills, | |
| and there undoubtedly will be complications as we move through | |
| the year, adjusting these numbers as we go along. | |
| Mr. Rokita. Have you advised agencies to prepare to start | |
| lowering their budgets? | |
| Mr. Lew. Well, we advised agencies that they should follow | |
| the law. The law is that under continuing resolution, you do | |
| not initiate or terminate programs. | |
| Mr. Rokita. Well, for the future, are you starting to get | |
| these agencies acclimated to a culture of spending cuts? | |
| Mr. Lew. I think the budget exercise we went through to | |
| produce this budget was a transition for many agencies, where | |
| things that were sacred cows that only grew, were frozen or | |
| reduced. There are tough decisions in this budget, really tough | |
| decisions, and I think there isn't an agency of government that | |
| hasn't made those trade-offs. | |
| Mr. Rokita. You acknowledged that there is a net excess of | |
| 22,000 federal employees under your plan. | |
| Mr. Lew. I am acknowledging that there is an increase, | |
| which is a very small percentage of the federal workforce, to | |
| address new activities in this period. | |
| Mr. Rokita. In Indiana, 22,000 is a lot of people. | |
| Mr. Lew. It is a lot of people, but it is a big country, | |
| too, so when you put a few people at airports all over the | |
| country, it starts to add up. | |
| Mr. Rokita. Oh, don't start the airport business. | |
| Mr. Lew. I could give other examples if I had more time. | |
| Mr. Rokita. One more thing on Social Security. You | |
| mentioned that Social Security wasn't much of an issue, I am | |
| paraphrasing, obviously, but I want you to tell me whether or | |
| not the trust fund has any money in it or not. | |
| Mr. Lew. Trust fund has been running a surplus since 1983. | |
| Mr. Rokita. That is been taken. | |
| Mr. Lew. And it has bonds in it. | |
| Mr. Rokita. Thank you. | |
| Chairman Ryan. Mr. Stutzman. | |
| Mr. Stutzman. Thank you, Mr. Chairman. Thank you, Mr. Lew, | |
| for your time today. Does the administration have any concern | |
| about the national debt? | |
| Mr. Lew. Yes. | |
| Mr. Stutzman. I mean, am I right in reading that, on page | |
| 202, that our debt is going to go from $13.5 trillion to $26.3 | |
| trillion over the next 10 years? | |
| Mr. Lew. Yeah, I think that we are very concerned about | |
| controlling the deficit so we stop building the national debt. | |
| We then have to start bringing down the debt so that the | |
| interest payments can also be reduced. | |
| Mr. Stutzman. There is no plan, or no idea, in here, that | |
| even starts the curve back to some sort of solvency with | |
| national debt. I mean, to me, as we waited for the President's | |
| budget, I really felt that, you know, the President was going | |
| to come back and he was going to, in this town as a freshman, I | |
| am finding it is very political, I see great divides between | |
| the party, and I thought maybe the President's going to try and | |
| one-up the Republican party, and do something that, you know, | |
| maybe we are going to try to jump out in front and do. | |
| And it totally surprised me to see this type of a budget. | |
| As a small business owner back in Indiana, to project deficit | |
| spending, project doubling the debt; when are we going to start | |
| to see some sort of action to show otherwise? | |
| Mr. Lew. First, I mean, you are looking at, there are | |
| different measures of the debt. The debt held by the public is | |
| the part of the debt that has the impact on credit markets. And | |
| I would just note there are different ways of looking at it, it | |
| gets to a much lower number in 2021. | |
| Mr. Stutzman. Where does it start to do, to go back down? | |
| Am I looking at the wrong line? | |
| Mr. Lew. No, I mean, until we start paying down the debt, | |
| the interest payments on the debt will still be increasing that | |
| number. I don't disagree that we need to ultimately turn the | |
| corner and start paying down the debt. I just am arguing, and I | |
| think it is common sense, that until we stop adding to the debt | |
| through our spending policies, to pay down the old debt is | |
| impossible. So we have got to do this in two steps. This down | |
| payment has that first step, which is the critical and | |
| necessary first step. | |
| Mr. Stutzman. As I am going back through, there are a | |
| couple of departments that get minimal increases. But it | |
| appears the largest increase is to the Department of the | |
| Treasury, specifically the IRS. Can you comment why? | |
| Mr. Lew. Well, there are several reasons. First of all, we | |
| are implementing financial regulatory reform, which is an | |
| important area. We certainly don't want to be exposed to the | |
| future risks of bail-out that we have seen in recent years. | |
| Secondly, we have enforcement initiatives where, I think we | |
| all agree, that if two people live next door and they are in | |
| the same income tax status, they have the same income, they | |
| should pay the same taxes. It shouldn't be that if you cheat | |
| you pay a lower tax rate. And there are enforcement efforts in | |
| there. | |
| Mr. Stutzman. So how many of the 22,000 new federal | |
| employees are anticipated to be hired by the IRS? | |
| Mr. Lew. I would have to go back and check the specific | |
| numbers. | |
| Mr. Stutzman. I have got a couple of miscellaneous | |
| questions. How many federal employees do we currently have? | |
| Mr. Lew. I could give you an exact number, I am happy to | |
| get back to you. | |
| Mr. Stutzman. Okay, and then real quick, I think I heard | |
| you say earlier, that employers' number one concern is that | |
| they need an educated workforce, is that right? | |
| Mr. Lew. I said, when I meet with CEOs, one of the big | |
| concerns that I hear them express is that they are having | |
| trouble hiring people with the skills they need in science, | |
| engineering, and math. | |
| Mr. Stutzman. Okay, all right. Thank you, Mr. Chairman, I | |
| will yield back. | |
| Chairman Ryan. Okay. Mr. Lankford. | |
| Mr. Lankford. Thank you. You got to do this whole exercise | |
| last year, and go through all the dance and all the hearings | |
| and everything else, and then the budget was actually not | |
| passed. | |
| Mr. Lew. I have only been here eight weeks on the job. | |
| Mr. Lankford. Congress just passed on it, and so getting a | |
| chance to do this again, and that we can hopefully get a chance | |
| to pick up and pass a budget this time, and get us through all | |
| that. I am hearing a perpetual sense that the certain | |
| apocalypse is coming if Republicans actually try to balance the | |
| budget and move us from, out of just deficit spending, to | |
| actually cutting down the debt. But I can tell you, I see the | |
| other side of this, to say $26 trillion is a more frightening | |
| thing to me that balancing the budget is a frightening thing to | |
| me on that. | |
| Let me just set a quick stage for you, just the emotions of | |
| that, because you are walking to this, early on at this point, | |
| returning back, as I am walking into it. Here is the sense that | |
| I walk into it with. When I came on January 5, this year's | |
| budget deficit was projected to be $1.4 trillion. By the State | |
| of the Union, it was $1.5 trillion. As of yesterday, it is | |
| $1.65 trillion. Now, what I am hearing is this sense of | |
| consternation that we are talking about cutting $100 billion | |
| out of this year's budget when actually our deficit has | |
| increased $250 billion, just in the six weeks that we have been | |
| in this session, at this point. | |
| So there is a real sense among a lot of people that I have | |
| talked with, to say we cannot just slow down the amount of debt | |
| that we are adding each year. We have actually got to get back | |
| to balance. And I know you are walking a fine line, and I know | |
| you are fulfilling the President's mandate to say let us slow | |
| down the curve somewhat on it. But you go out 10 years, and | |
| there is no debt reduction. I know you said a bunch of times, | |
| we have got to get back to this primary balance. But it seems | |
| as if the next President and the next Congress is left with the | |
| hard decisions, and this is just some simple decisions that get | |
| into it. | |
| Mr. Lew. In fairness, President Obama took office and | |
| inherited a situation that was out of control, and we are | |
| getting it under control and we are doing it as we emerge from | |
| the recession. | |
| Mr. Lankford. What I am hearing are terms like sustainable | |
| deficits, that doesn't seem to be working towards getting it | |
| under control. That seems to be working towards getting it to | |
| some manageable balance that we only add a trillion or so a | |
| year to our debt, and we are not really getting out of this. | |
| The other side that really concerns me is this whole sense | |
| of trying to split up the way that we are handling energy, that | |
| there is a preferred energy and there is a non-preferred | |
| energy. And we are going to try to sink a lot of money into | |
| R&D, into new technologies and energy, while punishing people | |
| that are in traditional. There has been a lot of conversation | |
| about jobs and about small businesses. And my question, in | |
| multi-fold in this; my concerns on it, number one is, is an | |
| independent producer of traditional energy sources who has | |
| three to five employees a small business? | |
| Mr. Lew. If that was the entirety of the business, I | |
| believe it would be a small business. | |
| Mr. Lankford. For a lot of independent producers around the | |
| country, they have three to five employees. And there is this | |
| sense of, we are going to go hammer on the big oil companies, | |
| when the majority of our energy companies aren't the big giant | |
| companies. They are small independent producers that are | |
| scattered all over the country. There are hundreds and | |
| thousands of them, scattered all over, that are about to get | |
| hammered, that are living in fear that the administration is | |
| going to come hammer them to come do another type of energy, | |
| very similar to what President Carter did when he said we are | |
| going to have 20 percent of our electricity produced by solar | |
| power by the year 2000. Yet here we are, in 2011, it is not | |
| even one percent. | |
| Mr. Lew. We are seeing that other countries are investing | |
| in the technology now, and the technology has advanced, and we | |
| are entering a different period of time. | |
| Let me just respond to one point that you made. | |
| Mr. Lankford. Let me just finish, I have no issue with all | |
| forms of energy. I have an issue with going and punishing one | |
| group that is actually fueling our vehicles and powering our | |
| cars and getting our homes ready, so we can go try to do | |
| something else that may work ten years from now. It feels like | |
| the sustainable debt, you are saying, We will try to manage | |
| this and hopefully that will work out at some point. That is | |
| what I feel like we are doing to energy by trying to punish the | |
| energy companies. | |
| Mr. Lew. I know we are almost out of time, but I just want | |
| to go back to one point you were making earlier, when you | |
| described the increase in the projected deficits. I just want | |
| to point out that in December, I know you weren't here in | |
| December. In December, my first couple of weeks in this new | |
| position, we had an important bipartisan agreement to do | |
| something that I think most of us agree on, which is taxes | |
| shouldn't have gone up January 1 of this year. We needed to | |
| have economic activity, it was the wrong time to let a tax | |
| increase take place. We also needed to do some things because | |
| we were still in a recession. That is driving up the numbers, | |
| but we knew when we passed it at the time, that it would have | |
| that short-term impact. | |
| Chairman Ryan. Thank you. Mr. Guinta. | |
| Mr. Guinta. Thank you, Mr. Chairman. Thank you, Mr. Lew, | |
| for being here. I have a couple of quick questions, and I will | |
| try to not take up the full four minutes. First of all, I | |
| understand earlier this morning we agreed on the $1.6 trillion | |
| deficit number for fiscal year 2012, as proposed. Correct? | |
| Mr. Lew. I am not sure I understand what you are referring | |
| to. | |
| Mr. Guinta. Did you agree that this budget proposal has a | |
| $1.6 trillion deficit? | |
| Mr. Lew. Our budget states in its four corners, what the | |
| deficit is each year. | |
| Mr. Guinta. 2012, it is $1.6 trillion, correct? | |
| Mr. Lew. In 2012, it is 1.1. | |
| Mr. Guinta. One point one trillion, okay. You had said that | |
| we want to cut the deficit in half, as it relates to GDP. You | |
| had also made statements about the deficit as a percentage of | |
| GDP. You also said that we need to be talking more clearly to | |
| the country about the challenges we have. I don't disagree with | |
| that. My point would be, I don't think the country appreciates | |
| the verbiage that we use. Municipalities, states, and homes do | |
| not budget the way the federal government budgets. I agree with | |
| you, and I think most people here agree, that we do have to | |
| reform and reduce spending. We do have to get on a path to have | |
| a greater fiscal soundness moving forward. | |
| I don't see that path in this budget. You have conveyed | |
| that this is a first step. You have also made the statement | |
| that we need to put the, step on the brakes at the right time. | |
| I believe that the country believes that this is the right | |
| time. Our time is now, in order to change course, change | |
| direction. And I am certainly willing to work with you, and | |
| anybody, who recognizes that point. I don't see it in the | |
| budget, and maybe I am missing it, but I will continue to look | |
| through. | |
| A couple of things that I would consider. First of all, I | |
| would like to know, how many programs for this budget did the | |
| administration audit? | |
| Mr. Lew. How many did we audit, we reviewed every program | |
| in the Federal Government. We have terminations, reductions, | |
| and savings in over 200. | |
| Mr. Guinta. In this budget proposal? Okay, do you know how | |
| much money that saves? | |
| Mr. Lew. $33 billion, those 200 plus terminations, | |
| reductions, and savings, save over $33 billion in 2012. | |
| Mr. Guinta. And where did you end up spending that savings | |
| in this proposal? | |
| Mr. Lew. We are living within the freeze. We are paying for | |
| the extension of the Medicare Doc Fix, we are doing, there is a | |
| whole host of things. In just a few seconds, it would be hard | |
| to give you the complete, comprehensive answer. | |
| Mr. Guinta. Is there a proposal for a reduction in force of | |
| federal employees? | |
| Mr. Lew. There is not a general policy. I believe there are | |
| some agencies that may well have some reductions enforced. It | |
| is not that it was a government-wide policy. | |
| Mr. Guinta. But you could instruct the departments to | |
| reduce their size and scope? | |
| Mr. Lew. Right, we have a pay-freeze, which is a reduction | |
| in compensation for federal workers. And we have budgets that | |
| are very constrained, which mean that they are going to take on | |
| new missions without new people. And I think these are very | |
| tight budgets for federal agencies. | |
| Mr. Guinta. Okay. And the final point I would like to make | |
| is, in New Hampshire, my home state, 94 percent of our | |
| employers are small business owners. I note on the Office of | |
| Management and Budget Website that you project over 10 years, | |
| 500,000 new jobs will be created in New Hampshire. Our total | |
| population is about 1.3 million. I fail to see how we are going | |
| to create 500,000 new jobs in my state, particularly when we | |
| have got the marginal rate lapsing at 45 percent with the | |
| number of small business owners we have. | |
| Mr. Lew. I am not familiar with the specific projection you | |
| are referring to. I am happy to take a look at it and get back | |
| to you. | |
| Mr. Guinta. Okay. Thank you very much. | |
| Chairman Ryan. That is it? | |
| Mr. Lew. Thank you very much. | |
| Chairman Ryan. I hope you get some time to eat lunch before | |
| your next hearing. Thank you for coming by. We obviously have a | |
| chasm that separates our opinions on these issues. I look | |
| forward to further meetings with you in the future, this | |
| hearing is adjourned. | |
| Mr. Lew. Thank you, Mr. Chairman. | |
| [Questions submitted for the record and their responses | |
| follow:] | |
| Questions Submitted for the Record and Their Responses | |
| Chairman Ryan: | |
| Director Lew, in Table S-7, there is an adjustment to the BEA | |
| baseline of $118 billion over ten years ($12 billion per year) to | |
| ``reflect the incremental cost of funding the existing Pell maximum | |
| grant award.'' | |
| Could you provide a more detailed justification for this adjustment | |
| and tell us if it is mandatory or discretionary funding? | |
| A: The adjustment to the BEA baseline reflects the special | |
| scorekeeping rule for Pell Grants that CBO, OMB, and the Congressional | |
| budget committees have used since 2006. The scoring rule charges the | |
| appropriations committees for the full cost of funding the Pell maximum | |
| award for all eligible students, regardless of the amount of budget | |
| authority specified in the appropriations bill. The proposed outyear | |
| adjustment to the BEA baseline reflects the full cost of funding the | |
| current discretionary maximum award level--$4,860--for the projected | |
| number of students who would qualify in each fiscal year of the ten- | |
| year budget window. Finally, the adjustment is discretionary and does | |
| not suggest mandatory funding for the entire Pell Grant program. | |
| Chairman Ryan: | |
| Your predecessor's June 8, 2010 budget preparation guidance to | |
| agencies ``requested that each non-security agency submit a budget | |
| request five percent below the discretionary total provided for that | |
| agency for FY 2012 in the FY 2011 Budget.'' Despite this guidance, many | |
| agencies including Commerce, Education, Energy, HUD, Interior, | |
| Treasury, EPA, GSA, NASA, NSF, SBA, and SSA saw increases over the | |
| projected 2012 level or decreases smaller than 5%. | |
| Why did the administration not reduce spending that the agencies | |
| themselves decided were low priority? | |
| Please provide for the record a list of the programs identified by | |
| the agencies pursuant to this guidance. | |
| A: The agency submissions to OMB are part of the deliberative | |
| process which informed the development of the 2012 Budget. Like in past | |
| years, OMB provided guidance to agencies on their 2012 Budget request, | |
| including the top-line funding level for each agency. This past year, | |
| we also asked agencies to identify lower priority programs that are | |
| less critical in advancing their missions. | |
| The materials agencies submitted were critical to developing our FY | |
| 2012 Budget request, and directly informed decisions to terminate or | |
| reduce funding for many low priority programs. Overall, the budget | |
| proposed 200 terminations and reductions that save $30 billion in 2012. | |
| In other cases, the Budget proposes to consolidate funding for low | |
| priority programs and use the funding more effectively, or reform | |
| programs so they can better accomplish their mission. | |
| All of this contributed to the President's proposal to freeze non- | |
| security discretionary spending for five years. | |
| Chairman Ryan: | |
| Please provide the Committee with a list of proposed terminations | |
| and major reductions in the President's budget for FY 2002-FY 2010 and | |
| the ultimate funding level provided by Congress for these programs. | |
| A: Attached is the list of discretionary programs that were | |
| proposed in the President's Budget for termination or reduction from | |
| 2006 to 2010, compared with the funding levels enacted by the Congress. | |
| The 2006 Budget was the first year that the President's Budget included | |
| a supporting document detailing proposed terminations and reductions. | |
| From 2006 to 2009, the supporting document was titled ``Major Savings | |
| and Reforms.'' Since 2010, the supporting document was titled | |
| ``Terminations, Reductions, and Savings.'' | |
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| Congressman Yarmuth: | |
| Director Lew, for the past two years I have opposed the | |
| Administration's proposal to repeal the Last In, First Out (LIFO) | |
| accounting method for tax purposes. American companies have been | |
| operating under the assumption that LIFO is a perfectly sound | |
| accounting method since 1939, when Congress enacted tax code section | |
| 472, which expressly makes LIFO an acceptable method of tax accounting. | |
| Repealing LIFO would have a devastating impact on a number of companies | |
| in my district, particularly Brown-Forman, a wine and spirits company | |
| that is one of the largest producers of Kentucky bourbon. Brown-Forman, | |
| which employs about 1,300 people in Louisville, estimates repealing | |
| LIFO would raise its taxes by hundreds of millions of dollars. The | |
| company, and the spirits industry at-large, has long used LIFO as its | |
| standard accounting method, which is, in part, attributable to the fact | |
| that it produces whiskey, a product which necessitates aging over long | |
| periods and which federal law specifically requires to be aged. | |
| There is one aspect of the President's proposal that has me | |
| particularly concerned for American companies, and that is the fact | |
| that the proposal would not only repeal the LIFO method going forward; | |
| it would also ``recapture the LIFO reserve'' of every LIFO taxpayer. | |
| This proposal would retroactively repeal deductions that were clearly | |
| authorized by the U.S. tax code and that in many cases were taken by | |
| the taxpayer as far back as several decades ago. This would be the | |
| equivalent of repealing the mortgage interest deduction and forcing | |
| homeowners to repay all of the deductions they took. This, like the | |
| current LIFO proposal, would be exceedingly unfair, as are most | |
| retroactive tax changes. I, therefore, urge you to reconsider your | |
| proposal--and respond to these concerns. | |
| A: The repeal of the LIFO (last in, first out) method of accounting | |
| will eliminate a tax deferral opportunity available to taxpayers that | |
| hold inventories, the cost of which increase over time. This tax | |
| benefit does not accrue to taxpayers who use the FIFO (first in, first | |
| out) method of accounting. In addition, LIFO repeal would simplify the | |
| tax code by removing a complex and burdensome accounting method that | |
| has been the source of controversy between taxpayers and the Internal | |
| Revenue Service. International Financial Reporting Standards do not | |
| permit the use of the LIFO method, and repealing LIFO would remove this | |
| possible impediment to the implementation of these standards in the | |
| United States. | |
| Taxpayers that currently use the LIFO method would be required to | |
| write up their beginning LIFO inventory to its FIFO value starting in | |
| 2013. Allowing LIFO taxpayers to exclude the amount of the inventory | |
| write up from gross income would represent a substantial windfall for | |
| those taxpayers relative to others who have been using FIFO for years | |
| and potentially paying more tax as a result. Furthermore, the | |
| Administration's proposal mitigates the burden of the retroactive | |
| effect by allowing the one-time increase in gross income to be taxed | |
| over 10 years, rather than all at once; in short, the Administration's | |
| proposal provides appropriate transition relief. | |
| [Whereupon, at 12:55 p.m., the committee adjourned subject | |
| to the call of the Chair] | |
| <all> | |
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