Hearing of The House Budget Committee - Fiscal Year 2010 Budget

Hearing of The House Budget Committee - Fiscal Year 2010 Budget

HEARING OF THE HOUSE BUDGET COMMITTEE
SUBJECT: FISCAL YEAR 2010 BUDGET
CHAIRED BY: REP. JOHN SPRATT (D-SC)
WITNESSES: TREASURY SECRETARY TIMOTHY GEITHNER

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REP. SPRATT: We convene the committee today to discuss the president's budget for 2010 and the Treasury Department role in that budget. For that purpose, we are pleased to have the secretary of Treasury, Mr. Tim Geithner.

Given the number of places you have to be these days, i's a miracle you could attend us, but this is an important part of the process and we very much appreciate your being here today to testify.

As we all know, President Obama inherited an economy in crisis, a budget in deficit, so deep in deficit that spending from the prior administration overtakes revenues by $1.3 trillion during this fiscal year alone.

The president's recognized that we have not one, but two, really several, deficits. The first is an economy clicking on four of six cylinders, running at 6.8 percent of potential. And to put that economy back on its feet and to realize some of that potential, the president has signed into law a recovery package that will increase consumer demand, which is desperately short, and create 3 million new jobs while reinvesting in physical and human infrastructure.

It's almost impossible to balance the budget when the economy is bucking a headwind like the recession we're now experiencing. It's even more difficult to do that when we have to make the -- what we do to make the economy better oftentimes makes the deficit worse, at least in the short run.

But here's the stark reality we are confronted with. The deficit that President Bush left behind was 9 percent of GDP, the highest since World War II. And here's the president's -- President Obama's bold response. Over the next four years, he proposes a budget that will pare the deficit down from 12.3 percent of GDP to 3 percent of GDP. It's an ambitious goal but a worthy goal, and it's certainly a track we hope to adopt.

The president's budget cuts the deficit by more than two-thirds in four years, $533 billion four years from now, in 2013. But it is not so consumed with or committed to deficit reduction that it overrides other compelling needs. It takes on topics, in fact, that other budgets have ducked, topics that others have thought too hot to handle -- climate change, health care for all Americans, and particularly the 46 million who don't enjoy insurance.

It slows down the increase in defense spending. It revises the alternative minimum tax, puts it in the code. And it seeks to lay the groundwork for bending the curve and making health care more affordable for all Americans.

Now, there are going to be critics who single out instances where additional revenue is raised, as in allowing certain concessions for upper-bracket taxpayers to expire. But look carefully and look again, and you'll see that the bigger picture will show that this budget leaves in place the middle-income tax cuts that were adopted in '01 and '03, the 10 percent bracket, the child tax credit and the marital penalty relief measures.

It indexes the AMT to keep it from burning middle-income taxpayers. It extends estate tax at the '09 levels. And it helps working families by renewing "make work pay." Most importantly, the president's budget extends $2.2 trillion of tax cuts over 10 years to 95 percent of workers relative to current law -- $2.2 trillion in net tax cuts. This is a pro-growth budget.

The committee is eager to hear the Treasury's plans to address the crisis in the housing market, which is the source of the recession we're now experiencing. Sinking home values and homeowners who find themselves underwater in mortgages are at the heart of this crisis that we're undergoing. The president's budget is a huge undertaking, but what he has sent us is just the beginning. But it's a bold beginning for the 2010 budget.

We'll want to add and see more detail before we can write a resolution, so this is not by any means the end of the process, but it's the beginning. It's a bold beginning. And we appreciate your coming here, Mr. Secretary, to testify on behalf of it and to answer questions.

It's my understanding that you need to leave in order to get to the health-care summit, so you'll need to leave here at 12:30. Let me then turn to Mr. Ryan for his opening statement. We'll make a few housekeeping details, and then we'll get right under way with your testimony.

Mr. Ryan?

REP. PAUL RYAN (R-WI): All right. Thank you, Chairman.

Welcome again, Secretary. You've been a busy man. It's nice to see you over here in the Budget Committee from yesterday's -- or the other day's Ways and Means appearance.

First, I want to start by acknowledging the very serious challenge you face. Solving our banking crisis and stabilizing our;r financial markets is absolutely critical to our economy and our job growth, and we want you to achieve success in doing that.

There's no perfect solution to this very grave problem we face. But while I have concerns about how the past and the current administration has handled the TARP, the best thing we can do for our economy is get the credit markets flowing again. And I genuinely appreciate your hard work and efforts on that front.

That said, you won't be surprised to hear that I have profound disagreements with the president's budget. It's an historic expansion of the tax, borrow and spend philosophy, which concentrates resources and power in Washington and smothers the freedom and resources of the very entrepreneurs and small businesses that are needed to turn this economy around.

Of particular relevance to you and of this hearing are the tax and debt increases called for by -- in this budget.

Let's begin with taxes. The budget proposes $1.4 trillion in net tax increases, in other words, a tax increase that totals roughly 10 percent of the entire economy today. Now, what would be bad enough in itself would be just these raising of taxes, but there is no economist on the planet, whether Keynesian, supply side or somewhere in between, who would suggest proposing tax increases in the midst of one of the most painful recessions in a generation.

Now, your colleague, budget director Peter Orszag, says reassuringly that these tax hikes won't start until 2011, when the economic recovery ought to be under way. We hope it is. But businesses are forward-looking, and they make investment and hiring decisions today based on expectations of future after-tax returns, and nothing affects a business's bottom line more than taxes. If you're running a business right now, why would you start expanding or hiring the kinds of activities this economy desperately needs with the threat of a huge tax increase in just a year and a half down the road?

Now, let's take a look at some of these specific tax increases. You raise taxes on what the president calls, quote, "the wealthiest of Americans," but many of these, quote, "wealthy" people are small- business owners, the people who create nearly 80 percent of the jobs in this country.

Then there's the carbon cap-and-tax proposal, which will effectively impose additional tax burden of more than $800 billion -- and that's a low-ball estimate -- on everyone who uses gasoline, natural gas, home heating oil or electricity. I think we can argue that covers most Americans, not just wealthy people.

You penalize people for buying houses, making charitable contributions and building up savings to leave to their families. You would also tax U.S.-based international companies, making it harder for them to compete with their foreign counterparts, directly contrary to what we should be trying to accomplish at this time.

And then there's also the deficits and the debt that are resulting from this budget. The 2009 budget deficit swells to $1.8 trillion, more than triple the previous record. Obviously, you inherited some of this, but you're raising it by another $540 billion, which is higher -- the increase is higher than any budget we've ever had -- deficit.

The budget would also double the national debt in the next eight years. In addition to all these things is the budget's staggering failure to actually control spending. It even adds more than a trillion dollars to entitlement spending, worsening the most severe fiscal problems we have.

As I said earlier, this is a challenging time and no economic or fiscal plan is ever going to be perfect, but the president's budget tries to spend, tax and borrow our way into prosperity. It's an economic recipe that simply just doesn't work.

Nevertheless, I do want to work with you to stabilize financial markets. We want to work with you to get our economy back on track in the short term and to address the challenges to our longer-term economic growth, and that is the looming entitlement crisis.

With that, Chairman, I yield time. And I look forward to your testimony.

REP. SPRATT: Thank you, Mr. Ryan.

I would ask unanimous consent at this point that all members be allowed to submit an opening statement for the record. It would be entered at this point in the proceeding.

Mr. Secretary, as I said before, your testimony will be made part of the record in its typewritten form.

You may proceed as you wish and summarize it. But you're the only witness today, so take your time. There are many questions to be asked and answered. And we look forward to your testimony.

Thank you again. And the floor is yours.

SEC. GEITHNER: Thank you, Chairman Spratt. Thank you, Ranking Member Ryan. And thanks to all of you, for giving me the chance to appear before you today.

I want to outline the broad strategy presented, in the president's budget, what it means for our economic future and the choices we're presenting, for the Congress and the American people. As you both said, we start with a deepening recession, an intensifying housing crisis, a financial system still under stress.

Since the recession began, 3.6 million Americans have lost their jobs. Millions more have lost and are at risk of losing their homes. And they're struggling to obtain loans for homes, for cars, to finance their kids' education. Many businesses across the country are finding it harder to obtain credit. This crisis and the policies that preceded it have helped cause a dramatic deterioration in our fiscal position.

We start, we start, this Congress and this administration with a $1.3-trillion deficit, the largest, as a share of our economy, the nation has faced since the Second World War. And the increases that you see immediately are increases necessary to solve the crisis we start with. As a nation, today, we face extraordinary challenges. And these challenges require extraordinary actions.

Now, in passing the economic recovery and reinvestment act, the administration and the Congress have put in place a very powerful mix of programs, to get Americans back to work and to help stimulate private investment.

The combined effect of these investments and tax measures, and we're moving very, very quickly to put them in place, will be to save or create between 3 and 4 million jobs and to increase real GDP by 3.2 percentage points, by the end of 2010, above the level it would have achieved, in the absence of these measures.

Now, alongside the recovery act, the administration is moving quickly to repair our financial system, so that it can provide the credit necessary, for businesses across the country to expand and for families to finance what they need to finance.

The deepening recession is putting greater pressure on banks. And in response, many banks are pulling back on credit. Right now critical parts of our financial system are damaged and are working against recovery.

And this is a dangerous dynamic. And to arrest it, to break it, we need to make sure that our banks have the resources necessary, to provide credit. And we need to act to get the credit markets flowing again directly.

Now, finally the president has launched a very broad plan to help address the housing crisis. This plan will help homeowners meet their mortgage obligations, enable them to refinance, to take advantage of low interest rates.

Yesterday, we took the very important step, by releasing details of our loan modification plan and Treasury guidelines for servicers. These guidelines will enable struggling borrowers to make lower payments, starting right away.

And if you look at the impact of this program already, on mortgage interest rates, those have come down significantly, even just over the last couple weeks, not just over the last several months.

Now these actions, in all three areas -- recovery, to get credit flowing again, and in the housing area -- are absolutely necessary to lay the foundation for recovery. But the president's budget builds on this foundation to set us up on a path to long-term growth.

Now the first step in addressing our nation's fiscal problems is to be honest and candid about them. This budget breaks from the past by transparently presenting the stark fiscal challenges facing the American people. We include the cost of fixing the AMT each year. We include reimbursements to Medicare physicians. We include the likely cost of future foreign wars and natural disasters. And in an abundance of caution, we include the potential need for additional financial resources to get credit flowing again. We offer a 10-year, rather than a five-year, budget presentation.

This budget also proposes a series of ambitious, innovative policies to help address THE most critical challenges facing our economy -- in health care, in energy and in education -- and the president does this within a framework that gets us on a path to fiscal responsibility, to fiscal sustainability.

As all of you know, the soaring cost of health care is crippling families, businesses and our long-term budget prospects. There is no path to addressing our long-term entitlement challenges that does not start with and go through major health care reform. Our budget begins this process by reducing cost and inefficiencies, by increasing quality of care and preventive care, and by moving towards affordable coverage for all.

To cite just one example, the Hospital Quality Improvement Program proposes to pay for performance and to reimburse hospitals for the quality of the services they provide, rather than just the quantity of the services they provide.

Health care reform is a moral imperative, it's an economic imperative, and it's a fiscal imperative for our country.

Now our budget also puts forth a significant commitment to reduce our dependence on foreign oil and carbon-intensive energy sources. This dependence threatens our economy, our environment and our national security interests. Investments in energy efficiency and renewable energy will help create new American jobs and industries, and lead the path to a new, greener economy.

And if we are truly committed to making our nation both more prosperous and more just, we must recognize that it defies both our basic values as a country and our common sense to deny any child in America access to the quality education they need to compete in this global economy. Our budget calls for substantial more resources for early childhood education, new incentives to improve teacher performance and a significant increase in the Pell grant, together with President Obama's American Opportunity Tax Credit, which provides up to $10,000 of tax relief for a single student going to four years of college.

Now on the tax side, this budget rewards work; encourages growth, investment and savings. Important provisions include making permanent the Make Work Pay Tax Credit, which makes the tax credit available to 95 percent of working Americans; the expansion of the Earned Income Tax Credit; a zero capital gains provision for small businesses; and a permanent extension of the R&E tax credit.

This budget also proposes to make substantial progress in reducing the tax gap by tackling tax shelters and other efforts that allow people to abuse our tax laws. And over the next several months the president will propose a series of legislative and enforcement measures to reduce tax avoidance.

I want to emphasize that we propose no new revenue increases in our budget, none, until we are safely into recovery in 2011.

And at that point, where the consensus of private forecasters project significantly positive growth rates for the overall economy, the budget restores tax rates to the pre-2001 levels for families making more than a quarter-of-a-million dollars.

Now, I just want to pause here for one second. Those proposes -- those proposed changes in tax rates would apply to only 2 to 3 percent of small-business owners across the country -- only 2 to 3 percent. Ninety-five percent of small-business owners of the country have incomes below that threshold of $250,000.

Now, even with these critical long-term investments, the president keeps overall, non-defense discretionary spending well below its long-term average as a share of GDP. And overall outlays as a share of GDP -- once you account for the interest costs associated with our inherited deficits and once you account for the effects of the aging baby boom, and rising health care costs and entitlements -- overall outlays as a share of GDP return to historical norms.

Now, the president and I share a commitment to working with this committee to put our nation back on a path of fiscal sustainability -- again, once recovery has been firmly established. The budget does this by making the tough choices to cut the deficit in half, to bring it down over five years to 3 percent of GDP, so that our overall debt is no longer growing as a share of the economy.

If we do not do this, then we face the risk that government borrowing will crowd out private borrowing, raising interest rates and threatening growth.

Now, when I last served in the Treasury Department, in the 1990s, fiscal responsibility helped create a virtuous circle of greater confidence, strong private investment, strong productivity growth, higher overall gains in income, more broadly shared across the American economy. Addressing these problems that confront the nation will not be easy, but we are a strong and resilient country. We have overcome challenges like this in the past and, if we accept this responsibility we share with the American people, we will meet those challenges effectively, successfully, as a country.

Thank you. I'd be happy to take your questions.

REP. SPRATT: Thank you very much, Mr. Secretary. Mr. Secretary, your testimony includes reference to a $250 billion place-holder, yet it cannot provide us with any details because that's still being defined. Could you give us some idea of the magnitude, the gross size of this fund, of these additional funds that'll be required? Because what's reflected here, as I understand it, is just that portion that impacts the budget and has an impact on the deficit.

And secondly, could you tell us what categories, what -- generally speaking, what does this go to? Does it go to fund consumer credit? Does it go to build the capital resources of the nation's banks? Broadly speaking, where will it be used?

SEC. GEITHNER: Thank you, Mr. Chairman. A very important issue. As you and -- and the ranking member said, getting credit flowing again is absolutely critical to recovery. The impact of the recovery and reinvestment program, even as powerful as that is, will be undermined if we don't get the banking system and the economy as a whole providing the credit that businesses need to expand.

So the business that would otherwise benefit substantially from the provisions in the recovery act will be less able to take advantage of it if they can't borrow. So this basic imperative, getting credit flowing again, is a critical -- a critical priority for us.

Now, in the budget, the president put in a reserve fund in an abundance of caution to -- against the contingency that we may need additional resources. It's not a request for resources at this time. And when we get to the point -- if we get to the point where we believe additional resources are essential to achieve this objective, then we'll come to the Congress and to this committee with a specific proposal and lay out there exactly where those resources will go.

Congress has already authorized substantial resources for this purpose and we're moving very quickly to make those resources available in areas which we think will have the most affect on the economy as a whole.

Now, if you look at what we've done so far and laid out -- and as I said in my opening statement -- the -- we need to make sure there is capital available to strengthen banks. We need to provide very substantial direct funding to help get credit markets working again. These are the markets that are critical for small-business lending, for consumer credit, for auto finance, a range of other different markets. And as you've seen, we've committed to use a significant number of resources to help finance the housing plan that's going to benefit millions of Americans and have them take available of -- take advantage of opportunities we're creating to refinance and to lower their mortgage payments.

Those are -- those three areas -- capital resources for banks where they need it, direct support for credit markets and targeted initiatives in housing and other areas -- will be necessary going forward. And those are the three critical pieces of the broad financial plan we laid out.

But as I said, this is a reserve fund in the budget, very much in the spirit of how we account for foreign wars and natural disasters. It's not a request at this time or an estimate of what we think we ultimately need.

REP. SPRATT: Let me show you some charts with respect to your budget and see if they comport with your numbers.

First of all, very simple back of the envelope chart dealing with tax cuts and tax increases and the net tax impact imposed by the -- that would be imposed by the budget you're recommending. The first shows revenue changes in President Obama's budget and indicates that by extending the '01 and '03 tax cuts for those under $250,000, that amounts to a net tax cut of $2 trillion. Is that consistent with your understanding?

SEC. GEITHNER: I'm looking at these provisions now and you're right, they do highlight the fact that we are extending tax cuts that affect 95 percent of Americans. We are proposing to make permanent the "Make Work Pay" tax credit, which reduces taxes for 95 percent of working families. And we have a variety of other provisions in the bill that are -- go directly towards reducing the tax burden on small businesses.

And again, I think this is a very strong budget for small businesses.

And if you look at the combined impact of these changes, with the investments we're making, in reducing health care costs, in education, this is a very good budget for the long-term growth prospects of the American economy.

REP. SPRATT: There are some revenue increases. Cap-and-trade would be one. The number we have here is simply one we have taken from the administration's request. It could be any range of numbers. There's an infinite variety of ways to do cap-and-trade or carbon taxes.

That would be a revenue increase. There are some loophole closures. And there are some other provisions that -- such as the limitation on itemized deductions for people making more than a certain income level.

SEC. GEITHNER: Yes.

REP. SPRATT: Those would be tax increases. But according to our back-of-the-envelope arithmetic, the total tax cuts, the net tax cuts, after you have backed out the tax increases, are $2.2 trillion.

SEC. GEITHNER: Mr. Chairman, I just want to emphasize that the estimate for resources raised, from cap-and-trade, is an estimate. And as the president said in the budget, we're going to use those resources to finance making the Make Work Pay tax credit permanent, providing additional resources to help facilitate this transition to more efficient, more green-energy technologies. And if we raise additional resources, we'll target those to people who might face increased energy costs associated with this plan.

Now, these, what you refer to as loophole closures, international reforms, these are -- these include measures to reduce tax avoidance, address the tax gap. They have broad bipartisan support as a basic imperative; very important, very important we do that.

Now, the last thing on your list, which is the proposed limit in deductibility, I just want to say a few things about this. Those proposals would affect only 1.2 percent of taxpayers who itemize, 1.2 percent.

All they do is restore deductibility to the level that prevailed at the end of the Reagan administration. Twenty eight percent is still double what the typical American enjoys, in terms of that tax benefit.

We think this is fair and reasonable. And it's consistent with this imperative we all share, to present the American people a path to bringing our deficits down to a sustainable level.

REP. SPRATT: The bottom line is, once again, a net tax cut of $2.2 trillion. That comports with your numbers and your understanding of the budget.

SEC. GEITHNER: Mr. Chairman, absolutely. What we're laying out is something that we think is going to be good for growth, good for business, good for the long-term growth potential of the American economy.

REP. SPRATT: Now, let's look at another chart, the chart dealing with other cuts that are made in the budget, random savings that are proposed, in order to generate revenues, to pay for some of the initiatives.

Jose, flip back to that one. That will be fine, Jose, the previous one. There we go. Leave it there.

Program-integrity savings: That's our one-liner for seeking to recover fraud, waste and abuse and other compliance measures.

At the Treasury, do you have a responsibility for the oversight of this effort?

SEC. GEITHNER: Mr. Chairman, I believe I share that responsibility with a number of my colleagues in the Cabinet, and of course with OMB. But I'm glad you highlighted this, because, as you can see, we're trying to be as careful as we can to bring efficiency improvements and improvements in program design. So we're using the resources the American people give us much, much more efficiently. And this is one example -- just one example of concrete measures we're committing to in the budget that achieve that.

REP. SPRATT: Well, let's take tax compliance, Internal Revenue Service, since it's under your jurisdiction. Does this assume some additional funding for auditors and for more audits and for more compliance measures so that taxes that are owed but not paid can be recovered?

SEC. GEITHNER: It does, Mr. Chairman. In the budget, both in -- yeah, in the budget -- we are proposing -- and I hope there's broad support for this -- a carefully designed increase in enforcement resources for the IRS, which is a necessary part of trying to close the tax gap and trying to get ourselves to a more fair position where people who owe taxes are paying their taxes, so that the overall burden on people who have been paying their taxes is reduced.

REP. SPRATT: And does the Treasury have an estimate of what it would cost at the front end for more audits and more auditors, more compliance measures, in order to reap this $16.8 -- 16.6 million?

SEC. GEITHNER: We do -- we do. And in the budget working its way through the Congress now, we have a specific proposal for a significant increase -- but I think a responsible increase -- in enforcement resources. And I'd be happy to provide the detailed numbers on that -- committee. But they are modest relative to these proposed savings.

REP. SPRATT: If you'd provide that for the record, we'd appreciate it.

Now, in the interest of time and allowing every member to ask questions, we'll move on to further questions. But thank you very, very much again for your testimony.

Mr. Ryan?

REP. RYAN: Jose, could you bring up the first chart -- this one right here?

SEC. GEITHNER: I'll have to bring some charts next time, Mr. Chairman, because --

MR. RYAN: Yeah. We -- battling charts around here. (Laughter.) But I'm going to use the chairman's chart, if it gets up on the screen.

REP. SPRATT: You may want to get yours out. It sounds like he's loaded for bear here. (Laughter.)

REP. RYAN: This is the only chart I -- (inaudible).

SEC. GEITHNER: I'm looking forward to it, Mr. Chairman. I'm really looking forward to it.

REP. RYAN: Just to try and shed some light on this statistical distortion that's occurring here, when we say you're raising taxes by $1.4 trillion, that's not our interpretation of your budget. That's your interpretation of your budget.

SEC. GEITHNER: No, that -- on that thing --

REP. RYAN: Well, if you'd just let me -- please --

SEC. GEITHNER: Okay.

REP. RYAN: Negative $3.5 trillion. If you take a look at those things, what it's basically saying here -- there are some outlay effects; I'll put those aside -- what it's basically saying here is by not raising taxes we're cutting taxes.

No; you're just not RAISING taxes on the AMT and these other things. So to suggest failure to increase taxes is the same as a tax cut -- it's just intellectually dishonest. And therefore, you can't claim that these things are net tax cuts. They're net tax increases. But let me move on, because I want to get these members a chance.

We sit here writing budgets and trying to pass budgets. And I just want to try and impress upon you the enormity of the task before you under any situation, any administration. And this budget -- I think you're going to have challenges. And I just think you ought to sort of know that.

When we do the vote counts around here -- we had a budget last year on the floor which was to the right of this budget, and that's the Congressional Progressive Caucus budget that came to the floor last year, I think by Congresswomen Lee and Waters.

And this budget is so far to the left of the Congressional Progressive Caucus budget that this plan, on an apples-to-apples basis, spends $2.8 trillion more than the Progressive Caucus budget, it results in deficits that are $14.7 trillion higher than the Congressional Progressive Caucus budget, and I won't even give you the debt numbers on how much more debt this applies to our children and grandchildren than the Congressional Progressive Caucus budget.

But if you look at the votes, the Congressional Progressive Caucus budget failed by 98 to 322; 131 Democrats voted against that budget, 15 of which are right here on this Budget Committee, the Democrats. And so I just want -- I think you just need to understand the enormity of the task to bring this massive borrow-and-spend-and- tax budget to Congress.

I think you're doing something that I want to compliment you on, which is the stress testing of banks I think everybody believes is the right thing to do. And under your stress test, I think you're doing the right thing by having these different baselines that you're applying to banks. You have your alternative scenario and your average baseline scenario. The average baseline scenario used for your stress test, that Treasury's imposing on banks, is roughly the same as the blue chips consensus forecast. But the forecast underpinning your budget is much, much higher than this average baseline budget.

And so basically I want to ask you this: Under your average baseline, this budget would have deficits that are $758 billion higher. And that's using OMB's rule of thumb. Under your adverse scenario baseline, this budget would have a deficit, accumulative, that is $1.2 trillion higher. And I understand that you and former Secretary of Treasury Summers want to get our deficit down to at least 3 percent of GDP, because you obviously believe for the credit markets that's a healthy thing to do. But under either of the stress-test baselines that you impose yourselves, this doesn't do that. This budget deficit, if you apply your baselines, not OMB's baseline, you don't even get close to 4 percent of GDP for the next 10 years.

And so my question is, shouldn't we apply the stress test to the federal budget that you are applying to the banks?

SEC. GEITHNER: Congressman, thank you for raising this. And let me just respond quickly on these things, and then I want to come back to some of the things you said at the beginning in your opening statement.

This capital assessment, health assessment, stress-test thing is deigned by your nation's, our nation's financial authorities. And what they did is they took a consensus of private forecasts for a baseline scenario, and then they looked at what is a more extreme scenario, Senator, with a much lower probability, but again, in an abundance of caution to look at that. And what they did is, as you might expect -- what they did is, to make sure it's done independently, they took a private forecast for that.

Now, the president's budget and the forecast that is in the president's budget is within the estimate CBO presented, taking into account the recovery act. It's within the estimates of a broad consensus of private forecasters. Our judgment is it's a realistic forecast. And it shows, like all private forecasters show, the economy coming back to positive growth in the second half of this year, and in 2010 showing more significant, sustained recovery.

It's a realistic forecast and it meets our basic test for bringing more integrity and accountability to the budget framework.

Now, you said several things I need to respond to in this context. Just on the -- let's just go back to this starting point on the deficit and the debt trajectory. We start today, before anything happened, with a $1.3 trillion deficit. The additional increment to the deficit that has to happen in '09 and '010 is the -- what's necessary to solve this crisis. A big chunk of that is the Recovery and Reinvestment Act.

There is additional increment to that that's the cost of fixing parts of our financial system that, again, we started with that need some repair. That's what we start with. So the deficit increase you see in the near term are the consequence of not just the inherited burden of the recession but what it takes -- what it's going to take to fix this crisis.

Now, we share together this very important imperative of showing the American people that we're going to have the will and the ability to bring those deficits down over time. And I know you believe deeply in that imperative, but we're going to disagree on some important things, which is really how to do that.

Now, what the president proposes is to return tax rates that apply to a very small percentage of Americans and a very small percentage of small business owners to the levels that prevailed in 2001. That's what the president's budget proposed. For the vast majority of Americans and businesses, taxes will not go up and they will go down if we make "Make Work Pay" permanent.

Now, you may disagree about whether that's the right way to bring these deficits down, but I know you agree that we have to bring those deficits down if we're going to get recovery back on track --

REP. RYAN: Right. Right.

SEC. GEITHNER: -- because if we don't do that, then the Americans today looking at the future will be more concerned about the future and recovery will be interrupted today.

Now, a very important point about our disagreements on this: The proposed changes on the tax front, which apply, again, to only 2 to 3 percent of small business owners and to a very small percentage of the highest income Americans, are levels that prevailed back in 2001. Now, just to come back to the decade of the '90s when those rates applied, we had during that period a sustained period of very high rates of growth in private investment, very high rates of productivity growth, very broad-based income gains across the country.

It is -- there is no plausible way you can look back at that period where those tax rates prevailed and say that economy at that point was not performing exceptionally well, not just relative to the past American performance but that of other major economies as a whole.

REP. RYAN: Can I get you there?

SEC. GEITHNER: Sure.

REP. RYAN: A number of things -- and this is a great dialogue. I really appreciate this.

First off, in 2001, we were heading into a recession. We cut tax rates and growth occurred and actually revenues increased. But I'm glad you mentioned the CBO, because the CBO baseline says that if we didn't pass this budget, the deficit would get cut by three-fourths over the next four years.

SEC. GEITHNER: But Congressman, you know this --

REP. RYAN: You're actually slowing down reduction in the deficit.

SEC. GEITHNER: You know this as well as I do -- you know this as well as I do, but what the CBO baseline assumes is AMT is not extended, all the tax cuts expire fully ---

REP. RYAN: No, no, no, no, no.

SEC. GEITHNER: -- and it's -- yes, it does.

REP. RYAN: Even if you use the alternative baseline, it goes down.

SEC. GEITHNER: No, that --

REP. RYAN: No, no, no, no, no. We can actually --

SEC. GEITHNER: And the forecast -- and again, in the forecast, their post-stimulus forecast has a range of outcomes, and our forecast was in those outcomes.

So this is a more candid, more honest, more transparent picture of our fiscal future than you have seen in years and years and years.

REP. RYAN: Look, I don't want --

SEC. GEITHNER: It's more realistic.

REP. RYAN: Obviously, we don't agree with that, but let me just say this. Using that blue-chip consensus forecast that you're using for your own stuff, the deficit is $758 billion higher. It never gets to 3 percent of GDP. It's always 4.5 (percent) or higher, or something like that. So the concern we have is, if these great scenarios that you're projecting in the economy don't occur -- and, boy, we sure hope they do -- if they don't occur, then our deficit is going to get out of control.

But here's the concern we have, just so you understand it: saying to investors, to small businesses, "Boy, if you're going to hunker down and try and invest and bring new people back on the payroll, we're going to get you with higher taxes in a year-and-a-half time." Let me say it this way. Increasing taxes on the assets that make up our pension funds, our 401(k)'s, our college savings plans, by a minimum of 33 percent -- how is that going to help recover the wealth that's been lost? I mean, people -- I have talked to so many 60- and 70-year-olds who are so worried about their retirement because their portfolios are down by 40 percent. And we're going to say in a year-and-a-half time we're going to increase taxes on these assets that make up this portfolio by at least a third? I mean, this is not good economics.

And so our concern is that your rosy scenarios don't materialize, the private-sector consensus forecast does, and the deficit is completely out of control. And in this budget, by the time that this budget is done, both Medicare and Social Security go on a path of permanent insolvency.

SEC. GEITHNER: Well, let's go through these --

REP. RYAN: So we just don't think we're being fiscally conservative here.

SEC. GEITHNER: Right, well, let's go through these provisions. The most important thing for us to do together is to get recovery back on track. I think we all agree on that. This budget does not raise taxes. In fact, it reduces taxes on the economy as a whole during this period of time.

Now, again, what the president's proposing is when all -- all private economists agree we'll be back on a path to growth, that we're going to restore the tax rates that prevailed in 2001 that only apply to a very small percentage of Americans and a very small percentage of small-business owners.

REP. RYAN: You're very --

SEC. GEITHNER: Now, you're saying -- you're implying something that's not true, which is that we're proposing today a broad-based tax increase in the American economy two years out when recovery is established. Now, that's not --

REP. RYAN: Yes, you are.

SEC. GEITHNER: That's not remotely plausible. Now --

REP. RYAN: Your own budget acknowledges that.

SEC. GEITHNER: No -- no, but the -- but Congressman --

REP. RYAN: Yes, it's not --

SEC. GEITHNER: It's just a critical fact. Ninety-seven percent -- or 98 percent of small-business owners have incomes below $250,000.

Now, just one -- one more important fact. The most wealthy, most fortunate, richest 1 percent of Americans received 75 percent of the gains in income across the overall economy over the last six to eight years.

This restores some basic fairness to the American economy, in a fiscally responsible way that will leave our economy stronger for the future. Now, if we did not do this, Congressman, as I think you know as well as anybody, then we'd be leaving the American people with the prospects of rising deficits in the future. And that would be bad for growth.

Now --

REP. RYAN: Now I want to get to a TALF question, because I want to give people -- but turning on electricity, putting gasoline in your gas tank, heating your home, which is pretty expensive where I come from in Wisconsin, and having a government program that makes that more expensive -- you may not want to call it a tax, but it's a tax. If it acts like a duck, if it quacks like a duck, it's a duck.

SEC. GEITHNER: You're talking about cap-and-trade now?

REP. RYAN: Yes. And so to suggest that you're only taxing wealthy people when in fact you're taxing anybody who consumes energy -- that's just not -- it's just not straight.

But I want to -- let's get beyond. I got a TALF question.

SEC. GEITHNER: Well, let's do that -- but that would be a good discussion to have --

REP. RYAN: Well, just, if you can -- I want to ask you a sincere question about the TALF, which is, some analysts are telling us that in order to boost the effectiveness of the TALF in the current economic climate, the program should be expanded to cover securities rated below AAA to the secondary market securities. Are you considering heading in that direction?

SEC. GEITHNER: I want to do cap-and-trade really quickly, because it's very important. I know that you keep coming back to this. Again, this is very important.

It is critically important for our country that we begin the process now of changing the incentives Americans face for how they use energy. It's important to reduce our dependence on foreign oil. It's critical for climate change. You can't achieve that objective, again, without changing the incentives Americans face.

Now what the president does is take a program that's been used successfully to acid rain emissions, used in countries around the world, to help begin that process. This cap-and-trade program will raise resources, but those resources are going to be devoted to making the Make Work Pay Tax Credit, which benefits 95 percent of working Americans, permanent; to help facilitate this transition to renewable energy. And if we raise additional resources, it'll be targeted to help offset those costs of higher energy costs. I just want to say this because it's important.

Now, on TALF -- I'm glad you raised this thing on TALF -- what the Fed and the Treasury laid out on Tuesday was a program for broadening the class of assets we're going to provide financing, increasing the scale of financing we provide, and we're going to continue to look at ways to make that program more effective, open to any suggestions, happy to hear -- receive feedback on this. We're getting a lot of feedback from market participants.

But I'm very glad to hear you emphasize the importance of this program, because, again, to get credit flowing again, we not just have to reinforce banks; we need to make sure we're going around banks to get those securitization markets going again.

REP. RYAN: Thank you. I want to be generous to my colleagues. I have already taken enough time. Appreciate it.

REP. SPRATT: Ms. Schwartz.

REP ALLYSON SCHWARTZ (D-PA): Thank you.

And I think I'm going to toss out my question and try and deal a little bit with what Mr. Ryan was pointing out. It is -- there's no question, it seems to me, on any factual basis, that this budget does -- is far more honest about what really we expect is going to happen.

Now of course it includes some forecasts on what we think's going to happen in the economy. You have to make some forecast assumptions.

But the notion I believe that Mr. Ryan actually said, that a -- that the AMT relief on 26 million Americans -- he didn't mention a number -- the fact that we're going to eliminate, repeal AMT on 26 million Americans is a tax increase is stunningly incorrect --

REP. RYAN: I said it the other way around. I said imposing it is a tax increase. Not imposing it is not a tax cut.

REP. SCHWARTZ: Retaining my time, that is -- I think that is what the record would show, is, I think --

SEC. GEITHNER: To not extend would be a substantial tax increase.

REP. SCHWARTZ: Yes. Exactly. So I just want to be really clear that we have been talking about -- and exactly; Mr. Ryan has, at least in previous moments, said that he wants to see the AMT relief, and he -- and the fact that we were budgeting it forward is an important thing to do.

So let me just be very clear that this is tax relief for literally tens of millions of Americans. And in the recovery package, didn't we actually provide tax relief to 95 percent of Americans?

SEC. GEITHNER: We did.

REP. SCHWARTZ: Right.

So let's --

SEC. GEITHNER: And we propose to make that permanent.

REP. SCHWARTZ: And we propose to make that permanent, absolutely.

So what this budget does, in addition to being honest about where we stand on taxes and, yes, returning to some tax fairness, I think, there will be some debate about some of the specifics, with some of the limitations for the wealthiest 1 to 2 percent of Americans.

We're not eliminating tax deductions for charitable donations. We are -- they will be at 28 percent which is, as you pointed out, double what most Americans get. Is that not correct?

SEC. GEITHNER: That's correct. And it is the level that prevailed at the end of the Reagan administration.

REP. SCHWARTZ: Right.

So again we will have a debate here in Congress about some of those specifics. How many of those exactly stay as they are? I think that's our responsibility to have, as a shared discussion. But to suggest that that is somehow going to hurt American business and American competitiveness is something that really is just a difference of opinion for sure.

So what I did want to ask, because I think it is important for us to communicate, is that not only is this budget honest about what we believe is going to happen, in the future, but it also and provides tax relief to many, many Americans. But it actually tackles some of the major issues that have been hurting our economic competitiveness.

The failure to make investments, in educating our people, in energy efficiency and energy independence, and an area of my particular interest, in health care, in innovation, in technology, in cost containment, which will affect our fiscal health and our economic competitiveness for our businesses.

Could you just elaborate on, you mentioned, it was a very nice line about the both moral and economic and fiscal imperative of taking actions. We're making up for eight years of failure, to make those kind of investments, that is putting us into an economic disadvantage for our businesses.

On health care alone, our businesses, small businesses and large, cannot sustain a double-digit inflation on their health benefits. Could you speak to why this is so important, for our economic competitiveness, particularly our small businesses?

SEC. GEITHNER: Thank you.

I think if you look at surveys of small businesses, what their priorities are, the top of every business priority is to address the rise in health care costs.

Now, if you look at what we spend on health care, as a country, we spend almost twice what the typical mature economy spends on health care. And we, despite that, we don't provide materially better results, in terms of life expectancy. And we have large parts of our economy that don't benefit from quality care.

So there is a competitiveness imperative, an economic imperative, of addressing those health care costs. Unless we do that, we're going to face progressively higher fiscal deficits in the future. And it seems to me a reasonable thing to say that Americans should enjoy access to better quality care, regardless of the circumstances of their birth.

It's a clean, simple, stark imperative. And, but it's not enough.

And if you just look at on the education front, what we're doing is trying to make sure that we're laying the foundation for a more productive economy by making sure that our children are going to benefit from much higher-quality education outcomes. And these are areas where our government has been unable to make significant progress over a long period of time. We can't afford to wait on that front. And in this budget, we're trying to lay out for the American people a path to a more productive economy where the income gains are going to be more broadly shared.

REP. SCHWARTZ: Right. And it will help us with our fiscal stability of our budget as well.

SEC. GEITHNER: Absolutely.

REP. SCHWARTZ: And the other side of the aisle has been very concerned about the costs of entitlements, but the fact is wouldn't you say that we are actually making some very important steps now to contain the costs, both for businesses and for the federal budget, as well?

SEC. GEITHNER: And because of the hard work of people in this room, the Recovery and Reinvestment Act starts that process. So the budget continues it, builds on it, but we started that process in the recovery act.

REP. SCHWARTZ: Thank you, Mr. Secretary.

REP. SPRATT: Hensarling

REP. JEB HENSARLING (R-TX): Thank you, Mr. Chairman.

And again, welcome, Mr. Secretary. And let me agree you do have a great challenge in front of you, and we acknowledge and appreciate your service.

Can we pull up Figure 6, please. Both you and the chairman spoke about -- I believe, if I heard you properly -- about inheriting deficits, which begs the question what's inherited and what is manufactured and who did you inherit it from.

This chart is entitled "Deficit Under Democratic Budgets." And I want to make very certain, for the record, I said "Democratic," for those who are sensitive about the uses of suffixes, participles, gerunds, that a type of thing.

But we all know under our Constitution that the president can't spend a penny that isn't either authorized, appropriated by the United States Congress. And in this chart we saw declining deficits when Republicans controlled Congress, down to roughly, I believe, 160 billion (dollars), and now we're seeing that the 2009 OMB estimate is roughly 1.8 trillion (dollars). So, number one, if you inherited deficits, you inherited them from a Democratic Congress, number one.

And number two, I believe -- and certainly you have your economic justification -- but if you were inheriting 1.2 trillion (dollars) and you're proposing 1.8 (trillion dollars), aren't you adding -- isn't it true you're adding, I believe, $540 billion to that deficit, Mr. Secretary?

SEC. GEITHNER: Congressman, can I just say two things about this? One is, if you go back to the year 2000, to 1999, you'll see that we started -- we ended that period with surpluses. So your chart starts a little late, to be fair to history. (Laughter from the audience.)

The other thing I want to point out is that in 2009, again --

REP. HENSARLING: Well, Mr. Secretary, are you saying this is an inaccurate chart?

SEC. GEITHNER: No, I'm saying it starts at 2004. If you went back to 2000 -- 2099 (sic), you'd see that we started with --

REP. HENSARLING: I'm sure I could go back to 1789, but --

SEC. GEITHNER: No, no -- (laughs) --

REP. HENSARLING: -- is it not true -- is it not true --

SEC. GEITHNER: But I'm coming to the --

REP. HENSARLING: -- that the budget in the last year of the Republican Congress was 160 billion (dollars) and you're proposing 1.8 (trillion dollars)?

SEC. GEITHNER: Congressman, as you know --

REP. HENSARLING: Is it true or is it not true?

SEC. GEITHNER: -- the national debt doubled during the last eight years, after a period where we started with surpluses.

Now, on this --

REP. HENSARLING: Mr. Secretary, let's talk about that for a second.

SEC. GEITHNER: But I want to do this thing --

REP. HENSARLING: I'm sorry. I don't have the advantage of having unlimited time, as the --

SEC. GEITHNER: But can I just do this one thing you raised here --

REP. HENSARLING: Please.

SEC. GEITHNER: -- which is 2009 -- again, this is very important to do -- we start with no additional policies to fix the crisis. We start with a deficit of $1.3 trillion. That is a deficit produced by the policies that preceded it and by the deepening recession.

Now, to fix this crisis, we have no choice but to move aggressively to put in place this economic recovery program, which -- and that program will increase --

REP. HENSARLING: Mr. Secretary, I appreciate that you had that opportunity to say that earlier.

SEC. GEITHNER: No, but --

REP. HENSARLING: We understand that you have adjusted for --

SEC. GEITHNER: But you asked that question, which is a very important thing to do. So the -- it's 1.3 (trillion dollars) with no action, but no action would leave us with a deepening recession, higher long-term deficits. You have to --

REP. HENSARLING: Well, all we're saying, Mr. Secretary, is when you talk about inheriting deficits, at least admit that you're adding to that deficit.

And let's talk about the debt for a second. The president in his State of the Union address said we have the responsibility to ensure that we do not pass on to our children a debt they cannot pay. It is -- is it not true -- can we go Figure 7, please? -- that under the administration's proposal, that we will double the national debt in eight years? Is that true, Mr. Secretary?

SEC. GEITHNER: Congressman, let me say what's critical about the long-term fiscal picture. We don't get --

REP. HENSARLING: Well, is it true or is it not true?

SEC. GEITHNER: No, but this a very important thing. If we don't get the recovery back on track, we don't act to fix this recession and address it, then as a country we will face lower long-term growth rates, huge damage to productive capacity of our economy, much higher unemployment rates and higher long-term deficits.

Now, what the president's budget does is bring our deficits down to 3 percent and will stabilize that debt to the -- to -- what matters is the level of debt relative to the economy as a whole.

REP. HENSARLING: Mr. Secretary, I think we all agree we need more economic growth. But again, are you not -- are you or are you not proposing to double the national debt in eight years under your budget?

SEC. GEITHNER: Congressman, what we're proposing to do is to fix the crisis we inherited and to make our economy more productive in the future and to do so in a way that's fiscally responsible and brings our deficits down to the level where we stabilize the level -- overall level of debt to GDP. So if you --

REP. HENSARLING: Well, Mr. Secretary, it's clear that you do not wish to answer the question. And I understand that. And I have a limited amount of time. But the last --

SEC. GEITHNER: No, but Congressman, this is -- this is a really important thing --

REP. HENSARLING: -- last question I would like to ask, though, is when you talk about the need for more credit in order to create jobs, promote economic growth, why -- then why would you have a budget that proposes increasing the tax on capital up to one-third? I got to tell you, Mr. Secretary, for many of us it seems to be ideological. And at a time when our nation desperately needs more capital you're going to increase taxes on it up to one-third. It simply makes no sense, Mr. Secretary.

SEC. GEITHNER: I would just come back again to say what's -- what the budget proposes to do to bring us back to fiscal sustainability. And I think we all agree we have to get back to a sustainable path. I think we all agree that's critically important.

So what the president's budget does is when recovery's established to restore those tax rates that apply to the richest Americans to the levels that prevailed in 2001. And again, if you want to look at the record of performance of our economy during a period when those tax rates applied, it looks exceptionally good relative to the decades that preceded it and it looks very good relative to the last decade.

Again, if you just look at the things we all care about -- which is, how productive is our economy, how much does private investment grow? -- that was a(n) exceptionally good record of performance for the economy as a whole. Income growth was rapid, and it was broadly shared. And I think that's the right test of our policies.

REP. SCHWARTZ: Mr. Chairman, could I just inquire -- I just wanted to inquire, just a point of fact. Is -- when you -- when the budget that you presented has -- reflects the deficit, that is actually a reflection of reality and honest budgeting. It is not a proposal. You're not proposing increasing the deficit; you're reflecting the reality of the deficit that you -- that the administration has inherited. Is that -- just a point of information.

REP. HENSARLING: (Off mike) -- hearing -- Mr. Chairman, whose -- may I ask whose time she's on?

REP. SPRATT: Hold on.

REP. SCHWARTZ: Just a point of inquiry.

REP. SPRATT: She was -- she was asking for a point of inquiry.

REP. HENSARLING: Wait -- (laughs) -- so that was a -- (laughter) -- that was a parliamentary inquiry?

REP. SPRATT: Will the witness please answer the question in two sentences or three?

SEC. GEITHNER: We do propose to increase the deficit in the near term, because we have to do that to address the crisis we started with.

REP. HENSARLING: I fail to see how this is a parliamentary inquiry.

REP. SPRATT: Okay. It's not a --

REP. HENSARLING (?): All right.

REP. SPRATT: It's a factual inquiry.

Mrs. Kaptur?

REP. MARCY KAPTUR (D-OH): Well, Mr. Secretary, how do you like your job so far? (Laughter.)

SEC. GEITHNER: This is a critical debate for the country. (Laughter.) I am -- (chuckles) -- pleased to have it. I think it's a really important debate. And I think it -- I think my -- a tribute to all of you, which is that this is the kind of debate the American people want us to have. This is about some important choices. And we owe them an open, honest debate about how we're going to fix these problems.

REP. KAPTUR: Well, Mr. Secretary, we sure want to help you on that. And we're going to put up here the accumulated budget deficits under the Reagan administration, including a trillion -- excuse me, under the Bush administration, including a trillion dollars of war costs that were un-paid-for. So that's where we start.

But let me just say, Mr. Secretary, that unless we deal with the seized-up credit markets, none of our budget proposals on either side of the aisle are going to work. And I really want to focus my beginning questions on these today.

During the 1980s, our nation faced worse financial problems in the financial sector than we actually do today, although every day that passes seems to get worse. Back then we had 3,000 insolvent institutions. All the banks in Texas failed but one. Continental Bank of Illinois, as you know, went down. Have you had an opportunity yet to meet with the senior statesmen in our country who were responsible for resolving that situation at no cost to our taxpayers?

SEC. GEITHNER: I have looked very carefully at the record of what they did during that period of time. And I have had the chance to talk to many of those who were there at that time, yes.

REP. KAPTUR: I would like to bring Mr. Seidman and Mr. Isaac over to see you sometime --

SEC. GEITHNER: I would welcome that.

REP. KAPTUR: -- and I hope you'd find --

SEC. GEITHNER: I would welcome that.

REP. KAPTUR: -- time for us. I think there -- it's really worth hearing about what happened, and I think you were about 2 then. I don't know. But I think it might be very interesting for you.

SEC. GEITHNER: Unfortunately, I was much older then, but older today.

REP. KAPTUR: All right. Let me talk about frozen credit lines. The district that I represent has unemployment rates in Toledo, Ohio of 14.3 percent, going over into Ottawa County, a rural area, 17 percent, and growing worse each day.

At the same time, we are one of three leading solar centers in the hemisphere. We have struggled through 20 years of the loss in manufacturing jobs. And I have factory floors right now that cannot get loans to hire hundreds and hundreds of people. What can you do to help us?

The second part of that question is, in the automotive sector, I represent the most popular vehicle in America, the Wrangler at Chrysler Jeep, and the best GM facility in the hemisphere, GM Hydra- Matic with the new six-speed transmission.

Our unions and our companies have worked together. If America is going to rebuild it's automotive industry, it's going to be from the heart of the 9th District of Ohio.

We are stuck into this architecture that we can't seem to extricate ourselves from. Both companies are owned by Cerberus. How can you help us let our industry compete?

We are ready to do that. And we are handcuffed. Again it's dealing with frozen credit lines and being a part of an architecture, by which we can't win, solar and auto.

And then my final question to you is, what is your position on whether we need to reinstitute the regulations, on short sellers, the SEC removed in 2006?

SEC. GEITHNER: Let me go quickly through those. The last is really a question for the SEC.

REP. KAPTUR: I hoped you had an opinion.

SEC. GEITHNER: I do not believe that that particular measure, but this is the SEC's responsibility, would be effective in the current environment. But the SEC chairman is looking at a range of things, as part of her new responsibilities, to be responsive in that area. And I'm sure she'd be happy to talk to you about those details.

On the automobile industry, as you know, we are looking at how to try to help bring about the very fundamental restructuring that's going to be necessary, to get this industry back on a path to long- term viability, without government support.

This industry is facing extraordinary challenges. The financing environment is making it dramatically worse. You're absolutely right. And we are looking at how best to support that process.

Now, the stimulus, the recovery act and the budget has very, very substantial increases in tax incentives and other support for clean energy, innovative new technologies, which would be very powerful and beneficial.

And I want to come back to where you began which is, small businesses across the country are finding it much harder to borrow. And to fix that requires that we get capital into the system, where it's necessary, and that we're providing direct support, to get these lending markets going again.

The stimulus package has very substantial increase in loan guarantees, from the Small Business Administration, which we're very, very supportive of. And we're looking at whether we can bring these initiatives together, to provide more substantial support for businesses across the country, on the lending side.

REP. KAPTUR: Mr. Secretary, I appreciate that. And I would hope there would be an iterative process, by which we could bring some of these companies to you, whether it's televideo, whether you assign somebody in your office.

But every day that goes by, and our unemployment gets worse, and I have companies that can't get credit, I'm saying, something -- somehow we need to be able to link to what you are doing.

SEC. GEITHNER: Right. And we --

REP. KAPTUR: I see TARP money flying out the window. And I'm looking at our companies and saying, something isn't working here.

SEC. GEITHNER: Right. And we are open to meet with anybody and meeting with people across the country all the time. And as you know, in the automobile industry, we're in daily contact with a full range of people that are critical to making that -- making that restructuring plan work.

REP. SPRATT: Mr. Diaz-Balart.

REPRESENTATIVE MARIO DIAZ-BALART (R-FL): Thank you, Mr. Chairman. And thank you for being with us here today. And thank you for agreeing to take on a pretty tough job.

It's about 4 million people now that are -- roughly -- paying the AMT, alternative minimum tax, roughly. In your proposal, those numbers will more or less be the same throughout the next years, correct?

SEC. GEITHNER: Well, we're proposing to extend it and, as you know, continue to extend it, and to index it.

REP. DIAZ-BALART: Right, but I mean, roughly, we're dealing with about the same number of people paying the AMT. And then you're going to still keep those that are not paying it, which are roughly now -- I don't know -- 20-plus million people, from not paying it, correctly?

SEC. GEITHNER: I'm not sure where you're going. I'll be happy to give you the detailed numbers on the estimated impact.

REP. DIAZ-BALART: All right. Well, the reason -- the reason I'm asking that is because those that are not paying the AMT, who are going to continue to not pay the AMT, in your numbers, are you considering that a tax reduction to those? In other words, you're cutting --

SEC. GEITHNER: No, I don't think that --

REP. DIAZ-BALART: You're including in your tax cuts the AMT, even though most people don't pay it and they're going to continue to not pay it. So it's not a tax cut for those who are not paying the AMT, correct?

SEC. GEITHNER: Well, Congressman, again, I'm not sure where you're going. You know, we can talk about base lines as much as you want to talk. What matters to the American people and to the economy as a whole is, what are we doing, going forward, to overall tax rates across the economy? And what's critically important is to recognize that for the next two years we are reducing taxes for -- reducing the tax burden on the overall American economy. And when we get recovery back on track, we're proposing very modest increases that apply to a very limited section of the most affluent, most fortunate Americans.

REP. DIAZ-BALART: Well, let's talk a little bit about that because in Florida, where not everybody's affluent, yet everybody uses electricity. And as you know, at least in Florida -- I don't know it is around the country, but let's just talk about Florida -- those are regulated industries. They pass on the cost of increase, of increases to energy, to the consumers. And yet, you do have anywhere between 600-plus (billion dollars) to $800 billion in this cap-and-trade deal on a tax on energy production.

So let me ask you this. Am I -- is it not wrong that -- who's going to pay that, the money for that cap-and-trade? The energy producers? Some of those?

SEC. GEITHNER: Congressman, this is a good issue, important issue, and so let's just go through it. What the president's proposal does is, beginning in what we expect to be 2012 -- not tomorrow, but in 2012 -- to put in place a program tried -- based on things that have worked in the past, that is designed to change the incentives for how Americans use energy, so that we reduce --

REP. DIAZ-BALART: By charging more.

SEC. GEITHNER: By reducing our dependence -- so we reduce our dependence on foreign oil. And --

REP. DIAZ-BALART: Reduce our incentives -- is it by charging more?

SEC. GEITHNER: Well, you can't change behavior, how people use energy, unless you affect the incentives for how they -- that they face in this economy. Now --

REP. DIAZ-BALART: By charging more.

SEC. GEITHNER: -- the really important thing is, the resources this raise -- this will raise are going to go to -- go back to 95 percent of working Americans. And there's 15 billion (dollars) in the president's proposal to help facilitate this transition to cleaner- energy technologies. So that's the way to think about it. Remember, it's a program that will take effect in 2012, and the resources raised will go back to 95 percent of working Americans, in making Make Work Pay permanent.

REP. DIAZ-BALART: Sure. That's like what we're told that in the stimulus that some families -- many families would get, you know, up to $800 back in tax credits. However, every household is being charged 9,400 (dollars).

That, by the way, is the kind of math that, frankly, scares (people ?).

SEC. GEITHNER: No, I don't understand that math. I don't think that's a remote reflection of reality in the budget. Again, this is very important. For the next --

REP. DIAZ-BALART: That was in the stimulus. That was in the stimulus.

SEC. GEITHNER: For the next two years, for this period of challenge we're going through as an economy, the overall tax burden on the American economy comes down. Ninety-five percent of working Americans get a significant tax credit. There is an expanded Earned Income Tax Credit, expanded child-care tax credit.

REP. DIAZ-BALART: What we're talking about, though, is about the cap-and-trade here. I'm trying to see if I can get you to answer that.

SEC. GEITHNER: I did. On cap-and-trade, I said that in 2012 --

REP. DIAZ-BALART: There's going to be increase.

SEC. GEITHNER: -- we want to work with Congress on a program, based on something that's worked to bring down acid rain emissions, that will generate resources that we will put back into --

REP. DIAZ-BALART: When you say generate resources, that's through?

SEC. GEITHNER: Through changing the cost of energy use.

REP. DIAZ-BALART: All right.

SEC. GEITHNER: Which you can't -- which you have to do --

REP. : Can I ask -- (off mike)?

REP. DIAZ-BALART: Yes, I'll yield to -- (inaudible).

REP. : Are you suggesting that the $15 a week in the Make Work Pay fully offsets the higher energy prices?

SEC. GEITHNER: Well, what I'm saying is -- and this is the really important thing, which is the resources that cap-and-trade we estimate will raise will go back into the economy, concentrated on 95 percent of working families. Now, that's --

REP. DIAZ-BALART: So you can't answer the question, really.

SEC. GEITHNER: That's good policy. It's fair policy. And if you believe in the importance of reducing our dependence on foreign oil and reducing our dependence on carbon-intensive energy uses, then you have to be prepared to change the incentives for how people use energy. Can't do it any --

REP. DIAZ-BALART: In other words, if you believe in that, and then it's okay to charge people more for their energy, is in essence what you're saying.

Now, let me ask you a little bit, because -- (inaudible) -- that I have --

REP. SPRATT: (Not any ?).

REP. DIAZ-BALART: I'm out of time. Thank you.

SEC. GEITHNER: Thank you.

REP. SPRATT: The time of the gentleman has expired.

Mr. Doggett.

REP. LLOYD DOGGETT (D-TX): Thank you, Mr. Chairman.

Thank you, Secretary, for your important leadership. Would that we could eliminate the first four years of the Bush administration and its horrible effect on the world as quickly as the Republicans have eliminated it from their chart. I can hardly blame them for wanting to forget and push away the disaster that was the first four years. I'm surprised they didn't eliminate the entire eight.

As far as the suggestion that they're concerned about borrow and spend, that was the principal theory of the last eight years, as they drove our debt up literally by the trillions. I think they may have certainly borrowed more money from abroad than all previous presidents put behind -- that came before them. And these are the same folks that still want a free lunch. They're the folks that endorsed what the Senate did during the economic recovery debate to propose trillions of dollars of additional tax breaks that we would borrow money to achieve.

I applaud the fact that you make the hard choices to raise a little of the revenue along with some of the spending cuts to help us get to more fiscal reality.

And I appreciate very much your testimony in the Ways and Means Committee, where you endorsed our effort to stop tax haven abuse. The president has spoken courageously over recent months about the need to stop tax provisions that are designed to encourage companies to export jobs overseas. It's more than just the Stop Tax Haven Abuse bill that Senator Levin and I have introduced. There are a whole series of measures that are needed that are revenue-raisers but accomplish other purposes.

I know that some of our colleagues, both Democratic and Republican, have promoted the idea that we need a significant reduction in corporate taxes. Secretary Paulson, when he explored that issue last year, was not proposing a reduction in revenues. In fact he was willing to challenge some of THE most popular provisions that corporations rely on to reduce their taxes today.

And I think it's critical, as you go forward on this, that while you hear people complaining about the corporate tax rate, that we look at the effective corporate tax rate and the steady reduction in corporate revenue that is being contributed from those taxes.

In terms of gross domestic product, I believe that only Korea and Mexico have corporations that contribute less than ours do.

And then, in a separate area that you've talked about, very articulately, the whole issue about cap-and-trade, what you have said is very important. The Treasury has unique expertise to conduct the auction system, which is what has been proposed in legislation that I have and a number of our colleagues have suggested; and a cap-and- trade system that is guided not by extreme ideology, not by political expediency but is guided by good science, wherever that science leads us in terms of what we need to do; but a system where we put a cap, a limit on carbon pollution, and then we rely on a market system which worked so effectively in -- on acid rain, to help us achieve the important objectives of moving to a less energy -- more energy independence and less dependence on carbon pollution.

I think, sadly, as the questions and comments here, just as in the Ways and Means Committee -- as the administration develops its plan, I hope it will continue reaching out, as it has, to try to include people of all political parties. We don't have a monopoly on truth.

But sadly, the comments indicate that we will get the same level of bipartisanship, the same level of cooperation, that we got on the economic recovery package in the House, and we have to realize that moving forward on this critical objective.

Let me just ask you one unrelated, long question that I would ask for perhaps a follow-up in writing. In 2007 there was a review by Fitch Ratings of mortgage-backed securities that were backed by subprime mortgages. It found evidence of fraud and misrepresentation in just about every file. Given the suspicion that is widespread that loans underlying some mortgage securities are incompletely documented or fraudulent on their face, my question would be whether Treasury has sampled all the loan files that it is proposing to obtain for evidence of misrepresentation and fraud before it offers any type of direct or indirect guarantees; and if you have not, whether you will commit to conducting such a review, so that we can have this question about fraud and misrepresentation answered in a credible and a transparent way.

SEC. GEITHNER: Very important issue. Happy to respond to you fully in writing on the range of things we can do to help address that risk.

I think it's very important, though, to point out that as we come to Congress with comprehensive proposals for financial reform, we're going to need to do a lot of things to try to make sure we fix this mortgage market and we don't put the American people in the position again where anything like this could happen in the future. And just going to -- that's going to require a lot of changes.

REP. SPRATT: Mr. Campbell?

REP. JOHN CAMPBELL (R-CA): Thank you, Mr. Chairman.

And thank you, Mr. Secretary, for entering the maelstrom here. First, a couple of quick TARP questions. How much of the original 700 billion (dollars) is currently remaining and has not been invested?

SEC. GEITHNER: Congressman, I don't -- I'd like to give you the -- an accurate accounting of the detailed numbers in writing. Rough orders of magnitude --

REP. CAMPBELL: Approximately?

SEC. GEITHNER: I think the commitments outstanding are -- in terms of money committed and spent -- are in the range of just under 400 billion (dollars). That would -- that would leave something around 300 (billion dollars) left. But we have already laid out a variety of potential uses for those resources.

REP. CAMPBELL: Which comes to my next question. Approximately when do you believe you will have an opinion or be able to assess whether the remaining TARP funds are adequate to stabilize the financial system, in your view?

SEC. GEITHNER: Don't have a judgment on that yet. Again, we're moving as quickly as we can to use the resources we have as effectively as possible. You know, we're trying to bring a comprehensive set of reforms to the program so we deliver more transparency and accountability; that the assistance comes with tougher conditions to protect the taxpayer; to make sure these resources aren't going to benefit shareholders and senior executives; to make sure they result in higher lending than would otherwise take place and that they're targeted to parts of the economy that are likely to benefit most from that assistance. So we're trying to reform the program completely, use the resources as quickly and effectively as we can. And in that context, we're looking at what's next and what might be necessary to get ahead of this.

And I -- what I really want to point out is that -- and very glad to hear the recognition of this across the aisle -- that if you look at the history of financial crises, most governments make the tragic mistake of not doing enough soon enough. They underestimate the costs. They're too tentative. And that leaves the system more at risk and the economy, therefore, more at risk. And very important we find a way to work together to make sure that we're getting credit flowing again.

REP. CAMPBELL: Is Citibank too big and too interconnected to fail?

SEC. GEITHNER: Congressman, I want to -- I want to say something about our banking system. We have a system of 9,000 banks. The vast bulk of this system was not part of the problem. It's going to be part of the solution. They're going to be able to provide the credit their communities need.

Now, there are parts of the system that are going to need some carefully conditioned temporary financial support as a bridge to private capital coming in. And it is very important that your government -- and they -- we will do this -- makes sure we make those resources available. Because right now, because of the intensity of this recession and what we're going through, the markets are unwilling and unable to provide that capital.

And so we're going to do what is necessary to make sure those resources are available, because if we don't, you're going to see less credit available. And that might create the risk of deepening the recession.

REP. CAMPBELL: Is that a yes to the question?

SEC. GEITHNER: Congressman, again, I want to -- I want to just -- this is a very important thing and I want to say it --

REP. CAMPBELL: I agree.

SEC. GEITHNER: -- carefully and clearly. The president said this in the State of the Union. Your nation's financial authorities have said it. It is very important -- and we will do this -- to make sure that the major institutions in our country have the resources and the funding and the ability to play their continuing role in our markets going forward. And that's a very important commitment. The president's made it. The chairman of the Federal Reserve has made it. The secretary -- Treasury's made it. We've made it together as an entity and I will repeat that --

REP. CAMPBELL: Okay. Let me get, if I can, to just one other line of questioning, which is relative to the numbers -- budget assumptions, which basically assume 3 percent-plus growth by next year up to 4.6 percent growth two years after that and all with virtually no inflation, inflation 2 percent or under under all those years. That's what's in the budget assumptions.

Do you at Treasury -- does that comport with your present best estimate of what you believe will occur?

SEC. GEITHNER: Congressman, the way the budget process works is the Council of Economic Advisers independently comes up with their best judgment of the likely path of the economy, growth, inflation, interest rates.

REP. CAMPBELL: Correct.

SEC. GEITHNER: And that represents their best judgment at that time. And it's very important to point out, because there's been a lot of concern about this, if you look at that forecast against CBO's latest range of estimates, it's within that range. So we believe it's a realistic forecast. And all economists agree that it's realistic to expect the economy to begin to recover beginning late in this year and into the next year. Now --

REP. CAMPBELL: Okay.

SEC. GEITHNER: Just one last thing?

REP. CAMPBELL: If I -- if I -- I have 30 seconds --

SEC. GEITHNER: All right. Go ahead.

REP. CAMPBELL: So let me just say and then you can go ahead. It's just that, you know, when I -- when I would make budgets in my business sometime ago, it's very easy to increase sales by 5 percent, increase margins by 5 percent, hold expenses and boom, you know, profit is enormous.

And so the budget numbers here are highly sensitive to things like the inflation numbers and the growth numbers. And if these growth numbers are not met or the growth numbers are met with substantially higher inflation, which I think a lot of people believe that if you were to have these growth numbers, you would have more inflation, then the numbers will be -- you know, then the budget numbers are highly sensitive to that.

And if you're off at all, even these numbers, which we obviously on this side of the aisle don't like very much, but that they be significantly worse. And --

SEC. GEITHNER: I don't think we face that --

REP. CAMPBELL: (Inaudible) -- your comment.

SEC. GEITHNER: Mr. Chairman, can I just respond? This is very important.

I don't think this budget faces that risk. Again, if you look at the long-term inflation forecast in -- by private economists, look at the long-term growth forecast for private economists which are the most important things to our long-term fiscal position, CEA's estimates are right there on those things.

And again, that is a realistic budget. And I agree with you about the concerns you expressed, but this budget is not vulnerable to those risks.

REP. SPRATT: (Off mike.)

REPRESENTATIVE MARION BERRY (D-AK): Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for your service. I know you're having a wonderful time.

I generally judge administration testimony by how I think it would fare at the breakfast table at the Rice Paddy Motel in Gillett, Arkansas. I think you'd do pretty good. You'd hold your own.

SEC. GEITHNER: Is "pretty good" good or is "pretty good" --

REP. BERRY: (Inaudible.)

SEC. GEITHNER: Thank you for saying that, Congressman.

REP. BERRY: I think you do. I meant it as a compliment. Sometimes people don't understand me very well.

SEC. GEITHNER: Is that an invitation? Is that an invitation?

REP. BERRY: I talk too fast. (Laughter.)

But I find it interesting here this morning that my colleagues across the aisle are suddenly obsessed with intellectual integrity, deficits and fuzzy math. And we have been underwater with those things since January of '01, after leading this country out of the fiscal/economic wilderness that we were in successfully.

And so I appreciate what you're saying. I may not agree with all of it. But I appreciate it. And I know you're doing the best that you all can come up with.

I want to make one point. Repeatedly regardless of the administration, the party or anybody else, the value of cheap food in this country is continually ignored by the people that make economic policy.

Production agriculture has been assaulted by this administration publicly. And I think it would be a good thing, for people in positions like yours and others in the administration, to take a serious look at the value of agriculture to this country.

It's still 20 percent of our economy. It's about the only industry that's not appearing on our doorstep right now, begging for some kind of relief. They're actually getting less help now than ever before.

But I think they're due some credit for the great way they produce, feed this country in a safe and cheap way. And I would hope that that would at least rise to the surface and to the point where someone in the administration might even recognize it in a positive way.

So you know, I just -- I'm just an old dirt farmer and love it. And I don't think that the American agriculture community has to apologize to anybody, for the contribution that they have made to the success of this country.

And I thank you for listening to me and invite you to the Rice Paddy Motel. Any time you've got time, we'll go down there and show those boys something.

SEC. GEITHNER: I would welcome that. I'd be happy to do it.

REP. BERRY: Thank you, Mr. Secretary.

SEC. GEITHNER: I of course agree with you that the future of American agriculture is critical. We have a level of productivity, in agriculture, which is the envy of the world. And it's important we recognize that.

And you're right. And I think you're saying this, that we do propose in the budget to reduce some subsidies to those at the highest end.

And you understand why we're doing that --

REP. BERRY: Yes, but -- (inaudible).

SEC. GEITHNER: -- (inaudible).

REP. BERRY: They're the people that produce food. That's where that stuff comes from.

SEC. GEITHNER: And I just underscore, as you know, how difficult these challenges we face. And, you know, we are going to have to make some hard choices together, and we're going to have to do it as carefully as we can with -- to make sure we're not burdening the economy in ways that we can avoid. But we're going to have to get back to a path of fiscal sustainability, and it's going to be hard to do that.

But I respect and understand the point you're making, and I will always listen carefully.

REP. BERRY: Thank you.

Thank you, Mr. Chairman.

REP. SPRATT: Mr. Jordan.

REP. JIM JORDAN (R-OH): Thank you, Mr. Chairman.

Secretary, we appreciate you joining us this morning and appreciate some of the what I would call good things in the budget. Dealing with the AMT. I think an acknowledgement that we have some real concerns in our entitlement programs. We certainly appreciate that language as well.

But me just kind of lay it out. And you've touched on this, but I want to package it and frame it in a way that it gets framed for me back home in the 4th District of Ohio. When I talk with families and small business owners -- and our district, just so you understand, of the 435 districts in this country, the 4th District of Ohio is 16th in manufacturing jobs. And frankly, we were doing pretty well until of late with this auto industry, and now obviously we're feeling the impact just like the rest of the Midwest and, frankly, the rest of the country is.

But when I talk with folks back home, here is the picture they get. And I know you're going to disagree with some of this, but frankly, they see -- and I would argue any one of these things done at any time is difficult for our economy, but when you attempt all four in the midst of a recession, I think it's scary, frankly.

Raising taxes. And I know there's been a debate here in this committee, but the way we look at this is there's a net tax increase over the 10-year time frame of your budget. Taxing the successful out there. Not necessarily a good message to send to the business owners when we're trying to get out of a recession. A(n) unprecedented level of spending, whether you start with the $780 billion in the stimulus, the $410 (billion) in the omnibus with the 9,000 earmarks, and now a budget that projects a doubling of the national debt over the next 10 years. Further nationalization of health care, setting aside the billions of dollars you set aside to do the things in health care.

And then finally, the one that I would, frankly, if you could, Secretary, focus on the most is the cap-and-trade, because when you come from a district like I get the privilege of representing, with that much manufacturing, the cap-and-trade proposal scares me. Just like yesterday in the Detroit News, where they talked about -- I think the headline was "Cap and Trade Will Sink Michigan" -- was the headline of this editorial from the Detroit News. It concerns those kind of districts where you have heavy industry, heavy -- and frankly, the cap-and-trade will disproportionately impact the Midwest, where so much of our energy comes from, coal-fired power plants and oil and gas and those things.

So respond -- and again, this is straight from the good families and business owners I get the privilege to represent. I happen to think they're right when they come with these four concerns, all done as we're trying to get our economy recovered from this recession.

SEC. GEITHNER: Thank you very much for raising those. So let's just go through this, because it's very important to do.

Small business owners in America today will face the prospects of a zero capital gains tax rate, substantial reductions in the rate of growth in health care costs, a range of other incentives that are very important to getting us to a clean energy economy, keeping their overall tax burden unchanged, except for 2 to 3 percent of the highest-earning small business owners. And again, those increases only come beginning in 2011, and they only restore those tax rates to the level that prevailed going back to 2001.

So it is not -- it's not reasonable or fair or true to represent this budget as increasing the tax burden on small businesses who are struggling so much across the country. In fact, this budget is very good for businesses across the country.

Now, you said several times that we're --

REP. JORDAN: Talk -- if you could, Mr. Secretary, focus in on the cap-and-trade, I mean --

SEC. GEITHNER: Well --

REP. JORDAN: I mean, you laid out the four issues, but cap-and- trade is the one that concerns --

SEC. GEITHNER: Right, but I want to --

REP. JORDAN: -- again, that's why I talked about the type of district I represent.

SEC. GEITHNER: Right. Right.

REP. JORDAN: I talked about the Detroit News editorial yesterday.

SEC. GEITHNER: But you -- right. But I think -- yeah, I'd be -- I'd like to do that, and I'm happy to do that, again. But I just want to reinforce something you said. Now you said that we're going to substantially increase taxes on the American economy over time and then -- and substantially increase the size of government --

REP. JORDAN: One-point-five- -- one-point-four trillion (dollars).

SEC. GEITHNER: Right, so let's --

REP. JORDAN: One-point-four trillion (dollars) over 10 years.

SEC. GEITHNER: Let's just go through those. Okay? If you look at the president's budget, you will see that the overall tax burden, revenues to GDP, over this horizon, are quite close to long-term average.

Now another thing you'll see is that the overall level of spending in the budget, relative to GDP, after you account for interest rate costs from these inherited deficits and you account for the effects of the aging of the baby boom, those -- the overall size of the government, relative to GDP, is very close to historical norms. So this is not a budget that raises materially the overall tax burden or size of government in the economy, and -- but --

REP. JORDAN: Mr. Secretary, isn't it true that your 10-year budget doubles the national debt?

SEC. GEITHNER: Congressman --

REP. JORDAN: I mean, your numbers, when you add them up, we go from 11-point-something trillion (dollars) to doubling that.

SEC. GEITHNER: What increases the national debt is the size of the --

REP. JORDAN: Too much government spending. That's what increases the national debt.

SEC. GEITHNER: No, it's -- no, it's the size of the deficits we've inherited and the costs of getting us out of this recession.

Now if we came -- if we were starting from a different place, if we were starting from where we were at the end of the last decade, if we were starting without a recession this deep, then we would be able to give the economy a path for higher growth rates, lower deficits for the future.

Now, given where we are, though, our common obligation, and our only choice, really, is to move aggressively to try to get us out of recession and fix our financial system. And that costs resources. If we did not do that, then growth would be weaker, unemployment higher, more small business would fail, and we'd face higher deficits in the future because our overall productive capacity in the economy -- future revenues would be lower. And that's very important to start with.

Now, just briefly on cap-and-trade, just to repeat, what the president's proposing is to put in place a cap on emissions with a market-based mechanism for allocating that -- those credits. It'll generate resources. But we're going to put those resources back into the hands of working Americans.

Now, you're framing this in a way that --

REP. JORDAN: If -- if a working American has to pay more for the car they purchase, for the energy bill they pay each month, their -- all their utility bills, and then you're going to give them some back -- aren't they going to have to (pay ?) more on those bills than they're going to get back from the tax --

REP. SPRATT: Gentleman's time has expired -- more than expired.

REP. JORDAN: Thank you, Chairman.

REP. SPRATT: And we've got to move on, because there are three votes coming up on the floor, one of which will occur in about 10 minutes. It's a rule or resolution. I plan to stay here through at least that. There's one other -- there are two -- couple of suspensions coming up behind it. But I will stay here at the sacrifice of a vote so that other members can ask questions.

Let's move now to Mrs. Tsongas.

REP. NIKI TSONGAS (D-MA): Thank you, Mr. Chairman.

And thank you, Mr. Secretary. This has been quite a discussion.

I'd like to move on to the issue -- or focus on the issue of housing. I am from Massachusetts. I represent three old industrial cities, one of whom happens to have the highest foreclosure in the state. So I was very grateful to see the action that your administration, the president's -- Obama administration has taken, and I look forward today to supporting legislation that will help further that.

I -- we know it's only one piece -- one leg of the stool, but I'm curious: One of the challenges we've had ongoing is we're constantly playing catch-up around dealing with the foreclosure issues. So what do you look at as the benchmarks as to whether or not this is working, sort of the timing around how you'll measure those? And what do you -- what are you thinking in anticipation of any potential problems that may arise?

SEC. GEITHNER: Excellent question. The best things to look at are what's happening to overall mortgage interest rates. And as I said earlier, they're coming down. What's happening to the amount of refinancing? That's a measure of how many people are benefiting from lower interest rates.

And those numbers are reported at relatively high frequency.

And most -- and as important, you're going to see relatively detailed high-frequency reporting of the number of loan modifications that are going to occur that will help make mortgage payments more affordable for, we estimate, between 3 (million) and 4 million Americans. And you'll see -- you'll be able to see how many are occurring and the broad benefits they're -- those are the right measures.

Interest rates --

REP. TSONGAS: What level, though -- is there sort of a minimum -- minimal level that you're going to look at or --

SEC. GEITHNER: In terms of interest rates?

REP. TSONGAS: No, just in terms of refinancing and people --

SEC. GEITHNER: Oh. Well, in the -- in the president's program, we laid out some initial estimates of people who would be eligible to take advantage of this new refinancing program and, again, those -- I think those estimates are in the 3 (million) to 4 million range. And so, you know, you can measure how many happened against that benchmark.

Now, outside that program, you see hundreds of thousands of families now every week taking advantage of lower interest rates to refinance, and that's another measure, too. So you see broad refinancing trends inside this program, outside this program. And those are the right measures: overall interest rates, number refinancing and the kind of sustainable loan modifications necessary to help responsible families stay in their homes.

REP. TSONGAS: And if we start to see the kind of issues we had with HOPE for Homeowners where in spite of our best intentions it just didn't work, wasn't effective, how quickly can you deal with those kinds of obstacles?

SEC. GEITHNER: Well, the legislative changes that are in prospect now will make HOPE for Homeowners, we believe, substantially more effective. And we want to move to put those in place as quickly as possible.

REP. TSONGAS: Thank you.

REP. SPRATT: (Off mike.)

REP. BOB ETHERIDGE (D-NC): Thank you, Mr. Chairman.

And Mr. Secretary, thank you for your time this morning and your hard work. Yeah, people don't realize how many hours you're putting in. And I had the privilege of chatting with you at the Ways and Means the other day.

But I don't know in my lifetime of any administration that's inherited the challenge that this one did before they came in office and then faced the Armageddon, almost, since you've been there. So let me change the tone -- and I want to associate myself with Mr. Berry's comments as it relates to agriculture. And I'll come to that at the end if I have time.

But let me change the tone for just a minute, because I'm very pleased that the president has placed such a strong emphasis in this budget on education. I spent eight years as state superintendent of schools before I came here. I was the first in my family to graduate from college. So education is a critical piece and it's the foundation we're going to build, I think, a future on.

So let me ask you to comment on two pieces in here very quickly, because I think the American Opportunity Tax Credit in the economic recovery piece was a good piece to start, but now we're talking about, in this budget, building on it.

And that goes back to early childhood education. I think it's a critical component. If we're going to stop dropouts, we have to stop them before they really get to be dropouts.

And the other piece is, it's critical to say, to a young person, some say in high school -- I think you do it in middle school -- you can go to college, and here's the pathway. And I hope you'll take a minute or so and cover that and then leave me time, to ask one other question maybe, because I think it's important to get that on the record again.

This is a long-term commitment for the future of our country.

SEC. GEITHNER: Yeah, I completely agree. And again just to say the three key parts of it, and we've got a terrific secretary of Education, with huge credibility in this area, and a president deeply committed to progress in this area.

Substantial resources to early childhood education; proven programs make big impact on outcomes. A sustained commitment, a range of different ways, to help improve quality of teaching in our elementary/secondary education. And a greater financial commitment to help people afford higher education, both community colleges and four- year colleges.

Those three things; there's a rich array of other things in there. But those are the really critical things.

REP. ETHERIDGE: Yeah. It's called Pell Grants.

SEC. GEITHNER: Yes, exactly.

REP. ETHERIDGE: It's critical to a lot of youngsters who would not have an opportunity to ever darken the doors of a college or university.

You know, Margaret Mead once said, never doubt that a small group of thoughtful, committed citizens can change the world. And indeed it's the only thing that ever has.

I think we're at that point in history. I think we have that opportunity. Mr. Berry mentioned earlier about agriculture. Let me just touch on that.

You don't really have to comment on it. But I want to have an opportunity to work with you, because my home state of North Carolina; about one in five jobs are tied to agriculture, as much high-tech as we have and major universities and all the things we do. And we're currently going through a major crisis.

There's about $130 billion annually to the whole U.S. economy, as he had indicated, and 14 percent of the workers. In North Carolina, it's about 20. So it's much higher.

But we're going through a unique crisis. And I think if we don't deal with it quickly, it could grow. And that's credit in the rural sectors that could -- things that are happening on Wall Street may very well hit the country roads.

And we've seen where a lot of the poultry growers who are people who really are contract. They aren't fitting any of the categories. They don't get unemployment. They aren't fitting in these categories.

And I hope you will allow us to work with you, find a way that we can, maybe through Department of Ag or through the Treasury, reach out and help these folks, till this thing turns around.

They aren't asking for a handout. They're just asking for a hand up. And I hope you will allow us to work with someone in your office to deal with that. It's not just my state. It deals with Louisiana, Arkansas and, I think, Pennsylvania and other places as well.

SEC. GEITHNER: Congressman, we've had a chance to talk about that already, and I will absolutely commit to work with my colleagues at the secretary -- at the Department of Agriculture on how we can best be responsive to that concern.

REP. ETHERIDGE: I appreciate that. And I thank you very much.

Thank you, Mr. Chairman, and I yield back.

REP. SPRATT: Mr. Edwards?

REP. CHET EDWARDS (D-TX): Thank you, Mr. Chairman.

Mr. Secretary, welcome to the committee. My colleague -- my Republican colleague Mr. Ryan said that the Obama budget plan and proposal -- and this is a quote -- "is not good economics." Mr. Chairman, I'd like to put that criticism in a little bit of perspective.

This is the chart that shows that when the Bush administration took office -- so that we're reading this chart correctly, the blue line is where we were at that point. That meant there was a surplus of nearly $200 billion a year when they took office.

I'd also point out that Mr. Ryan, who is genuine in his economic beliefs and articulate in expressing them -- but I would also say, in fairness and in due respect, he was one of the chief architects of the "good economics," if that's what he wanted to call it, of the Bush era.

And so, Mr. Chairman, this chart shows what happened once the good economics of Mr. Ryan and the Bush administration went into place. We went from the largest surpluses in American history to the largest deficits in American history.

Now, see, my chart didn't even go to 2009. I'm glad this one's been amended. Because the chart would have to be written -- rewritten, because the deficit is so bad in fiscal year 2009, left by the Bush/Ryan "good economic programs," that there wasn't enough room on the chart to show what the actual deficit is. And am I correct -- the deficit you said the Obama administration has assumed is $1.3 trillion. Is that correct?

SEC. GEITHNER: Yeah. And I think, just to be fair, that understates the underlying deficit. Because that's a deficit we start with, but we start also with a deepening recession and a financial crisis that's putting a lot of pressure on the economy.

REP. EDWARDS: Right.

SEC. GEITHNER: And so the right measure of where we're starting from is -- has to incorporate the cost of fixing that.

REP. EDWARDS: Right.

SEC. GEITHNER: So I think we're starting with a deficit that's enormously high, because of the deep challenges we all face now.

REP. EDWARDS: And I can understand why Mr. Ryan and others might feel threatened that the American people voted for change, to try a different approach, because the good economics of the Bush/Ryan programs led us into not only the largest deficits in American history but the worst economic mess we've faced perhaps since the Great Depression. And following the advice that -- if insanity is doing the same thing over and over again and expecting a different outcome, I'm frankly glad that the Obama administration is trying to do this differently, in a more responsible way, even if those who were the architects of the worst disaster economically in my lifetime call this not good economics. So I consider that criticism, frankly, to be a compliment.

I want to be correct in understanding a statement you made. You said something to the extent (sic) that approximately 75 percent of the income growth of the past seven to eight years has gone to 1 percent of Americans. Could you clarify that? I want to -- that's -- if it's anywhere close to that, if my understanding is correct, that's just an astounding fact.

SEC. GEITHNER: While I'm looking for the precise fact, Congressman, let me just --

REP. EDWARDS: Is that approximately correct? We can fine-tune that answer.

SEC. GEITHNER: That's an independent assessment that I believe is correct. But let me just paint the context. You know, we face this very long-term rise in inequality across the country. That rise in inequality accelerated over the last several years.

REP. EDWARDS: That was another result of the good economics of the previous eight years.

SEC. GEITHNER: And I will -- I'll read the exact quote. And these are from -- analysis based on IRS data from 2002 to 2006. During the last expansion, the last -- the top 1 percent took home 73 percent of all income growth.

REP. EDWARDS: Okay. So the primary -- one of the primary problems we face today is not that the wealthiest 1 percent of Americans don't have enough money after paying their taxes; it's frankly that the middle class has lost ground in real income over the last seven or eight years. Is that -- would that be a correct statement to make?

SEC. GEITHNER: You know, the basic troubling challenge the economy has faced over the last decade is that you saw income growth for average Americans slow significantly. And we need to bring about the kind of substantial changes in the basic direction of economic policy to try to address that basic challenge. And that's one reason why it's so important that we do a much better job improving education outcomes and that we bring some more fairness and balance to the overall tax --

REP. EDWARDS: So this administration wants to pursue policies that help the middle class in the belief that you'll create more wealth in America if we have a healthy middle class.

Some, who were the architects of the good economics that led us to the worst crisis since the Great Depression, want to continue policies to cut education and health care programs and job-training programs that help the middle class while actually pushing for more tax cuts for the wealthiest Americans. So I compliment you for not following the good economics of the past eight years and trying it a different way.

Thank you, Mr. Chairman.

REP. SPRATT: Thank you, Mr. Edwards.

Mr. Secretary, we have votes on the floor and we're coming back as quickly as we can. We're mindful of your need to get out of here by 12:30, and we'll abide by that. In the meantime, if you need some office space --

SEC. GEITHNER: Okay.

REP. SPRATT: -- just behind us, you're welcome to use these facilities.

SEC. GEITHNER: Thank you, Mr. Chairman.

REP. SPRATT: That applies to your entire staff.

SEC. GEITHNER: Thank you, Mr. Chairman.

REP. SPRATT: We'll be back as quickly as we can.

(Recess.)

REP. SPRATT: Secretary, we'll go first to Mrs. McCollum.

SEC. GEITHNER: Thank you, Mr. Chairman.

REP. BETTY MCCOLLUM (D-MN): Thank you, Mr. Chair.

And thank you for your testimony today and for your patience during our voting interruption.

I want to focus on health care for a little bit. I just find it totally unacceptable that in the wealthiest nation in the world, 46 million Americans don't have health insurance. Millions more encounter a health care system that's unresponsive, inadequate to meet their basic medical needs. And along with that, there are too many that are underinsured. And underinsurance leased to poor medical outcomes, it leads to more expenses for families. And it's my opinion that health care should be a right in this country, basic access to health care, and not just a privilege for those who have financial means.

Now, this budget makes it really clear that you're not going to wait to do health care reform, you're going to move forward. President Obama is living up to his promise to provide health care for America. Families and businesses are struggling. They can't afford to pay for their health care. I hear this all the time, about the increasing costs and the decreasing coverage along with that increase in cost.

So with the current economic conditions, the economic forecasts, dilemma that we find ourselves in, the housing crisis, families are continuing to be squeezed.

And I'm -- just for the record, I'm going to put in a few things. For an example here, 1 percent of the increase in unemployment rate is estimated that as many 1.5 million Americans lose their health care coverage. Over 2.5 million American families face foreclosure -- every year, 2.5 million families face foreclosure because of medical costs. They lose their homes because of that.

So clearly we know medical costs have an impact on workers' wages. It reduces their take-home pay. We know it makes them have to make hard choices about children going to college, making repairs on their home, sometimes staying in their homes, let alone preparing for retirement.

So as a member of this committee, the Budget Committee, and the Appropriations Committee, I'm very interested to hear what some of the economic consequences you think that there will be if we do not address this problem of rising health care costs in a very fiscally responsible way. So could you maybe talk about the impacts that will increase access to health care and lowering costs that are in this budget and the effects not just to the short term but the long term? And then, if you could, maybe touch on how decreasing health care costs, what that means for the future of Medicare and other programs for our families, seniors and that.

And with that, I will listen to your answer. Thank you.

SEC. GEITHNER: You said it very well. You know, the president in the budget laid out a set of broad principles to guide our common effort to reform our health care system. And those principles are to protect families' financial health, to make health care coverage affordable, to aim for universality, to provide portability of coverage, to guarantee choice, to invest in wellness and prevention, to improve patient care and quality care and to maintain long-term fiscal sustainability.

And I think those broad principles provide a framework on which we can come together and reach consensus on how best to fix this system. And I think you said it exactly right, which is that it's not just a moral imperative, because in a country this -- with these resources, it's just hard to understand why we can't deliver better health care more broadly spread to all Americans, again, regardless of how fortunate they are in life.

And our system does not deliver high enough quality care, you know, despite how much we spend on it. So you see businesses facing a huge increase in costs. Those get passed on to families. And that's a big burden on the overall economy as a whole.

So again, our approach is to try to reduce the level of cost by improving the effectiveness of care, by using information technology in a way that will help get a lot of these inefficiencies out of the system, to preserve for people the basic framework of choice that's so important. And this is going to cost money, but -- and so we got to figure out a way to do it that's fiscally sustainable. And what we did in the president's budget is to lay out some very specific ideas for how we can pay for these changes.

But it is a critical priority. And as the president said in the State of the Union, it's time to move on this. Can't afford to wait. And I think it's a really important part of the broad set of programs in the budget to give Americans a sense that we are going to be moving towards fixing these long-term problems in ways that'll make our economy more productive in the future, grow more rapidly than it otherwise would go.

REP. MCCOLLUM: Mr. Chair, I thank you.

And I believe we're going to see savings when we take care of health care for Americans. And I would hope, at some point, we'll figure out a way to capture the savings on property taxes, insurance costs and all the other hidden ways for paying for this poor health care and lack of health care that we have now.

REP. SPRATT: Thank you, ma'am.

Ms. Lummis.

REPRESENTATIVE CYNTHIA LUMMIS (R-WY): Thank you, Mr. Chairman.

And thank you, Mr. Geithner, for being willing to participate in this lively debate. And I want to tell you that coming from Intermountain West, from Wyoming, you're scaring the wits out of my constituents. You're scaring the wits out of the American people. And this is how it's happening.

You have a $646-billion cap-and-trade proposal in these budgets. And while you expressed a concern that the president wants to undo the huge damage, to productive capacity of our economy, the huge damage, to productive capacity of our economy, cap-and-trade is the biggest damage you can do to the productive capacity of this economy.

We are an energy-producing state. Fifty percent of the electricity, in this country, comes from coal. Twenty percent comes from nuclear, both of which are targets of your budget.

And yet even if you wanted to go to the cleanest-burning hydrocarbon, natural gas, this budget creates disincentives, for the production of natural gas, and leads the American people to the assumption and belief that solar and wind can replace nuclear, coal, oil and gas. It cannot. It cannot do it.

And yet you're going to put in a cap-and-trade system that you believe will not impact the American people. Yet we know it's a regulated industry and that people who are producing electricity go through a regulatory process that guarantees them a profit, as part of their investment.

That doesn't happen with the producers of oil, gas, coal, uranium, wind and solar. So your proposal will destroy, I'm serious, destroy the productive capacity of my economy. Here's a couple of ways that it does it.

One, it takes the AML monies, the Abandoned Mine Land monies, that were guaranteed to the states, under SMCRA and a more recent agreement by Congress, for which President Obama voted, when he was a U.S. senator, and takes it away.

He is undoing a previous piece of legislation that was agreed on, by Easterners and Westerners, unions and non-unions, Republicans and Democrats, and was supported by President Obama. Furthermore you take away the intangible drilling costs deduction for oil and gas producers domestically, domestically.

So what you're going to do is send oil and gas production overseas. You're not increasing energy production in the United States. You're making us more dependent on foreign oil and gas. And to take a commodity, like natural gas in particular, that is the cleanest-burning hydrocarbon, and punish it -- and punish the people in this country that produce it -- is the most counterproductive thing that you can do and gets away entirely from the president's goal of not reducing the productive capacity of this country.

So I challenge the statements that you've made. They are inconsistent with the realities of this budget. And I strongly encourage you to revisit the effects of cap-and-trade on energy production in this country, which will be retarded, and it will increase our dependence on foreign oil.

And, of course, I want your reaction to the fact that you are scaring the wits out of the people in this country that produce energy.

SEC. GEITHNER: Welcome that challenge. The president is proposing to do what we have not been able to do as a country, which is to put in place an energy policy that will put us on the path to more efficient use of energy, cleaner energy, and to help make that process work more quickly.

Now, this proposal will reduce the cost of energy, some forms of energy, to the American economy. It will increase the cost of some other forms of energy to the economy. And we're proposing that for very clear reasons, which is the American people want us to be more efficient in how we use energy, particularly those forms of energy that contribute to global warning (sic) because of the long-term costs those -- that it'll prevent -- present to the economy as a whole.

And you have to look at the overall package in this budget. And the overall effect of these measures will make this economy more stronger -- stronger than it is today, and will leave businesses in this country with a set of powerful incentives, instead of -- for an example, the zero-capital-gains rate for small businesses. Very important example. Many under -- small businesses will enjoy lower taxes under this because of "make work pay" going forward. You need to look at the overall package. And this package of proposals will make the American economy more productive in the future.

Now, I understand your concerns about the impact of these cap- and-trade proposals. But as a country, it make -- makes no sense for us to continue to actively subsidize the use of energy that's going to contribute to more damaging effects on the environment. And unless we address that as a country, we're going to be less secure and less prosperous.

REP. SPRATT: (Gavels.) We've got time for one more question, and that's from Mr. Scott.

REP. BOBBY SCOTT (D-VA): Is that one more questioner, or one more question? (Chuckles.)

REP. SPRATT: One more round.

REP. SCOTT: Thank you, Mr. Chairman.

Mr. Secretary, a lot of concern has been expressed by those with incomes over $250,000. I know during the 1990s the Dow Jones Industrial Average more than tripled. So those with those incomes that had investments in stocks, bonds, 401(k)s and that kind of thing showed a substantial increase in assets.

It seems to me that improving the economy where the Dow Jones Industrial Average will get back on track to going up rather than down would mean more to people in that income bracket than a 3 percent differential in marginal -- marginal tax rate.

Could you say something about the value of getting the economy back on track as it affects people in the higher income brackets?

SEC. GEITHNER: I think you're absolutely right. The most important thing for us to do is to focus on policies that are going to get growth back on track as quickly as possible, to bring the recession to an end as quickly as possible, and to get our economy back to a place where we're growing at a sustainable rate.

The president has proposed and this administration has moved with unprecedented speed to not just work with Congress to pass a very powerful Recovery and Reinvestment Act, but to move to take actions to get credit flowing again, to address the housing crisis and propose a very dramatic, bold set of proposals in the budget that will again make this economy stronger in the future.

The most important thing you can do, and that we have to do, is to get recovery back on track. That will be overwhelmingly more important than anything else, not just for our long-term fiscal future but for, again, reducing the damage that a recession like this is going to bring to businesses and families across the country.

REP. SCOTT: And it would be in the interest of those with incomes over $250,000 to get the economy back on track much more so than whatever the marginal tax rates that we're discussing would -- whatever difference they may make.

SEC. GEITHNER: I completely agree. Another way to think about it -- unless we get the recovery established and lay out to the American people a framework that brings our deficits down over time, then recovery will be delayed and growth will be weaker, there will be less private investment and less overall gains in income across the economy as a whole.

REP. SCOTT: Thank you.

In terms of the auto bailout, would it be cheaper for the government to buy cars rather than lend the corporations money? The advantage there would be that workers would actually have more work, more likely to have work to do after you've done that. It certainly should be just as likely to prop up the auto industry, and added benefit is you get some cars to show for it.

SEC. GEITHNER: You're right to say we need to look at what's going to be the most efficient, the least-cost way for the government to help facilitate the kind of restructuring we need. And we'll look for the most effective use of taxpayer resources if we feel there's a case for using taxpayer resources to help facilitate a restructuring.

The really important thing to recognize is that we're going to need substantial restructuring to put these companies on the path to viability, and it's going to require a lot of sacrifice by all the stakeholders in those companies. And we're embarked on a very careful process of trying to make sure that we can improve the odds of that kind of restructuring.

REP. SCOTT: And finally, the auto dealers, some of whom complain that some of their buyers can't get loans, is that true? And if so, what are we doing about it?

SEC. GEITHNER: You're right that the financing environment is -- deteriorated dramatically for the companies and for the overall financing available for cars. And the government has already taken action to put capital into the finance company. And it is -- we are, through these direct lending programs we announced on Tuesday, trying to get the auto finance market to start to open up again. But any effective solution to address the crisis facing the auto industry is going to have to directly address these problems in financing markets, which are making everything harder.

REP. SPRATT: Mr. Secretary, could I ask you to take one question each from --

SEC. GEITHNER: Absolutely, yes.

REP. SPRATT: Okay. We'll go to Mr. Nunes. One question, if you will, sir.

REP. DEVIN NUNES (R-CA): Thank you, Mr. Chairman.

Mr. Secretary, I was glad to hear that you're a supporter of American agriculture. I sent a letter -- actually two letters now to President Obama regarding a regulatory drought that we're experiencing in California, where we're on the verge of idling 500,000 acres of the most productive farmland in the world. UC-Davis just came out with a study, said that that was going to cost us 80,000 jobs. My home county is at 15 percent unemployment, likely headed to 20, if this occurs.

I would invite you, President Obama -- we can all go have a big job-saving party. All we have to do is turn on the pumps in the delta so that we can pump water south. This is a regulatory drought dealing with ESA issues. But this is a very, very serious issue that we absolutely -- I wanted to raise with you here today so that you know the seriousness of it.

I want to -- I'm going to talk a little bit about this cap-and- trade --

REP. SPRATT: Mr. Nunes, would you basically reduce it to a question? Because he's got to get to the White House for a function at 1:00 and needs to leave here -- 12:30 was the agreed-upon time, and we're stretching that a bit.

REP. NUNES: Just a -- that was a statement. Can I just -- a quick question on cap-and-trade?

REP. SPRATT: A quick question would be fine.

REP. NUNES: The point that I want to make is in California we've attempted to limit greenhouse gases. I think that we can all agree that that's a good thing to do and you won't have any argument from me. However, what we've seen in California is we went to 14 cents a kilowatt in our costs of electricity now, which is contributing to this outflow of -- migration leaving the state and jobs leaving the state.

This is just to throw out there -- this is kind of an example, but in the stimulus bill we spent a trillion dollars, roughly. That trillion dollars would build at least 200 new nuclear reactors, which would get us -- just hypothetically here -- would get us to almost 80 percent of our electricity produced emission-free from nuclear power. And I think if you and I sat down and came up with a real plan how we're going to provide cheap, abundant electricity on the market that we -- at the end of the day we could go through solar, wind, fossil fuels and we'd always come back to the same thing, that we have to invest in new nuclear power reactors.

And I would hope that -- and I'd like to hear your answer to this -- that we would look at, you know, building these 200 reactors, or some number. And do you guys have a plan of getting these reactors online and how many should we -- should be built in the next five to 10 years or should we expect any at all?

SEC. GEITHNER: Excellent question, but it deserves a more thoughtful response than I can give you here. I'd be happy to talk to my colleagues on the energy side and come back to you with a detailed response to that question.

REP. NUNES: Well, fair enough. I'd hope that we can look seriously at reducing our burning of fossil fuels, and I think nuclear power's going to be the way to do it.

Mr. Chairman, I want to thank you for indulging me.

REP. SPRATT: Thank you.

Mr. Yarmuth, one question, quickly.

REP. JOHN YARMUTH (D-KY): Thank you, Mr. Chairman. I won't make a speech.

If I picked up a newspaper on Sunday and saw a sale that was for two days only, 40 percent off, and I -- that was Monday and Tuesday, and I went into the store on Wednesday and I had missed the sale and it was back to regular price, would I have a legitimate argument in saying that they had raised the price, or just I had missed the opportunity to take advantage of that?

And my question is, is that an apt analogy to the issue of whether we're actually raising taxes under this budget? And is there any evidence that the tax -- that sale that we gave to the wealthiest individuals in the country over the last six to eight years has had any measurable benefit to anyone in the economy outside of those individuals?

SEC. GEITHNER: I understand the analogy. I think that it's fair to say that economists are debating what the impact was. I think what you can say is you saw relatively small benefits on actual growth rates, relative to what it did to our long-term fiscal costs.

And in looking at all these kind of things, what you want to do is to find a measure -- set of measures that have substantial effects on incentives and growth at the least cost to our long-term fiscal prospects, and that's the balance we want to achieve. And in my judgment, judgment of many economists, we got that balance wrong in the earlier part of this decade.

REP. YARMUTH: Thank you.

REP. SPRATT: Mr. Garrett, one question, please, sir.

REP. SCOTT GARRETT (R-NJ): Thank you. Thank you.

There was a total lack of -- or disbelief when the administration and yourself rolled out your reform efforts several weeks ago, and the markets reflected that. There continues to be a lack of confidence in the market with this administration as regards the proposal they laid out. And now the administration says that they want to have a total regulatory reform basically in place, not just principles in place, for the G-20.

How do you intend to reestablish that confidence by doing a rush to judgment on regulatory reform and the continued vacillation on some of these other proposals, and establish that in a short period of time?

SEC. GEITHNER: Congressman, I just want to say that we have two important obligations now. One is to move together to try to get credit flowing again to the financial system. And we've laid out a framework of efforts to do that, and we're moving quite quickly to put in place a program of capital support and direct credit lending on a substantial scale to help get credit markets flowing again.

But we also need to move to demonstrate to the American people and to the world that we're prepared to put in place the set of reforms necessary to prevent a crisis like this from happening again. And we're not going to rush to judgment. It's going to be hard to do, and we're going to have to do it very carefully, working with you. A lot of work has been done on this area. You're right to say it's going to be a complicated task.

But I think it's important that we start that process quickly.

And we would look forward to working with you and your colleagues on how best to, again, begin that process of putting in place reforms to prevent this from happening. Because if we don't do that, then we're going to be leaving -- living -- leaving people with, I think, a deeper concern about whether we have the will together to fix this broken system.

REP. GARRETT: I appreciate that. Thank you.

REP. SPRATT: (Gavels.) Concludes the hearing. Thank you very much, Mr. Secretary, for your excellent and forthright answers. And we look forward to working with you on this problem in the months ahead. Thank you, sir.

SEC. GEITHNER: Thank you, Mr. Chairman.

REP. SPRATT: (Audio break) -- that all members who did not have the opportunity to ask questions be given seven days to submit the same for record. Without objection, so ordered.

The hearing is concluded.

END.

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