families and businesses have done it just the opposite over the last two years. the president talked about a freeze in the spending. he got pushed back fromççç hn congressional leadership. look at the budget and you will find a big fiscal hole. that chart is up here now. democrats and republicans no bolt is there -- democrats and republicans know the hole is there. those on the other side of the aisle in view the tax side of the ledger as under-subscribed. the budget is consistent with that view. both sides agree that small business is the key to a goal that both sides agree on, job creation. yet the president's budget raises the marginal rate on small businesses by over 15%. the congressional democratic

the house health care reform bill would have gone yet further, raising the marginal rate about 33%. the senate health-care reform bill would have raise the marginal rate by 20%. oncexd enacted, either of those bills would take the marginal çtax rates well above the hight rates even during the clinton era. more dramatic, marginal rate increases would fall on investment. for instance, if the house health care reform bill were enacted, it would push the marginal rate on capital income up by almost 7%. the response from some on the otherç sidew3 -- almost 70%. the response from some on the other side is that because these increases are aimed at a certain income level, somehow they would cause now3 economic harm. that provision is a very politically popular, but ignores the fact that taxes affect behavior. economic growth occurs when positive behavior of families, businesses, and investors.

it is often said that tax cuts are not free, but on the other side of the coin, from the viewpoint of those paying higher taxes, tax increases certainly are not free, either. some of the groups targeted for the tax increase may absorb it, but others will react by changing behavior. small businesses will be affected. that means workers and suppliers and others will be affected. if investors shifted their money into tax-favored activities, the supply and cost capital for garden variety business activities is adversely affected. once more, contrary to the rhetoric of many, it is not just the top 5% of earners were singled out for tax increases. the revenues in the cap-and- trade program will adversely affect many families earning below $200,000 a year income. and the health care bills both

contained tax increases that adversely affect millions of the middle-class families. i would like to have you take another look to the chart, look at the fiscal hole in the path ahead. what i ask my friends to do is to look not just at the tax side of the federal ledger, a look at the spending side. think about it, every time a new politically popular entitlement program is proposed, every new entitlement, every expanded çentitlement, every double-çdt increase in new preparation spending, is popular with the group targeted to get the çbenefit to those who oppose these initiatives, it seems like they are always on the defensive. somebody has to pay for the spending. that somebody is usually the portion of americans not targeted for the benefits. ç in a budget with rising deficits, it means that those americans not targeted for benefits can expect future tax

increases. looking forward, then, we need to examine tax policy in this budget in three phases -- short- term, mid term, long term. in the short term, the president, democrats and republicans agree on a basic objective -- jobs, jobs, jobs. everyone agrees that these jobs will come from the expansion of small business. what are small business folks saying? they are worried about the business environment. there are higher taxes in that environment. there are many new mandates and the environment, new regulations in the environment, a tight credit market in the environment. since this hearing is about tax initiatives in the budget, i would like to focus on that. some higher taxes are known, such as the marginal rate increases in the budget before us. some are possible and to some degree not known. will the taxes be directed at

small business in the house and senate health-care bills materialize? my advice, and this is to the president on downçóxd -- listeno what small business is saying. back off the marginal rate tax heights. don't bury recovering small businesses with new fees. be conscious of the tax burden you are raising on capital. remember, cash is the lifeblood of small business. be sensitive to the credit markets that small business is struggling with. in the near term, the first five years of the budget, take a look at how all the fiscal policies and spending affects current and future hidden tax burdens. in the long term, years six through 10 of the budget realize spending on its currentç path s unsustainable. it is the explosion of spending, not taxes at or above historical

averages, riding is frightening deficit numbers. thank you, mr. chairman. >> i would like a personal inquiry. senator roth used to swear in -- sometimes, not all times -- used to swear in our witnesses on a given occasion. i would make a request that our witness be sworn in today. >> member of our committee, senator bunning, has asked to require secretary vendor to swear in under oath -- agreed diner to swear in under oath. i would respectfully decline to do so. i will explain why . >> i think i understand why, that anyone who does not tell the truth to the congress is under the same regulation -- >> there is no senate rule, no

committee rule -- >> no, there is not. >> it rarely requires witnesses to testify under oath. there are a couple of instances where th it does, with a confirmation hearing. secretary geithner, as treasury secretary, representing the obama administration, i will turn to you. please proceed. >> chairman baucus, ranking member grassley, members of the committee, it is a pleasure to be back before you today. i want to start by welcoming the constructive tone in your opening statements. if you listen carefully, there are at least five things that i think most americans would agree on in what you both said. one is that deficits matterw3.

another is tax cuts are not free. another is we should be paying for programs that are new that we commit to. fourth, we face great fiscal peril to the country. finally, our priority has to meet to make sure that the economy is growing snd getting people back to work. a year ago when the president took office, our nation was in a deep recession, the economy was contracting at an annual rate of about 6%, the financial system was on the verge of collapse, credit was frozen, the housing market was in free-fall, millions of americans had lost their jobs, and we were losing about three-quarters of 1 million jobs a month. wew3 also faced a deficitok[ç 0 oktrillionqç, and projected deficits, before weç took a single act, that according to

the cbo, would more than double our nation's2debtç over the net decade. this recession has caused tremendous damage, and millions of americans today are still livingç. -- living with the consequences of that damage. we know that the road to fiscal sustainability starts with economic growth. as a large part based on the policies congress enacted, we putç out the financial fire and the economy is growing again, and last quarter it grew at an annual rate of about 6%, more rapidly than at anyçó time in te last six years. this is progress. it is notq enough, though. that is why we need to renew our focus on a job creation and investment and innovation. when you@a1-çç to, as i knowu do, small businesses across the country today, theyç tell a similarç storyi] to talk aboutç uncertaintyç with their producy they say that their ability to

expand and hire depends on better access to credit. çi was in minneapolis last week and i visited a small family-ownedxd business called small heating and air- ççw3conditioning, and they wee to build a new warehouse for their growing business and add 80ç jobs. okand a banker said that without access to capital from tarp, such a loan would not have been possible. i met with the bakery owner with plans underway to build a second plant and create 150 jobs, if they can raise the credit necessary for expansion. small banks are a very important source of credit for small businesses, and that is why when the president took office, the only incremental money we put into banks were not to the large banks in the country, but to small community banks, regional banks. that is why today in new hampshire, the president will announce that we will support

new legislation to transfer $30 billion of tarp funds, funds that we took back from our investments in the major institutions, to help create a new small business lending fund. this fund will offer capital to community banks, whichxd will -- at the center of lending to small businesses, and we need now to grow andw3 expand. that is why he will propose today the legislation to support $17.5 billion in loans and guarantees. we want to increase the loan çsize, the maximum loan size, n the most heavily used programs, and to expand theç recovery act provisions that raise fees and guarantees, further improving access to small businesses to credit. okinç addition to these steps n credit, we are also proposing a three act tax relief for small businesses, and we're proposing for small businesses, and we're proposing a new tax credit,

whichok will provide $5,000 cret to every new employee hired in 2010, qn will reimburse employers for. taxes on salary increases above t(inflation -- or payroll taxesn salary increases about inflation. we're also recommending expected to the r&d tax credits that the chairman referredç to, and proposing a permanent exemption from the capitalq gains tax for small businesses. we will work very hard to stabilize the housingç market d make sure that we held more homeowners stay in their homes, and we understand and we know that government has to be smarter at doing things governments -- only governments can do. in the president's budget, we laid out a comprehensive agenda to enhance innovation and strengthen our agenda this is designed to make sure that washington is creating the conditions that allow the private sector to grow and expand, that allow businesses,

small and large, to create jobs and makeççó investments. to do this, we need a financial reform, because families and businesses bothw3 need a financl çsystem thatw3çvçççi]çt(t innovation enjoys, provides better protection for consumers, but is taking the savings and investments of americans and channeling them to innovation and investment, not financing real-estate and financial booms. i]ççwe need to encourage inno. last year, supported the largest investment in basic research funding in this country, i want to build on that with incentives for r&d and incentives forç technologies and will improve xdçproductivity. >> take whatever time you want to take. however, i will -- [unintelligible] >> we to increase exports. -- we needed to increase exports. we need to invest in education.

businesses need an education system that does a betterç jobf çteaching and creating a skilld and productive work force, and that is why this budget supports reforms to raiseçóç thuáuk of the achievement produced by our college education more affordable. w3çand of course, we need healh care reform, said that we can w3ççççprovide greater econoc security for the tensç of millions of middle-class families and businesses and help reduce their health care costs. these arei] reforms that the government has to make. when government fails that these basic challenges. -- when government fails at these basic challenges, americans suffer and businesses suffer. the government needs to address these challenges in order to provide the foundation for a stronger, more dynamic private sector. thatç is why the budget proposs a series of important% investments in these areas. part oft(ç laying a foundationr future economic growth and prosperity is returning to living within our means. when we have a strong growth in

place, we need to begin the process of bringing down theseç deficits. ñrthese deficits are tooççó higd the americançó people and investors around the world need to have confidence in our will and ability as a country to @ @ @ @ @ @ @ called the tarried interest to pull by taxing -- carried interest loophole. we want to eliminate unnecessary tax subsidies. b(óçç as we take these modest

steps, we are also proposing to extend, just for one year, the make-work-pay tax credit,ç whih goes toç 95% of working americans. wráj+e proposed a series of additional tax incentives to help retirement security make college -- reduce and make college education more affordable. t(we are working to close down a tarp at zero cost to taxpayers. last year at this time, the independent budget scorekeepers estimated the cost of fixing the financial crisis couldç exceed $5.0 billion. today, those estimates areç don in the range of $100 million. we proposed a fee on the largest institutions and the country, those that have benefited the most from our efforts to restore the financial system, it to ensure that american taxpayers are not exposed to anyxd of loss under tarp.

third, we must restore the basic disciplines of budgeting that all americans live with, by reinstating pay-as-you-go. çin the 1990's, the basic set f disciplines helped to play an important role in moving us from a deficiti] was 4.5% of gdp in t(1991 to a significant surplus in 2000. the budget outlines a plan to bring the share ofç -- the çdeficit sure of gdp could just below 4% of gdpç. we cannot let our future deficits and debt continue to grow faster than our economy without hurting future investments and growth. that will be a difficult task. it will require veryç tough, politically unpopular choices, and will require democrats and republicans to come togetherçó n things and will make a serious difference. supported the creation of a

bipartisan fiscalçw3 commissio, identifyingresponsible policies that can bring these deficits down and win support on both sides of the aisle. nowç the commission's posture first task will be recommending changes that will bring the operating budget, the expenditures for interest, to balance over the next five years. it will also be asked to find and identify solutions to the longer term fiscal problems. i just want to conclude by saying that america is in much stronger position today than it was a year ago. but our challenges are not just to repair the wreckage caused by the recession. we are in very tough, competitive race, with companies and governments around the world, and that race will determine who meets the future economy, and will be stronger and better at attracting talent investment and sharing the gains of growth more broadly across our citizens. we in many ways dominated the

competition for decades and we will do so in the future, but our lead in some ways is eroding and it is because for too long our government has not been able to make policy changes and reforms and the kinds of investments that are essential to produce economic growth. that is why the investments and reforms we have proposedçç ine budget are so important. i look forward to working very closely with this committee and i look forward to answering your questions. >> thank you, mr. secretary. first of all, i very much appreciate the emphasis on jobs and small businesses. you mentionedç the $30 billion tarp, the small business loan guarantee, $33 billionç in sma- business employment tax credit, etc. the president's announcement today on $30 billion in tarp -- to give you a little more explicit on how that would work --ç some of the concerns that some of the money that his loan

is made available to banks and sometimes they don't lend as much as we want them to. >> you are exactly right. our judgment is that the most important thing we can do for small businesses right now is to give them tax incentives to invest, as we do, for eight range of things you highlighted and senator grassley highlighted in the opening statements, to add a new tax credit to encourage hiring, which building on suggestions made by many in congress, including, as you said, senator schumer and senator hatch, to expand what the fba can do, which can be very powerful, and by expanding loan guarantees, we think that helps. but a critical role has to be to make sure that the banks and aceticdfi's have access to capil to help them land. it is one of the most effective use of taxpayer resources. for every dollar you give for

capital, it can support up to $8 to $12 of additional lending. banks can use this program to support additionali] lending, ad they will be more likely to reduce lending if they are or made bad decisions during the boom. what to do that, we need to make sure that it will take the capital and use it to expand lending. we have suggested a variety of ways to do that. we think we've got some good ideas to do that. we want to work with congress and members of this committee and members of the banking committee to find the best possible to do that. small businesses rely on banks for all the credit that they generate. and help them, we need to make sureç that the banksç that thy rely on how the financial ability -- >> how are you going tow3 help çóguaranteeç the bank's lead? that isçó -- the banksçç lend?

that has been the concern in the has been available to them toi] actually lend. >> i think the evidence shows that banks that took capital expanded lending. i think it is a pretty good story on this side. but you are right. our objective as we that we design these things to substantially improve the odds that we see lending to grow, and not shrink. a lot of banks took on too much risk in this crisis. that was true of community banks, too. it lot of them have been forced to retrench and pull back, and that has hurt a lot of their traditional customers, small businesses. i think it is a very good and legitimate objective tou! work togetherçñr to find ways to mitigate that pressure. >> how youç balance spending fr jobç creation and the recession

on one hand and come back and address the fiscal problems on the other? whatç are some of the paramete, the benchmarks, in making that decision? basically, i think the deficit increases in the short term, and that the budget proposal it decreases in the longer term. how to you sought -- how you decide where to draw that line? >> many people think the objectivesç are in conflict, bt theyt( are not, for theç foll¤3 reasons. if we do not succeed in repairing the damage caused by this crisis, getting growth back on track, having a growing economy with businesses confident, we will not be helping the long-termçóç defic. çthey will be worse. the fiscally responsible thing to do now, given the damage caused by theq recession, and te importance of recovery, is to make sure that we are doing censible things,ç effective, targeted things that reinforce a ççrecovery and improve business

confidence and get americans back to work. we cannot do that effectively unless people also believe that once work is established that we will bring down the long-term deficit. unless we convince people that we can restore gravity to our long-term fiscal position, we will have limited ability to meet the immediate challenges that we all share -- >> i guess my question is how did you decide where to draw the line where you did? qwhy did you draw the line where you did? >> there are two critical aspects of the issue right now. what is how much more now can we afford? there are limits to what the government can do now. as everybodyç says, our deficis are alarmingly high. it will have to come out in time. we do not have unlimited resources available that we will have to borrow from the rest of the world and putçó into, even well design programs. what the president has proposed in the budget is to set aside $100 million on topç of the

extension of measures in the recovery act already approved, like extensionç of unemployment insurance. i believe the country can afford that if we designed the use of the package sensiblyi]. it will be a good thing not just for growth but fori]t( the longm fiscalç position. the second question is timing. howçç quickly we move to rest? in the budget we have proposed in fiscalç year 2011, which we believe will be more than a year çafter we have positiveç growh çrestored, it will begin to brg the deficitsç down. we propose to reduce them by two percentage points of gdp by next fiscal year. some people think that is too much, that the economy may be a little fragile, short of growth them, and it is possible that will be right. we suggestç that we begin the process of restraint when we are more confident -- w3>> my time has expired. i will just point out the obvious, namely that we cannot

afford to make mistakes. we've got to getç this right. that means kicking down in çlittle bit deeper and asking tougherç questions and getting this right as we possibly can. i write, i nei] -- by r ight, i meanççi]the balance between tho objectives. you cannotç afford the luxury f being cavalier about this. this is serious stuff. >> i agree, and we have to make sure that every additional dollar has a higher return. >> mr.ç secretary, on february1 last year, the congressional budget office road it -- wrote disturbing letter outlining the effects of making the provisions contained in the stimulus bill permanent. i would ask the chairman to insert that letter in the record at this point. ççcongressçó -- to the surprif

the very few, progress is being asked to extend the provisions in the stimulus bill. ççç

what we want from you is assurance that this will not be let loose on the american people. my party is often criticized for not offering a tax increases to facilitate debt reduction. the same criticism could be made of people on the other side of the aisle for enacting a so- called temporary spending that is likely to have a larger-than- anticipated fiscal impact once the temporary provisions are extended. trying to get back to what we originally thought we were doing, would you be able to tell us that you are going to be able to contain the hit in fiscal

liability of extending the stimulus bill, could you promised to ensure that the cost of the stimulus bill is limited to the original estimate? if you agree that we should limit the fiscal impact of the stimulus bill to a temporary nature, would you be willing to carry this out by either working to support the original expiration dates contained in the stimulus bill, or by offsetting any expansions with spending reductions in other programs? >> senator, i think it is very important that we all commit to the objective of making sure that the temporary things that we did to pull the economy out of crisis are temporary, and are not built-in it long expectations of high expenditures in the future. i completely agree with that. part of getting our deficit down in the medium term is to make sure that we allow those timber reactions to expire -- to our reactions to expire. we do believe there is a strong

economic case now for extending certain provisions of the recovery act that we think have a powerful impact on investment and job creation. as the chairman said, we need to be caref á4@@ @ h@ @ @ @ @ @ yj that in a way that is fiscally responsible over the medium term. >> mr. chairman, i think i would like to reserve 44 seconds for the next round. i]so i can ask a largerw3 questn

ç-- ç>> you may have even more -- [unintelligible] >>ç secretary diner, i want too right to --ç secretaryçç geiç i want to go right to call in the energy part of the budget. -- coalxd in the engreçzç paf the budget. i come from a state, west virginia, which has a very hostile attitude towards any +tcoal, which isç against cap-- trade,w3 any kind of change reay at alll(ç -- not in all cases. i am trying to change that. çokw3this budget is going to mt really hard.

çlet me explain. ç3hpì(lc@&c+ the way i see atçkoçóit at thç abouti] 6.7% of its electricity. q coal gives itçóç about 85%. but you gotç all kinds of tax credit elimination's in about coal, which come out of the meeting in pittsburgh of the g- 20, and i understand that. but also don't really believe that china and india are going to be part of that. çóso on top of thatç, a relatiy small thing but a nettlesome thing, you shift costsw3 of osm

onto the coal industry. you shift that on to the industry. you call it a fee, you make the states do it, the statesimuá on difficult place, because it is not certain we will get a climate bill thisw3 year. it would be very good if we did. i talked to the people i represent about the fact that cap-and-tradeç is inç fact the exact mechanism we used some 30 years ago to do acid rain. there is no difference. at time, it came inw3çç only f the cost of what people had predictedç. i'm trying to be helpful in this. i talked to coal miners, talked about cap-and-trade.

there is the climate change bill talking about substantial amounts of money for making " clean. but at the same time you are saying to west virginia, up for dead at -- forget it. production of coal is going down, and that is what you have got from the budget. which makes me say thank heavens is the president's budget, and the staying power may be a week or two. we write the legislation. i want to do it in a way that makes " clean -- coal cleaner,

which puts discipline on the industry and the coal miner to do the right thing for the country. and not giving a percentage to ethanol, which is a political move and i will not get into that. but there is not really anything in this budget which i can take home and talk about in favorable terms with respect to coal, when i want to greet the president talked about being for research and development. the budget does not reflect it. i have run out of time for questions. >> may i make a quick response? we are very supportive, like you are, in making sure we provide significantly larger incentives

and subsidies to encourage it clean energy technologies, including clean coal. there are a range of provisions in the budget, without having to go through with you, that substantially increase but the government is doing to facilitate the transition. we want to make sure that we do things that work, but we want to support the same objectives. we believe, as you got the answer is in technology, and we would be happy to make sure that we have the best ideas for that in the budget. >> ok, but they are not in there yet. you do agree. >> if you look at the tax credit for renewable energies and the broader range of support for r and d, there is more support for that objective, but we're happy to work with you. we have the same basic objective. we understand the tension between the reality today that coal will continue to play a major role in our energy future, and we want to use it more

efficiently and make sure that we adopt the kind of clean technology -- >> thank you. senator lincoln. there she is. >> thank you, mr. chairman. i appreciate you and the ranking member for holding the hearing, and certainly, secretary geithner for being here. mr. secretary, we all know that a budget is nothing more than a blueprint that outlines a list of priorities, and it is not binding legislation, but it indicates your values. it indicates how he planned to lead this nation in the year ahead. -- how you plan to lead the nation and the year ahead. talking about all the ideas that people had for years beyond 2010 are grand and glorious, but americans are hurting right now, and we need to have a real plan for 2010, 2010 and 2011. i want to begin my comments, and then i will move any questions i might have.

just to say that in the budget the administration has proposed, i think there still is a great deal of nervousness among americans. i hope that he will work with us. -- i hope that you will work with us to try to alleviate some of that. in the wake of a difficult time for some americans, i see in the budget that we have put in place and a cap-and-trade system, just as senator rockefeller was mentioning. long-term goals, perhaps. changing the longstanding tax policies that encourageñr domesc oil and gas production. i think this would undoubtedly result in an immediate increase in energy prices for consumers and businesses, at a time when they cannot afford it. although we all want to have long-term goals, we have got to understand what the immediate present. i seek the imposition of new tax on their businesses that are trying to compete around the world, without substantive policies to reward them for keeping jobs here at home, which is critical. not only that we do the research

and development, but that we encourage those industries to be ensured that the research and development is safe here in this country come in american jobs. i see an additional tax and regulatory burdens being placed on small businesses and the self-employed, a financial regulatory reform proposal that seeks to create -- recreate the wheel. putting the vast majority of mainstream banks that have played by the rules all along it to a whole new regulatory structure on the focus should be on improving oversight of the bad actors. .

i don't understand the vision of the administration when it comes to the economic policy in the economic climate today. to create the jobs arkansas residents need right now in our economy, it is critical that we focus on to the here and now. mr. secretary, i don't know how many people you spoke with.

folks in the real world. you mentioned that you visited ohio. i don't know how much farm country that you visited. i do want to help pass along the message that the budget and did it -- administration's economic policies lately provide more questions oftentimes then they do answers. americans, individuals and businesses, are desperately trying to regain their footing. they're trying desperately to pull themselves back from the brink of this economic crisis. now is the time to provide stability and certainty. you mentioned certainly almost the first five words out of your mouth. i hope you mean that. i impress upon you how critical that is in these economic times. confidence in economic policy they can see and understand and can get their businesses on in many instances. my concern is i think our budget can do more. i think it can do more than that.

building on that, one of the first things we as a government can do to help provide stability is to focus on legislative issues. that should have been addressed last year. i pledged that to myself and my colleagues write your that we have to do as much. but many of those have been put aside for the effects of a long debate we have had on healthcare. i hope you'll take an opportunity to look at many of those things. for the empowerment zones, 40 renewal communities across the nation. between 500,700 thousand jobs either directly or indirectly to benefit from the incentives. so many other incentives out there. you look at venture-capital and the biodiesel tax credit that expires in 2009. there is no certainty for venture-capital. they don't investing in renewable energy because they don't know what to expect. the 10,000 or 15,000 jobs in the

timber industry directly affected by the provisions that were not -- that expired in may, were not renewed. we need you to help us focus on those issues. between 2.5000006 0.7 million -- >> i want to let you respond briefly, secretary. the senator's time -- >> i want to briefly on small business. then you may answer. >> mr. secretary, briefly. >> i agreed with you. i'm testifying on the 2011 budget. that you let along way away for many people. it begins in october. our focus is right now. we want to work with congress right now on a set of additional measures to reinforce the recovery and get more people back to work. that is what the president said our immediate priority is to focus on the things that matter right now. there are limits to what we can do. we want to make sure we things

-- that we do things that go directly to small business, such as job creation, incentives for adopting clean technology, helping stabilize the government. we cannot wait to do those things. i agree. we also need to make sure we are @@@ @ @ @ @ $# credit -- more clarity than we have in the last few years about what will be the rules of the game, what regulatory powers will be out there. it is important we bring the things we are working on.

in financial reform and regulatory reform so that people make plans for more certain future. >> thank you, mr. chairman. mr. secretary, you mentioned certainty and confidence. those are the two key elements, without question, that are the essential ingredients in economic recovery for it to be strong and sustainable. i have some small business forums a couple of weeks ago in the state of maine. what i heard from small businesses on the ground -- because i think there is a disconnect between washington and the rest of the country and main street -- between reality and fiscal fantasy land in washinton about the practicalities of policies coming out of washington. whether they are as - or they are real. it is immaterial. if the presented is there will be more policies coming out of washington to increase the cost of doing business, they simply

won't do business. i have heard that time and time again. that certainty is impossible for them to predict or calculate the cost. if i did not hear it once, i heard it a thousand times. "how do i calculate the cost of doing business when i am hearing from washington, increases in taxes." we are talking about small businesses. the 93% of small businesses have flow-through income. they pay 82% of those taxes. that could have profound impact. furthermore, as we continue to discuss tax increase potential, they will stand still, they will freeze. that is the point. that is what will hamper our ability. then you talk about all the tax increases and the proposed health-care bill. 62% increase on the medicare payroll tax, still looking at

that, that is a broadly -- disproportionately affect small businesses. there's been not only a disconnect, a large like time to respond to the needs of small business in a practical fashion. there won't move forward to job creation. who would take the risk? would you take the risk, would you put your money on ? >> that is the issue. -- would you put your money on the line? >> until we find out more about regulation and on the issue of healthcare, and that is bouncing between house and senate, we will not have job creation. i would like to hear from you, talking about the tax increases, from 9% of the 15% increase in taxes. furthermore, you believe we should pay for things. but using tarp is not a means of paying for it.

that is a loan that was meant to be paid back, not to be spent. i think we ought to use unused stimulus money for that purpose. so i hope you would consider that. i'm asking for a list from the omb director for all the unused stimulus funds, to use that. finally, we should have a jobs impact statement, every piece of legislation that comes through the u.s. congress, so we know whether it is creating, preserving, or losing jobs. it is that critical for the future of this country and for the interests and well-being of small businesses. we are depending on them to create jobs. >> i agree with much of what you said. what businesses need more than anything is more confidence there will be growing demand for their products. they also want less uncertainty about what will happen in washington and about the basic rules of the game. i want to respond to what you said, the two things. this is important. we have proposed to let the tax

cuts that were given to americans with incomes above $200,000 to expire by the end of this year. congress designed for them to let them expire. we are proposing to let them expire. independent analysts that have looked at this, not just the treasury, they say those will only affect toole% up to 3% of small businesses. you could say that is a lot of small businesses, but it is only up to 3%. the most fair independent assessment justified that concluding. i completely agree with you that to bring health care to resolution would be helpful in reducing some uncertainty. it is important to recognize that business is today under the current system, small business in particular, face enormous hidden costs in health care system. those that have held their pay much more than large

businesses. they'll pay the hidden cost for the uninsured. this country's health system is not a good system for businesses or small businesses. they are facing much more rapid growth in health care costs than large businesses. i agree with you that bringing resolution to healthcare reform would be helpful for confidence and would be helpful for small businesses. >> i want to pick up on your questions as well. secretary geithner, the banks are getting bigger. lines of credits to main street employers are getting smaller. it looks like a vicious cycle. the taxpayers' bailout to a good too big to fail institutions, only to be more vulnerable to them. a few minutes ago you told the chairman that the banks that got the bailout money were increasing lending. your own treasury data, however, paints a different picture. your treasury data demonstrates the 22 banks that got the most

help from treasury bailout programs have actually been decreasing small-business lending. the inspector general's report on january 30, the tarp reports, says exactly the same thing. so my first question to you picks up on theñi chairman's pot about the urgency of small- business lending. tell me, if you would, how the new program that is being discussed is going to be an improvement on the two programs that your own data and inspector general have said are not working. >> if you look carefully at the evidence of the people who took our money and those who didn't, the evidence is pretty good. there was less sharp reduction in lending. >> not for small business "? it's even under that case. how are begun to make this better is my point, how are we

going to fix it. to be honest, the big challenge we have had is small banks have not been willing to take advantage of these programs, because they have been deeply concerned about the stigma that comes with taking that assistance and a potential concerned about conditions in perspective. hundreds of small banks withdrew their applications from the treasury even as we tried to make the programs more attractive. they did that because of fears oplp stigma and fear of the conditions. whatçó we proposed in order to separate this, in a sense, from the trauma associated with the tarp and to do it with a more sensible set of conditions, but that requires legislation, inputñr from community banks aso how to do it, we proposed one way to do it. a lot of people have ideas. we will work with you and other members on how best to do it.

but if you don't do things that help community banks, it is very hard to do enough to help small businesses that depend on community banks. >> i would like more detailed answer in writing, if i could get that, because i continue to be uncertain with respect to how this new program will improve on two others that your inspector general has criticized. two areas where we are seeing progress, the fundamental structure. the bill america bond program, to the extent of the chairman and senator grassley, we thought might promote the issuance of $5 billion worth of bonds for roads and transportation systems. it exceeded $60 billion. clearly, this is now boldest effort in municipal finance as it relates to generating

improvements needed in infrastructure. you all proposed making this permanent, but you also, it appears to me, seem to be suggesting that there be additional areas that would be eligible for billick america bonds, refinance projects cover operating expenses. what concerns me is if the country goes that route, that won't do as much to create new jobs, new family wage jobs, particularly in transportation, where there is a great economic multiplier as the original bipartisan proposal that a big group of us have been working on. tell us, if you would, how your provisions in the build america bond program will still help us to achieve what has long been a bipartisan objective up here, which is to generate more new jobs in the infrastructure area.

>> you are correct. remarkably effective program, to the credit of you and many of your colleagues. it is one of the most effective per dollar of taxpayer money we have seen. that is a good case for making it permanent. but there's also a case to look at the scope of applicability. we would be happy to work with you to make sure if we expand it, we are not going to reduce its basic effectiveness. we proposed something that is no cost and therefore meets the basic test of fiscal responsibility. because of this program and a range of other programs, the cost of borrowing by taking over government has been dramatic. that has been very helpful. state and local governments face difficult challenges that they have not seen in the long -- many decades. we need to keep working at trying to help them get through this. we think this program is one way to do that. >> thank you.

>> senator bunning? >> thank you, mr. chairman. a lot of my colleagues had spoken of clarity, confidence, and uncertainty, i was glad to see that. because that was one of the unbelievable things that the american people are having difficulty with. therefore, i am going to question you on some other things that kind of lead up to that clarity, confidence, and certainty. the reasons that you and others have stated for bailing out aig and changing the terms of the bailout seemed to have changed over time. so i want to give you the opportunity to set the record straight on two questions. first, why did you believe aig could not be allowed to fail? was it the impact on insurance policy helpers?

the derivative counterparties? the money market? or something else? >> thank you for asking the question, senator. our adjustment -- our judgment was the failure of aig could have been catastrophic to the for the ability of the financial system. it would have had the effect of undermining confidence in the insurance system. it equated prospectsçó of must greater failures across the financial system -- it would have created the prospect of much greater failures across the financial system. look back to what happened after lehman brothers failed. our judgment was -- this was the judgment of a range of people responsible for those decisions at that time, including president bush, secretaryw3 paulson, chairman bernanke along with me. our judgment was those problems would have been dramatically amplified if aig had failed and they would spread to parts of the system that would have

otherwise been unaffected, including basic confidence in the insurance industry. >> or is it to the derivative business? securities lending and insurance companies? the commercial paper? the aircraft leasing business? or something else? >> it is hard to separate. what is systemic risk is a difficult thing to judge. >> we are all finding that out. >> that is the reality of it. i think the simplest way to say it is look at what happened >> but that's the reality of it. again, i think the simplest way to say it is look at what happened after lehman brothers and the broader collapse of many of our larger institutions look what happened in that. savings vel fell by 40%. you saw hundreds of thousands of businesses forced to closed, millions of people lost their work. basic confidence in the stability of our system was broken. you had the -- the rivets were coming off the submarine.

and in that environment to have the largest insurance company in the world that had written f thousands of american households, and under a state and local governments, to have that institution fail in that environment would have been catastrophic in our judgment. what we did with the best we could with limited@@@@'@ @ @ @ 12th or if exactly the right friday but it was that friday. that they were at the edge. >> this is in september? >> september of 2008 and that they were at the edge of that point and they did not believe that they were going to make it without support from the government. >> so aig condition did not come up at your july 29th meeting

with the company's ceo when he was.

>> at that point that's why and we made those judgments with exceptional care. with extreme reluctance. no one would ever want to be in a position, ever, of giving a dollar of taxpayers money to a company like that that had mismanaged despite from the assurance of insurance companies. >> even at the time when you knew it was failing? >> of course, i mean, no one will want to be in a position if there was any other way to put taxpayers are the line to prevent adult on a company like that.

>> so the question was -- they were willing or not? >> well, you can ask them that. >> we have. thank you very much. >> thank you, mr. chairman. and welcome, secretary. i want to take the previous questions and actually pivot back to what's happening to american families and american businesses. people who don't have jobs. who don't have breadwinners in their family nationally, that's a disaster.

most of that overwhelmingly did not happen on president obama's watch or your watch. but i would first state that when we have 6.4 million people looking for jobs or or people looking for work for every job available, that's a disaster. and i believe the recovery act was a response to the disaster families and businesses. have been facing and was an appropriate response. and that we need to keep our focus there. i appreciate your focus on small business, which is critical for job creation. as i'm sure you know -- i mean, even though things have been done through sba and so on this year, we don't have enough capital available for small businesses. we have serious issues. we have small businesses who now are in a situation who don't have collateral because they don't -- their equipment, their business isn't worth what it was.

their home isn't what it was. and so they now have the one-two punch who can't get a loan, can't -- don't have collateral as well which is something that we need to address as we are looking at these issues. and we have suggestions on how to do that. but i appreciate the focus on small business, on exports, education, healthcare costs, deficits. i'd like you to speak just for a moment, though, on why it is so critical now in terms of deficit reduction and the economy to focus on jobs. jobs and deficit reduction are not separate in my mind. and i wonder if you might just speak a little bit more about how creating jobs will actually grow the economy and reduce the deficit. >> well, i think you said it exactly right. the economy is in crisis still. and for the average person, for many businesses, this is still the worst economic environment and the most challenging

economic environment they have ever experienced. and that is true even though we have been successful in putting out this financial fire at the center of the system. and even though we've been successful in starting to repair the damage and putting a floor under an economy that's falling off the cliff. but you're absolutely right. and it's because of that -- it's because of that that our first priority has got to be ways to use additional assistance from the government to provide incentives for investment and for job creation. and we want to make sure as we do that -- again, because we don't have unlimited resources we're focused on things that have the biggest bang for the buck. and focusing on small businesses and tax incentives and credit is one way to that. that's not the only answer, though. we think that's important to be complemented by support of broader investment incentives, for clean energy technologies and for structure. -- infrastructure and there's

things state and local governments need to make sure they can weather this major storm ahead. >> i wonder if you might also speak a little bit to one critical investment that i'm very pleased is in the president's budget. and it relates to manufacturing, clean energy manufacturing. in the eight years prior to president obama taking office, we lost almost 6 million middle class manufacturing jobs in this country. and i think there was a belief at that time that if you could buy something, it didn't matter where it was made. and we want very much to see the words "made in america" again. on the products around the world and in this country. the $5 billion expansion of the manufacturing tax credit i'm very pleased i worked with senator bingaman, senator lugar, senator hatch. we have legislation to expand what was an effort we worked on very hard with you in the recovery act. but i wonder if you might speak

to why it's important to focus on the clean energy manufacturing incentives. and the success that we have had up to this point. >> well, as you've heard the president say, i know you believe this, we want the united states to be a leader in those technologies. we think they're critical. we think in some ways they're the best hope for trying to make sure that we take advantage of the great skills and expertise and productivity of the american worker and have them working on things they're going to be obviously central to our economic future. now, this tax program is, i think, by all measures a very effective program. it's been remarkably oversubscribed. we're not going to wait for congress to act in this case because we can use the remaining resources we have now to continue to make sure we're providing support on it. but we think it makes a lot of sense and we'd be happy to work with you and your colleagues and make sure it's designed in a way that has that -- meets that basic test. you know, we want to do things

that have the maximum bang for the additional assistance we provide either for the tax system or the direct investments. >> thank you, mr. chairman. >> senator menendez. >> thank you for your service. i'm glad to see the president's budget has something that i've championed which is tax relief continuing. there's a lot of middle class families certainly in new jersey that are affected by it. i appreciate your comments on loan guarantees with sbi. i have a concern, however, that, you know, if there are no loans, there are no loans to guarantee. and so we look forward to maybe working with you on that to see how, in fact, that actually becomes something much more than a hollow promise. but i want to go up to three things very quickly and i hope you'll work with me so i can get through them. the administration proposed a fee to help pay back the taxpayers' t.a.r.p. funds. the banks are objecting to this modest fee to pay back of the

taxpayers because of the supposed effects on lending they claim and the cost to consumers. and at the same time, many of these entities are paying some of the largest bonuses to their own executives. so one is how do they reconcile that position? and secondly, shouldn't we be looking after banks pay back taxpayers for t.a.r.p. in a few years. shouldn't we have a bank pay into assurance fund so that in the future banks rather than taxpayers effectively will be paying if one of them fails? >> senator, i don't think there is any significant risk that this fee as we designed it would have a negative impact on lending. partly for the reasons you said. banks don't have to pass this on. modest reductions in compensation budget would absorb the cost of the fee. we think it is absolutely essential to make sure any financial reform legislation we are making a basic commonsense test which is the government has to take risk of loss in the

future to put out some future financial fire. we do not want the taxpayers to have to bear the burden of that cost. that's what we proposed to make sure that they don't bear a penny of cost under t.a.r.p. for what we had to do in aig or anywhere else. and we want to make sure in the future that taxpayers aren't on the hook to save large financial institutions from the consequences of their mistakes. >> and the question is, how we do that. whether we do it prospectively or retroactively. if -- that's something we look forward to working with you on. some of our colleagues on the other side of the aisle that passed $2.5 trillion worth of unpaid for-tax cuts passed and expanded drug benefit with an overwhelming republican majority without financing one dime's worth have now rediscovered the issue of the deficit.

and at the same time, i hear the same voices clamoring on that saying let's fully repeal the estate tax. what sort of consequence would it be to our deficits. isn't there way to get 98, 99% americans exempt from the estate tax but not bust the deficit in the process and allow us the room for the middle class tax cuts that the president's budget calls for? >> senator, what the president has proposed and we hope with you to do is extend the rates and exemptions that were in place in 2009 and to make them permanent. and we hope congress will act and make those changes retroactive to january of this year. we think that's fair. it captures only a small percent of estates. we don't it would -- >> 98% of american would -- >> probably 99. >> would never pay an estate tax.

only the wealthiest 1%. >> again what we're proposing to take what was in place in '09, make that permanent. and that is the lower rate and broader exception. that would be in place if congress did not act this year because they would go up higher in 2011. >> that give us the opportunity to create absolutely no liability for about 98, 99% of american. and give us the opportunity to pursue the middle class tax cuts instead of busting the budget? >> that's correct. >> last year we discussed my concern regarding a current law, tax loop using foreign based insurance companies to shift their revenues offshore and avoid paying taxes. this is behavior that gives foreign insurers over u.s. competitors which both hurts our domestic companies and blows significant holes in our tax base. so i'm pleased to see this year's budget has a proposal to seek -- to resolve this problem.

however, i note the approach you've all taken differs from the approach from the senate finance committee and a discussion draft a similar bill discussed in the house. could i get to you commit to, one, make this a priority and have your staff work with those of us on the finance committee to find common ground to effectively close this loophole. >> we'll be happy to work with you on that. >> thank you very much, senator enzi, you're next. >> thank you, mr. chairman. one of the things i've been concerned about in the budget are the way that small business men are going to be affected by the tax increases. they talk about it being over $250,000 in revenue. i know a young couple from gillette, wyoming, who started a restaurant. and he said, you know, we

started this with $2,000 in our pocket. we now have eight restaurants and we still only have $2,000 in our pocket. everything they made they put back in the business but we're going to stifle the economy by stopping them from putting it back into the business because we're going to make them pay it to the federal government instead. i appreciate your comments on small business that you made. you'll remember in your confirmation hearings i mentioned small businessmen from montana had mentioned the need for $5,000 per new employee to be able to expand their business. and i appreciate particularly that number being in there. there's a bunch of complications that i'll work with you on to be sure we're expanding jobs in order to get that. but we also need to expedite the way that they get that. and the $30 billion in small business lending that you mentioned in your opening statement would that be funneled through the sba because the sba

has some requirements about showing that you can't get money before you can get money. and it takes a long time to go through the process because they don't have enough money to begin with. so they're trying to get the money to the people that need it the most but in the meantime, that kind of stifles the economy. so is there a way to get that through the banks instead? >> senator, excellent questions. let me just start where you ended and i want to come back to the beginning. we're proposing both to expand what the sba can do. by raising the loan limits, lowering the guarantee fee. on the most successful sba programs. and karen mills is working very hard to make sure that she reduces and streamlines the requirements in those programs without leaving the taxpayer more exposed to the risk of loss. but we want to complement that by trying to make sure we're helping community banks, too. so the $30 billion program the president referred to is to take $30 billion of repayments we've gotten from the largest institutions, put those aside,

to help make it available to help community banks. i want to come back to the point on the taxpayer side. and this is very important. we are in the -- in the interest of what makes sense for the economy. and in the interest of certainty and clarity. we are proposing to make permanent the tax cuts now in place for people earning below 250 and as i said, that's about 97% of small businesses. and the increase only affects 2 to 3% of small businesses. but we are also -- and this is very important to emphasize. we are proposing to extend the expensing provisions, to expend the accelerated depreciations and we're proposesing a very vel designed addition to small businesses that add to jobs and increase wages and payroll. and we think that is a very powerful package that gives

assistance and clarity to small businesses on balance. so i hope we can work with you and we hope we find common ground on what we think is a very well designed powerful package of tax measures. >> thank you. i'll switch 'cause of my limited time to another topic here. and that's you're proposing eliminating a tax preferences for the oil and gas industry and for the coal industry. and that will cost jobs in places like whooinlz. -- i'm curious how worth we will increase the taxes on those industries and prevent it from being a hidden tax from everyone else. and related to that there's also an abandoned mine land tax that the president is talking about eliminating in certain cases. and that's actually a law that

was passed. it wasn't an appropriation. and that was one crafted by senator baucus and i and others that was designed to extend the abandoned mine land tax which for 30 years had promised that those states that received it would be paid back that money. it was kept in a trust fund. and what we've done is release that money. in exchange we got the companies to extend the tax. we got the unions pleased that we were able to take care of orphan miners. all of those things plus the production stand a chance of having difficulties if we eliminate those payments. so i hope that we'll take another look at that. >> senator, i'll be happy to work with you and make sure we understand your concerns with how that was designed and proposed. and what you said -- you know, you are right we are proposing to eliminate a set of subsidies that go to the oil and gas and

coal industry. and those will raise significant resources over time. we're doing that not only for the reason that we think it's part of being fiscally responsible and because we think we need to eliminate subsidies in the system that go to objectives that conflict with our broader every to improve efficiency and reduce carbon emissions. but i recognize it will be difficult. we don't think they will have any effect on prices. we don't think they will. people may disagree with that. and they've been carefully designed in that sense but i understand that's going to be difficult and hard. and we'd be happy to work with you particularly on your concerns about the way mine proposal was designed. >> thank you. >> thank you, secretary. and i share that concern with senator enzi and i hope we can work that out.

senator carper, you're next. >> thank you, mr. chairman one of the reasons i sought for so long to serve on this committee eight years actually before i finally succeeded in getting here was i've always admired the bipartisan way that this committee works. that history and that characteristic has really been tested over the last year. and we have the opportunity as we sort of we set here a bit and focus on jobs and job creation. we have an opportunity to go back to the tradition that helped make us successful and that's very much admired here in the senate. mr. secretary, yesterday was mike enzi's birthday. today is john cornyn's birthday. i could probably offer a resolution commending them on their birthdays on it but i don't know that i could get 60 votes for it. >> you could. >> i might be able to. >> not for commending, for committing us. >> we could get it out of

committee but after that i'm not sure what would happen. >> i'm going to ask you to spend a minute or two -- you've outlined in your oral testimony, i got a copy of it thanks to your staff -- but you outlined what seemed to be pretty comments and ideas to try to keep job creation activity going as we move from net loss of jobs, a huge net loss of jobs to something almost dead even right now. but you've outlined some ideas that would seem to me to not only enjoy democrat support from the administration from folks on our side. i want you to come back to talk to us where you see the most potential for common ground moving a package forward and why. >> well, senator, we have tried to take the ideas from both sides on this area and i think the core of this agenda is the recognition that businesses need to be able to grow if we're going to create jobs. and that requires that government do things that are going to help make that easier and not harder.

and businesses have a huge stake in making sure that we have the government investing in research and development. providing targeted tax incentives that will help the technologies of the future. make our education system do a better job of educating our children. these are things that the businesses needs, businesses rely on. and at the core it should have broad support. i think -- i try to say when i began, you know, that you had people on both sides of the aisle now saying very important things. you're saying that deficits matter. tax cuts aren't free. that if we're going to do new programs that we have to pay for them. that we have great fiscal perils ahead but our priority right now is growth and jobs and confidence. so i think at that core message again our hope is and i think what american people want to see, they want to see their leaders coming together and try and bring practical solutions to those problems.

we provide a set of suggestions for that. we don't have a monopoly of wisdom and ideas. and we'll be open to other suggestions but i think our test is going to be again what's going to offer the best prospect of support now to help repair what is broken in our country, get people back to work. >> i'm going to ask you to be a little more specific if you will. thank you what you just said. in terms of the proposals that you submitted to us, whether it be $17.5 billion in sba loan guarantees what happens to be the $5,000 tax credit for those who -- that small agenda but a good agenda. >> business expensing, accelerated depreciation, permanent r & d tax credit, zero capital gains for new investments and small businesses, a new jobs tax credit that rewards small businesses that expand employment and wages. sba credit to small community banks, those things that i've

heard from members on both sides of the aisle are very important to them. again, they meet that basic test, they are projobs and progrowth. you can look at people and say a dollar of taxpayers money will make a difference in those areas but that's -- those are just some things. >> well, i just say to my colleagues on the other side those are pretty smart ideas and i would hope we could find common ground and as my time runs out, mr. secretary, i've spoken to you before about another idea that could help free up a lot of money that's tied up in these student loan auction rate securities, university of delaware, the department of economics has studied this and they said we could free up a lot of money an estimated $60 billion provided for this is it wouldn't cost taxpayers as far as i can tell a dime and would translate into potentially up to $400,000 or more. i've raised this with you and i raised it with others in the administration. i thought it was a good idea

when the university of delaware brought it to me. >> there's a lot of money still locked up in that. and i'd be happy to spend time with you working through what are other things that we can do to help on that problem. >> thanks for being here today and thanks for your service. >> senator kyl? >> thank you, mr. chairman and secretary enjoy the. -- geithner. how many firms will pay the tax that did not directly receive t.a.r.p. funds? >> i don't think i can give you the exact number today. i'll be happy to respond in writing on that. we set it to make sure it only hits firms that are above $50 billion in assets. and again those were the firms that we think were the principal beneficiaries what we had to do to fix the financial system even though not all of them were direct recipients of taxpayers money. but remember they benefited -- >> we all benefited from it indirectly. yes or no? did all of america indirectly

benefit from the infusion of t.a.r.p. funds? >> absolutely. >> good. thank you and i will appreciate getting the number of those that directly received the funds. the point is some banks will pay for this or entities will pay the tax that didn't directly receive the funds. of those who did, were there not some who were reluctant to take the funds and, in fact, argued that they shouldn't have to? >> well, i've read that. but i actually think a fair reading looking back is that that capital was essential to all of them. one quick point, senator kyl. >> uh-huh. >> you need to look -- and as i know you do, they all benefited from the guarantees the fdic provided the emergency guarantees they provided also. >> well, let me go with that then. what you said you're going to keep the fee on until the taxpayers are made whole. and this is almost a direct quote. the taxes from businesses that benefited most from t.a.r.p. i think you're shooting at the wrong target because is it not also true that the entities to

whom this tax will apply either have all repaid or are expected to repay what they directly received in the way of t.a.r.p. funds? >> exactly. but the law was -- >> okay. but -- okay. so the banks that are going to be taxed, some of them didn't receive direct funds. some contend that they didn't want to take the funds. and in any event, they paid them back. now, there was an implicit guarantee for some other folks, however, and a direct guarantee and they haven't paid money back that they received from the government. i'm talking about general motors, aig, the gses. so they're the ones that haven't paid the money back. why tax entities that have paid the money back but not tax the entities that haven't paid the municipal back? -- the money back? >> the way it was written it puts an obligation on me to propose to the congress how to make sure we recoup any losses.

so the question is, how to do that. the question is how to do that. and again, what we designed and this is a proposal has to consider -- what we designed is a proposal that is targeted to people we thought benefited most from the financial actions we took to rescue the economy. it's fair in that way and it's designed in a sense as a fee on risk, as a fee on leverage and will help -- >> you can also under that same logic apply the tax to the three types of entities that i just mentioned? >> well, there's no perfect way -- >> they benefited? >> yeah, of course, you could cast it much more broadly. you could cast it on every bank in the country. >> isn't it the fact that you're trying to go after the people that have the money. and that's the banks that have repaid the money. and shouldn't you be trying to examine a way to get the money back from the entities that i mentioned? >> we're going to work very, very hard to make sure that we get as much back as we can from

those entities. and we're going to be, i think, remarkably successful relative to what anybody said but we're left in that obligation in the law. >> could you send a letter to the committee at an appropriate time indicating how you think you might be able to get the money back from the entities that i mentioned that are not subject to it? >> absolutely. >> now, let me ask you before the time is out. the dollar. you have a responsibility for managing dollar policy. and i gather you believe in a strong american dollar? >> of course, i did. in fact, that particular phrase and commitment of policy was first written in my office at the treasury department in 1995. >> great. now, let me just ask, does more government debt make the dollar stronger or weaker? >> senator, i think you're raising the right question, which that if the world does not have confidence in our ability to manage our financial future, then we will lose confidence in -- >> isn't an honest way to answer

the question, that issuing more government debt makes the dollar weaker and that's a real problem. and we need to do everything we can to work around that problem? and it's probably not the best idea in the world to be taking on more debt if we want to have a strong dollar but there are other policy reasons that cause the president to want to do that? >> no i wouldn't say it that way. if you look back -- it's very interesting if you look back at what i see happened in the last year. >> go ahead and say it -- >> when the world was crisis, when people were deeply concerned about the stability of our financial system and about the stability of the global economy, people still wanted to hold dollars and hold u.s. financial assets. the dollar rose over that period of time. and our borrowing costs fell even though we were taking exceptional actions to help fix this economy. and that's because they believed in us. they thought we were going to fix it. and they were counting on us to do that. now, as people have become somewhat more confidence, they're willing to take risk again. that's really the story in this period of time.

and american should really understand this. is that when the world was most at risk and most scared, people were still putting their resources in dollars -- >> excuse me. the time is up. but here's the point we're talking about next year's budget. and the huge deficit that we're going to incur next year. and there's a point at which our lenders aren't going to have that same kind of confidence. wouldn't you be willing to state that you agree with me that it's not a good idea to have a big deficit if we want to have a strong dollar? >> i agree completely with you. that if we do not make people believe that we're going to fix those deficits, bring them down over time, then we will risk losing confidence in our financial future and that will raise interest rates. you'll have less investment. that will be bad for the american economy. >> senator cantwell? >> thank you, mr. chairman. mr. secretary, why not take the $30 billion in resources that the president has outlined for

small business and implement a program immediately as opposed to working its way through a legislative process in congress? >> excellent question. and i think the best way to say it is this. we have been trying for eight months to try and get community and small banks to come and take capital from the treasury under programs many of you supported and use that to lend. and, frankly, they have not been willing to come. they took back their applications by the hundreds because they were worried about the stigma and the conditions. now, it may be -- >> mr. secretary, i don't think that they were worried about the stigma of t.a.r.p. radar. -- dollars. i don't think they liked the terms of the agreement. and for somebody who gave 100 cents on the dollar to aig, i think you would understand that the terms of the agreement matter. and so -- >> i agree with that. i agree with what you said.

>> why not implement a program now -- we have small businesses every day that are folding. we acted with urgency when it came to the big banks. but when it comes to the small banks and small businesses, americans are being told, no, we're not going to design or come up with a program. and so you're right. the inspector general has said you were supposed to come up with a program last month and we haven't come up with that. >> no. that's not quite true, senator. again, we have substantially expanded resources to community development financial institutions. we have had a program in place that is very attractive on its financial terms to small community banks. some have come. most people have been reluctant to come. you're absolutely right. the terms matter. this is not something that takes any time. this is easy to do. and it is -- but it requires legislation. >> excuse me, mr. secretary, it doesn't require legislation. we've been in consultation with crs and they say it doesn't. you know, you said you didn't

need -- you couldn't do -- you couldn't do the bailout to the auto industry from t.a.r.p. either without legislation. and then when we didn't pass legislation -- >> i never said that. >> well, that's exactly what happened. and that -- and help was given to the auto industry by the administration afterwards. so i'm sitting here with a high tech company in my state who had a performing line of credit pulled by bank of america and ordered to repay within 30 days. the ceo took himself off the payroll just so they could barely survive. i have a woman who is a state employee with no debt, a credit score over 800, $400,000 in a home but she has 25 banks who have denied her access to a line of credit. when the fdic closed the bank of clark county and they said -- they basically unilaterally cut customers off their original -- we had a company, columbia gen to have the owner fund the company out of his restaurant. a restaurant very popular in

that area and his assets were frozen and taken over. these are not people who caused the problem and they had their capital cut right out from under them. >> senator, i could not agree with more than you. and it's deeply unfair is that people who were careful, they were prudent, they were responsible, they ran good businesses -- >> where is the urgency, mr. secretary, in solving this? if we go through a legislative process here and we take another 90 days and who's to say that in that legislative process you will have had the right criteria and the right terms anyway. we could come out of that just as the t.a.l.f. program, just as these other programs that were supposedly going to help small business and we find out hasn't solved the problem. and so my point is, why wait? why not come to terms right now with community banks 'cause the big banks -- somebody came to terms with them. and they walked away very happy customers but small businesses in america are not getting access to capital. >> senator, we want to fix this

as quickly as we can. nothing would make me happier if small banks want to come today and take company from it but they have in some ways voted with their feet hundreds and hundreds took back their applications because of concerns about terms. and if there is -- if there is -- it is not hard, i think, in this way for a congress to do a quick deft surgical powerful act to reduce their concern that the conditions they face would make it untenable to run their businesses. i don't think that's hard to do. >> i think, mr. secretary, you should take swift, deft action to implement that immediately. if you don't get it and understand, that's what people in america are angry about. they're angry that that ewhat happened. the administration -- the past administration took swift deft action to help the big banks on terms that some people find outrageous today and now these small banks aren't getting access to the terms that would help small business. these aren't unfair terms.

these aren't unfair justifications. but people put the screws to the community banks and gave all the money away to the big banks. and if we don't implement change right now, we are going to lose more jobs. we can't propose a budget that talks about credits to keeping small business while right now people are cutting lines of credit to small business and they're laying off people. >> i agree. this is not about the fy11 budget and i agree with you about the urgency completely. completely. >> well, i would urge you, mr. secretary, i'm telling you they're coming in into my office every day with these stories. i would urge you and the administration to act now. do not wait for legislation. come to terms with the community banks on reasonable terms that they can agree to with a broad specter of daylight and we'll be well on our way to getting americans back to work. >> i agree with you. the president agrees, too. and we're happy to work with you and your staff on the best ideas of how to do that. >> i think there are a lot of

senators raised by senator cantwell. >> well, this senator certainly does and i can tell you daily, mr. secretary, the same kind of just cries of anguish of small businesses going out of business because the banks won't lend. you go to the community banks and they say the same thing that i raised with you in the budget committee six months ago. which is, the community bankers say well, we can't lend because the regulators won't let us lend. and when i raised this with you in the budget committee last summer, you said, well, we got a problem. we're going to -- i'm paraphrasing, in essence, educate the regulators so that these banks will lend. but the system hasn't worked.

and we're now one year after you all have taken office. where do we go? >> community banks that i speak to, what they say to us they got three big concerns. one is they're very worried that in financial reform they're going to be subjected to additional burdens that makes it hard for them to run their institutions. not for the president but there's something they're very worried about. and we believe we can work on a financial reform package that will be responsive to those concerns. second thing they say is, they say our examiners and our supervisors are killing us. they say after a period where they were very supportive of what the banks are doing it's making harder them to make loans from customers. we hear it from everybody. i completely understand it. i'm the secretary of the treasury. i do not have the ability to

affect and direct what those independent supervisors do. they made some efforts to put out clarifying guidance. they did that last november. the chairman is looking for other guidance to be responsive to that concern but you're absolutely right. they say the same things to me. it's not any different. the third thing they say is, that we need the ability to get capital and more help from the sba. what they say is, that we need some -- a little bit more confidence that if we come and take that capital, we're not going to be subjected to conditions in the future that are going to make it harder for us run our banks. we are trying to navigate through those pressures. i completely agree to you and they say the same thing to us and basically they have it right. >> well, the system is not working. and we're, the government -- we're supposed to help the people by making the system work. and you say you don't have any control over the regulators.

but your boss does. your boss is the president of the united states. and he has the power of persuasion. what we would say in the south, well, go have a little prayer session with him. we got to get the system functioning. now, let me ask you about something i think you can agree with. >> i can agree with everything you said on that, too. >> well, then let's make it work. all right. we're going to agree on the fact that bank executives have been getting away with these big bonuses and so forth. so there are a bunch of us who are introducing a provision whereby banks' future tax deductions on large banks, that

they are going to depend on responsible executive compensation. and the form would require banks to adopt policies that reward long-term performance. so extending investing pay and employer stock, claw-back arrangements for misconduct -- all of those things would be required. and the banks that adopt these responsible pay practices for their executives would, therefore, see no loss in benefits. and banks that continue those irresponsible executive compensation practices would see their bank taxes rise. is that something you can get behind? >> i think you had exactly the right executives, exactly the right standards, how to encourage more prudent risk taking and investing periods et cetera.

we completely support that. i'm happy to work with you and your colleagues on how best to achieve that. we think a centerpiece, of course, is trying to make sure that shareholders have the right to vote on those practices. that there's more disclosure and transparency and that the supervisors are enforcing those standards but i'll be happy to take a careful look at your suggestions. >> okay. we are about to introduce that. there are a bunch of us that are doing this. and i would just say in passing, remember and i've talked to you until you're sick of me talking to you about this. florida and other areas of the country are different in the homeowners mortgages that are under water. 40% of the mortgagees in florida are under water. and this loan modification program that you all have started -- the banks are using

those trial modifications to delay the recognition of the loan losses. and they're not making the permanent changes in the loans. and our people are hurting. and they can't get the mortgages extended so they can stay in their homes and keep their lives going and keep the property values in the neighborhood from just plummeting when that would happen when they're foreclosed. please, we need help. >> senator, i agree with you. and i think a critical thing we have to do is to make sure that those temporary modifications get converted into permanent modifications. they provide very, very substantial cash flow relief to what's now more than three-quarters of a million americans but we want them to be translated in permanent modifications for just the reasons that you said. >> thank you, senator.

this is perhaps replowing old ground. three things that you said from banks and their concerns about getting capital to do it, loaning to a small business. could you specifically address what's being done in the administration with respect to each of those three concerns? >> exactly. >> i think senator nelson makes a great point you may not have direct authority over independent regulators but you're after all treasury secretary. you have very credible influence in this administration. so what's being done? >> okay. the first concern is really a concern about regulatory uncertainty principally in terms of design of the financial reform package moving through the congress. and in the house and i know chairman dodd is working very carefully to try to make sure there's a balanced approach that encourages innovation and competition. consumers have choice. we're protecting banks from competition by unregulated entities. and we're working very closely together to try to address those concerns. second, is the concern about supervisors. you know, this is a tragic pattern and financial crisis.

what happens you have a long period of credit. it's too cheap and too easy and too available. and then when things turn, they overcorrect. bairpgz overcorrect and this is a very important issue.nks over very important issue. the supervisors are worried about it, too. they're trying to send a more consistent signal across the arm of examiners across the country for more balance and more care. in this so that they don't overcorrect and i think they have more work to do in that area. and that their concern is about not just the way the sba program works but how to make sure they can come take capital under the programs we described and use that for things they believe in. as senator cantwell said right. it's not just the financial terms that matter. the financial terms of these programs were quite attractive. and there are many sensible conditions in that program, too. but they're worried that the

full bulk of conditions and the fear of future conditions will need to make them vulnerable if they actually come. we need to be responsive to that concern 'cause it won't work if it put something out again and nobody comes. so that's the test we have to meet and we're working very closely with many of your colleagues on ways to make sure that we adapt this program so that they will actually come and use it and use it to expand small business lending. >> other questions are on healthcare. could you explain how healthcare will help businessmen? >> senator, you can do this, i think, better than anyone in the country. >> as well as get the deficit down. >> our long-term fiscal costs are primarily driven, fundamentally driven, not just by the aging of our population but what's happening to healthcare costs. the only way to reduce the long-term deficits is to reduce the rate of growth in healthcare costs. now, this is not just about the future.

the system we live in today is not fair and is very expensive to small businesses. they're the ones that pay much more for those that actually pay for health insurance. they're the ones who are facing in many ways the most rapid growth in cost and they bear a substantial part in the hidden cost in the system today. we are not helping them if we leave that system in place. and we're going to be left with a worse fiscal problem and the risk of eroding confidence in our capacity to manage that fiscal program if we can't put reforms in place to change how people use healthcare and reduce that rate of growth and cost. it is good policy for the private sector and the business -- for the country to do things that will reduce the rate of growth of costs in healthcare. >> will you give some thought in addressing corporate governance. they don't have much authority as a practice matter and executive compensation committees often is hand-picked

by the top person. and i guess another similar question. what are our corporate governance, you know, laws, rules a bit dated and what degree is the administration maybe you're looking at ways to address that? >> i agree with you that part of what failed in our system was a failure of boards of directors of financial institutions to exorcise their responsibilities and if you don't have boards of directors who don't understand banks and have a constraint of checks and balances of what management is doing. now, one of the most important things we can do is improve disclosure to the public and to investors not just about compensation packages but of the broader risk the firms are taking. that will help give the market

shareholders a bit more leverage over these decisions and help boards of directors do a better job. the basic responsibility of government particularly in the financial sector is to set and enforce better design constraints on risk-making. we can't run a system based on the hope that shareholders will be able to act in their long-term interest. that boards of directors will be always be wise and knowledgeable about the future. it's the job of government to make sure there are constraints in place sensibly designed that limit risk taking by those institutions because there will be times when the interest of the management and the boards and the shareholders may seem to conflict with what's in the broader interest of the stability of the financial system. >> thank you. my time is expired. senator grassley? >> i just have two questions. one on education and tax policy and the other one on some questions of oversight that we haven't gotten documents from you. on education, i think i can say

with confidence that every senator is concerned about inflation and cost of education. there are tax relief provisions in the 2001 tax relief bill because of concern recently i introduces legislation to make that package permanent. and i am pleased that the administration's budget includes similar measures. the administration's budget also includes an expansion of higher education entitlement. provisions enacted last year. the provision would lower the cap on student loan payments from 15% to 10% of a graduate's income. and then would forgive in 20 years instead of 25 years as would be expected this new entitlement is very popular but some experts worry about risk from the fiscal exposure of the entitlement. one risk would be the higher than expected interest rates. the second risk would be a continuation of a 30-year trend

where higher education costs inflation exceed general inflation. as a manager of our federal debt i assume that you ought to be and are concerned about the potential of unlimited federal liability. since 2008 through this committee's oversight functions, i've been reviewing the activities of universities with large endowment funds, for instance, harvard endowment was last valued at $26 billion just about the size of the gates foundation. and, of course, that's a private foundation. our hearings and investigations found a bit of a policy paradox while these universitys are accumulating large endowments they are at the same time raising tuition and other expenses at alarming rates. parents and students battery cost of that rise of that burden. it doesn't make sense to have tax-favored endowments and tuitions both growing gemetcally while some of those institutions voluntarily agreed to increase

financial aid there's no fix policy to protect middle class families from future tuition hikes. so my question, with everyone concerned about rapid inflation and higher education costs aside from proposing more popular entitlements, what is the administration willing to do to provide incentives to colleges to keep costs down? and i ask this question because parents and students are on the hook. and under this budget the federal government would be on the hook to even a greater degree as i read the budget. >> senator, i thought you stated the challenge exactly right. and i'm not sure -- actually i could say with confidence. i don't think we found the best mix of policies to try to give americans confidence they're not going to see the same rate of increase in tuition they've seen in the past. we do think it's good public policy to make higher education more affordable to americans we want to make sure people have the chance to go to college. and that we are generating a

larger number of college graduates as a share of our population in the future. that is good policy. we think there's a very high return on that. but i'm happy to hear your ideas and listen to you and work with you on ways we can help -- sensible ways we can limit future rates of growth in tuition. >> congress wouldn't have to pass a bill if the president would give equal time to helping middle class families by -- as he's doing jawboning banks and wall street, et cetera. and there would not be a disagreement with me on his part for doing that. if he'd do the same thing with some of our major universities or all of our universities for increase in tuition. let me go on. in december, i asked you for details regarding the $168 million aig retention bonus payments paid in 2009. and 198 million in aig retention bonuses planned for march of

this year. some of the aig executives promised to return $45 million of '09 bonuses but that doesn't happen. nevertheless, aig still planned to pay $198 million bonuses this year. last week i received a letter not from you but from kenneth feinberg special master for t.a.r.p., executive compensation he said you asked him to reply on your behalf. he offered to brief me but did not provide the documents i requested. the offer of a briefing is appreciated but first i need the documents. this is especially frustrating because i read in the press that aig has offered to pate 2010 bonuses early by the end of this week. i've been told rather than in march. aig is reducing the amount of bonuses by 10% rather than collecting on broken promises some executives made to repay '09 bonuses. the terms of this bonus deal is

exactly the sort of information that should have been provided to congress earlier in response to my request. we shouldn't have to read about these things in the newspaper only have to it a done deal. when will i receive my documents that i requested on my december 24th, 2009, letter? and why is treasury allowing aig to pay bonuses again this year? >> senator, i will commit to you that we will work as quickly as possible to make sure you have the information you need to provide the oversight that this committee has to provide in this issue and all other issues. and i will -- and i just want to emphasize that ken feinberg who i appointed to try to make sure we are fixing what happened in compensation structure for this set of institutions is working very hard on just the concern you raised. and i'm sure he'll be able to provide a little bit more detail when he reached those judgments

but in the interim i'll make sure we are providing you the information you need and to be responsive on your questions on this specific issue. >> okay. thank you. >> thank you, mr. chairman. i want to go back to something you said earlier about the fed and oversight on aig. you said that they did not have -- >> did not have any authority or responsibility. >> right. but they did have authority on almost every aig major counter-party. almost everybody. not all. is that correct? >> no, that's not quite correct. because a very large number of aig counter-parties on the derivative transactions were foreign banks. >> i agree with that. i'm talking about the united states of america counter-parties. >> many of those counter-parties.

>> okay. >> were. but remember what's important to recognize is the fed under the laws of the land had authority over institutions called bank holding companies. and aig had hundreds, tens, thousands of counter-parties that were not bankholding companies. >> correct. i want to go back to something senator cantwell was talking about. because if i've heard it once, i've heard it 100 times from my community bankers. and it's the fed regulators that have stopped the flow of money out of the community baipgz to the small business person for fear of the fednks to the small business person for fear of the fed regulators coming in and stopping all lending to the people who

absolutely need the lending. i'm talking about small businesses that have 50 jobs and small businesses that need a line of credit. and on down the line. and i'm telling you, it's almost unanimous -- it isn't totally but it's almost unanimous with the community bankers in kentucky. ... too soft before. and the risk is very overcorrect. >> mr. secretary, i want to follow up on something you said at the house oversightç commite hearing last week.

you were clear that you supported the decision to pay a.i.g. counterparties, no doubt about that. and that you played no role in the decision to cover up those payments. what i want to know is if you thought then and think now that it was the right decision to keep that information of those payments private? >> that's a very good question. and let me say what i said to your colleagues in the house. when the fed disclosed that information in march of 2009, it looked like to me it was the right thing to do. i thought it was the right thing to do at that point and i think it's reasonable for many people to say looking back now if it was right then, why not right earlier? but this is a very important thing for me to say. i did not stand in their shoes at that time. i have enormous trust and confidence in the integ grit of the people that made decision and care and experience in making that judgment. i don't know how to say it differently than that.

it was the right thing to do in march of 2009 and i >> hii understand why so many people would say it was right then, why not earlier, but that's hard for me to speak to since i didn't sit in their shoes. >> then to you think it is appropriate for one federal agency or regulator to negotiate with another federal agency on behalf of somebody who they regulate? because that is what happened here. your new york fed lobbied the sec to keep them out of the information secret that probably would have been made public. >> i don't think -- again, i can't speak to the details of that question, and i don't think that is an accurate calculation of what happened in that case but that's something you better address to the bed and the sec. >> do you think firms that received that do not receive? >> absolutely not, senator.

one of the most important reasons why our system is more stable today is because we forced and compelled a level of disclosure and transparency on our largest institutions about their risk of loss in recession than they or any other for competitors competitors -- >> mr. secretary, you're inspector general on t.a.r.p. would disagree with you 100%. i read his report. >> not on this question i don't think he would. again, what made it possible for us to put out this financial fire with very little cost to the taxpayer was we made it possible for private capital to come in and pay us back. that was only possible because we forced a level of disclosure and transparency on these institutions that would dramatically beyond what existing regulations require. that was the sensible thing to. >> you have read the aig -- or the inspector general's report

on t.a.r.p.? >> of course. and i spent a lot of time with him and his colleagues helping them work through and understand the choices we made. >> just so i know that you read it. thank you. >> thank you, mr. chairman. following up on this issue with a small committee banks and the examined issue, as you're calling it. i will come back to the regulatory issue. but on the examined issue, isn't the issue really that capital requirements and leverage ratios were changed by the fdic, basically coming in and saying you have to have more capital? and basically at a time, where would you go get capital? where would you get capital? nobody could get capital. and so what they did is they basically started canceling loans to individual businesses. that's where they got to capital ratio to come back. they basically starts thank you small business, you don't have your loan anymore. and so why not come back and

change, lower the cost of the t.a.r.p. money through dividends and warrants, why not adjust that and adjust the viability? we are basically saying to people okay, you can have t.a.r.p. money if you can prove that your viable without t.a.r.p. >> excellent question. and you're right that committee banks to have a very hard time raising capital. that's part of what is forcing them to shrink. and i'm very supportive personally, and if you just look at what the president announced back in october you can see i'm trying to make sure the economic terms in terms of dividends and warrants, et cetera, are more economically attractive for them. i completely agree with that. i completely agree with that. >> what about the viability. >> viability, let's sort of step back and think about it this way. banks in the country, particularly small banks, are still under enormous pressure. and we have to be careful that we are using any system we

provide as carefully as we can, as widely as we can. the viability test that exist out there is designed to try to make sure that it's going to institutions are more likely to be used to expand. if you use it to firms that don't meet an objective standard of viability, then there is a risk, not just that you put the taxpayers money unnecessary at risk, but it won't be effective. >> what about viability with t.a.r.p.? >> we have looked at a variety of different ways to make sure, and under our current system you can count the t.a.r.p. dollar you get towards needing -- i have to go back to make sure i'm right, in meeting that viability. let me say it differently. if you raise some capital as part of t.a.r.p. money, you can count that to help meet the viability standard. again, what we're trying to do is make sure the dollars we give don't put the taxpayer unnecessarily at risk, and they go to banks that are more likely to use those dollars to expand

credit. we want to get that balance perfect if i'm not claiming that supervisors got that balance perfect, and in the system we have in place, we leave it to the supervisors to make that brought judgment about viability. we don't make the independent test of viability because it is hard for this treasure to do is to go bank by bank and make that test. >> but the cry tree i think is the viability criteria as part of the challenge, along with making it a more affordable program. and i can't emphasize enough the anger in america when people get 100 cents on the dollar for something, and these people are basically cutting them out of capital because of these requirements. >> i agree with you. i want to be careful i didn't miss a state does. let me make sure am i will make sure i described to you in writing how it works and you will hear a little more detail from us on very small banks and cdfi's, some suggestions for how we can mitigate just the concern you post the. >> i cannot urge you enough to act without legislation.

on regulatory uncertainty, one thing that concerns me greatly about the proposal is that on this issue of separation of commercial banks and investment banking, the definition of prop trading is going to be so nearly defined as i think it was the economist or one of the publications recently came out saying that it was going to be a door to massive loopholes. so how is that going to work? >> it is a very hard thing to draw that line in a way that a sensible but i agree with your concern. but i think that is something we can solve. my colleague, neal wolin, is testifying later and he will have a chance to talk through some of the complications we have been drawn that line. >> even the chairman of cfo, goldman sachs is it will be very difficult to distinguish between prop trading and trading for clients or hedging. >> that's right.

>> even he is saying it's going to be difficult speculative struggle recognized the reality that it is difficult, but that is why reform is so important that the objective we're trying to do is to make sure we have clear constraints on risk-taking by these large institutions so they don't bring us to the edge of collapse again. part of that is making sure they are holding enough capital against those risk, but part involves tougher constraints and what they can do. but we have to design those anyway that are sensible, and careful, and recognize the reality in the ways to run. >> i think you know i support them or clean clean approach. thank you, mr. chairman. >> thank you, senator. thank you, secretary geithner. clearly we have a huge challenge ahead of us. and i think you can tell this debate wants to work with you. it's a two-way street. no surprises, but tell us what you're working on and let us know because we want to help,

both stimulate the economy, get those jobs. i also urge you to take very strong urgency. i think there's a sense perhaps there is not sufficient sense of urgency in the administration, but getting assistance for small businesses and also for community banks, get that program working their. >> we share that sense of urgency, the president does. and we want to mature we're doing things that work and make a difference where we don't need legislation, we won't come and ask you to do something. >> i think that is advisable to. >> i don't think this is complicated. i really don't think it is that it doesn't need to take a longtime. >> we won't give you any further. we got work to do. and thank you for coming. the hearing is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] grave sites?

guest: it is a wonderful way to humanize and personalize the past. to take even this and movements that otherwise might seem impossibly remote. there is something universal about the fact that we're all going to one day be on our deathbed. we are all going to face growing old. we all have to wrestle with questions of immortality and mortality. i mean, those are some of the

themes that run through all of this. but it is also, frankly, and entertaining book. there are a lot of stories and anecdotes and >> next a house hearing on airline passenger screenings. topics include new technologies, the polling new screening systems and passenger privacy. david wu of oregon chairs this health science and technology subcommittee. this is an hour and 40 minutes.

>> this hearing will now come to order. good afternoon. i'd like to welcome everybody to today's hearing on passenger screening research and development. the attempted bombing on a christmas day 2009 flight revealed gaps in our current airport security measures. we are grateful that this attempt was, like several other prior plots, unsuccessful. at the same time, these attacks have expose older builders and current passenger screening technologies, which must be addressed. moving forward, we have to make sure that department of homeland security research is actively closing the gaps in our capabilities, producing methods the public will accept and increasing our ability to keep americans safe. in response to the failed christmas day attempt, president obama called on the department of homeland security to work with the department of energy to develop and employ the next generation of airport screening technologies.

the purpose of today's hearing is to learn how dhs and other federal agencies will respond to the president's challenge to did develop improved screening technologies. in addition, i am deeply troubled by lack of attention dhs has paid in the past to important public acceptance issues. in 1997, about 13 years ago, the national academies of sciences identified the need to pay more attention to public acceptance issues in the deployment of passenger screening technologies. 10 years later, in 2007, and i note that this is on either side of september 11, the national academies concluded again that this is important, and also concluded that nothing had changed. and that these acceptance issues were still being ignored.

so it is little wonder that the deployment of body scanning technologies has proven to be such a dramatic public failure. and relevant agencies did not do their homework and follow-up with the academy's recommendation in a serious way. to reports, 10 years apart, both ignored. therefore, it concerns me that in the written testimony, other than passing comments on the privacy aspects of deploying airport screening technologies, the agencies before us today still do not have a robust and comprehensive plan for conducting and using effective public acceptance research. nor do they seem to have a plan to allow for input from crucial stakeholders, such as the public, airport officials, or the participating airlines. i want to assure everyone in this room that i am committed to ensuring that legitimate public

concerns are adequately addressed in the development of any next-generation airport screening technologies. of course, the screening process must protect the public, but it must be accepted by the public as well in order for it to work. finally, i look forward to hearing how in the ih and dhs will work together to address technical standards, accreditation and certification of these new technologies. without these pieces in place, new technologies cannot be deployed effectively. i want to thank our witnesses for being here. we plan to act on your information. i now recognize our ranking member and colleague, mr. smith, for his opening statement. >> thank you, chairman wu, and thank you to our witnesses today for taking time for this hearing on developing and deploying the next generation of passenger screen technologies.

the attempted christmas day bombing of northwest airline flights to 53 was yet another reminder that al qaeda and its athletes continue to pursue all means to attack innocent americans and that we must continue using all means available to us, military, intelligence, and technological to remain ahead of this threat. i would also like to join the gym and welcoming today's distinguished panel. you. r. all at the forefront of his necessary research and i look forward to learning more about the ongoing research and especially developed in the field. as was the potential positive and negative implications in this work for all americans. while it is vital we continue sticking the most the best means to make sure americans remain safe from attack, there are more than 700 million airline passengers boarding in the united states every year and we must find the best possible means to ensure the interdiction of all those who would do us harm while continuing to protect the privacy of the vast majority who are obvious in his and.

one particular technology which has received widespread coverage in light of the christmas incident is whole body scanners. which allow airport screeners to see concealed contraband beneath passengers close. while the desirability of this technology is understandable from a security standpoint, i look for to learn how technological advances in other fields such as explosive detection and behavioral sciences. thank you again, mr. chairman. i yield back the balance of my time. >> thank you very much, mr. 's myth. if there are members who wish to submit additional opening statements, your statements will be added to the record at this point. and now it is my pleasure to introduce our distinguished witnesses. first, mr. brad buswell is the deputy undersecretary of the science and technology director at the department of homeland security. dr. bert coursey is the program manager of the coordinated national security standards

program at the national institute of standards and technology. dr. sandra hyland is the senior principal engineer at bae systems. and dr. albright, for right now we're going to skip your introduction until governor garamendi can come by. and for each of the witnesses, you will have five minutes for your spoken testimony, your written testimony will be included in the record in their entirety. and we can complete your testimony. we will begin with questions, and each member will have five minutes to question the panel. mr. buswell, please begin. >> thank you. good afternoon, chairman wu, congressman smith, and members of the committee. it is my pleasure to be here. once again i commend you on the assembly of this panel. and i'm humbled to be among them. i am honored to appear on behalf of the department today to

discuss with you this critical issue of airport passenger screening technology. i also want to thank the committee and the staff for your continuing support of dhs, science and technology. and our mission is to enable and deliver technology to protect the american people. nist is charged with providing technical support and tools to the major dhs operating components and our nation's first responders, all of whom are on the front lines of homeland security every day. dhs, nist fund basic research and technology development and supports the department's major acquisitions through testing, evaluation and to develop and of standards. the security administration has the legal and dhs and defined the performance specifications of equipment that are installed at airports as part of the security measures. dhs, nist courtney calls it on evaluation to ensure the department is investing in technologies that meet the operational needs to protect the traveling public that as you're aware, mr. chairman, the

department's priorities are primarily driven to our capstone process. by customers in the stakeholders in the process play lead role in informing dhs, science and technology decision-making about research investment. the customers care the capstone and establish their desired capability priorities based on their assessment of the risk in their respective missionaries. tsa leaves the transportation security capstone and based on their desires, our research priorities have been and continue to be first to improve the capability of currently fielded screening equipment and procedures in the near-term. and in the longer-term, develop new equipment and procedures to improve the security of air travel. all three of the science and techno the portfolios, the product transition which is near-term, innovation, the innovation portal which is led by the almighty could advance research project, and the basic

research portfolio participate in the process. while the members drive the selection transition product, the near-term needs, the expressed needs that arise from this process also informed the selection of project in our basic research for boulder and similarly in our high risk, higher payoff for folder. the capstone process is effective in identifying high priority technology needs. we are constantly looking for better ways to meet those needs. partnering with the national laboratories, for example, is not new to us. since the exception dhs has worked in collaboration with their laboratories in the pursuit of technology supporting the operational needs of the department. in response to the present direction was taken a number of actions, one of which is to recently established the department of homeland security, the department of energy aviation security enhancement as a partnership level. specifically to advanced technical solutions to key aviation security problems.

this governance will allow us to extend the leverage of long-standing relationship with a focus on the innovation of the national laboratories to deliver key advanced security and knowledge. as you mentioned, mr. chairman, department of effective passenger screen technology must be legal and regulatory requirements and take into account other constraints which could limit our ability to deploy it. these constraints could include physical and performance constraints such as footprint and throughput and also through more of subjective measurements as public acceptance. we were close to with tsa and other offices such as the chief privacy officer and office of civil rights and civil liberties to ensure that research were doing. they use the committee procession of technology panels that include and foreign experts from industry, public interest, and committee oriented organizations to identify potential acceptance issues. i'd be delighted to discuss that

more and the question and answer. if you want to go into that for the. we also play an important role in the test and evaluation of equivalent in advance of major acquisition decisions. this testing is led by the transportation security laboratory in atlantic city. tsl conducts independent verification validation test and depend on the maturity of type of detection equipment, this is user laboratory assessments. finally a word about standards. as you said, mr. corzine is representing nist typically happens to work on the same so that i do and dhs science and technology. to make sure we have a close corporation with this for a number of years. and he has forgotten more about standards that i will ever know. i will leave the standards discussion to him except to say that we work closely and we guide national institute of standards and technology, standards developed for aviation security.

members -- the aviation security, aviation security is an activity of national importance but as i mention in response to the presence direction was issued a new direction with the national laboratories, then a number of other things as well. within the government we're working with the technology support working group, the department of defense, department of justice. that we have academia engaged. where engage with industry, have a broad agency announcement out to solicit technological solutions for counter this and other threats across the broad spectrum of homeland security. we are engaged in other international partners to ensure we're capturing the best technology possible and also to help them improve their security capabilities. thank you for your dedicated efforts to improve the safety of air travel to all americans that i appreciate the opportunity to meet with you and look forward to your question. >> mr. garamendi, i want to commend you on impeccable sense of timing. would you care to introduce dr. albright? >> thank you very much, mr. wu. i don't know if i have the sense of timing, but good fortune.

i finish the work on the floor and was able to get here and able to introduce dr. albright. i am never sensed to be amazed at all the things that our last show that is, in particular the most important one, the one in my district, the tranny. every time i delve into that lab i find some fascinating new things that are going on. and things that are very, very important. dr. albright is really into something that is important to all of us. he is the principal associate director for global security at the lab. is responsible for applying the labs bold a disciplinary science, technology to anticipate, innovate, and deliver responsive solutions to our nation's complex global national homeland in energy security challenges. which is a complex way of saying he's going to make sure we are prepared. and in that context, it comes with extraordinary background both at the public sector as well as in the private sector. in the private sector and

organization that kind of put these pieces together on the private side. in matching innovation with the money to make it all happen. and he was also the assistant secretary in the department of homeland security where he achieved several remarkable goals, most important of which was he took the budget from 700 million, 21.6 billion. we're ready to learn from how we might do it in the context of today's hearing. in any case, we now move on to his testimony and the work that is being done and i look forward to hearing dr. albright. welcome. >> thank you very much, and i do want to commend the gentleman. we are watching your fine work on the floor on the monitor here. and scuttling over here was a good piece of work and i'm sure the amendment was a very fine piece of work also. thank you. >> it was extraordinarily necessary. >> very good. dr. albright, pleased with the.

>> mr. chairman, mr. smith, and i want a particular bank mr. garamendi, thank you for that wonderful introduction. and thank you for the opportunity to testify at this important hearing today. on research and develop activities and improving aviation security. let me just make one quick comment about mr. garamendi. he may not know i just became a constituent only two months ago, and so -- [inaudible] >> i am a native for this area for most of my career but got lured out to livermore and am very, very happy to be there. very proud to have you be my representative. so what i want to do, as you said undependable associate director for security of louis livermore national lab. one of the national laboratories that is finished in an essay, we don't offload work on sigurd at large but what i want to focus my comments on today, specifically are on those efforts associated with passenger screening at the

checkpoint. the nsa labradors have long been and continue to be fully considered an assistant announce his explosives, high-performance computing and other resources to work with the department of homeland security and other partner agencies to protect aviation and combat terrorist threats. it was the recognition of the particular capabilities of the department of energy national laboratories that specific language was inserted in enabling, in enabling the legislation for the department of home educate to permit a special relationship to exist between the national laboratories. i know i wrote that legislation -- language. so anyway, and explosive, this is a very, very hard problem. . .

so concentrated research and continuous research development is fundamental to understanding the threat and creating the tools that will give our nation the capability to decrease our vulnerability. the technical capabilities of the national laboratories and very importantly the status as federally funded research and development centers which brings with it unquestioned independence and unfettered access to government data and

priortary information it's crucial in securing in aviation and have enduring focus in the program. there's been high research and development since the beginning. you in this committee don't need to be educated that high explosives plays in the design and testing of nuclear weapons. and so we have now over time and for a long time been applying that expertise to the needs of the department of energy, of course, the defense department, the departments of justice, the faa and most recently the department of homeland security. so the laboratory combine cutting edge computer simulation codes, state-of-the-art diagnostics and an environment where both theoretical and environmental chemists, physicists and chemists can have a detailed understanding of energetic materials and their affect on the aircraft structures and their impact on existing detection systems at passenger checkpoints and how it might be improved to enhance aviation security.

as part of that effort the department of homeland security brought together the three nsa labs in 2006 to create a program called the national explosives engineering sciences and security program which capitalized on the model and utilizing the expertise of those labs to implement cutting edge engineering and science-based methods in that reducing the risk to aviation. that effort has included the evaluation and characterization of explosive formulations, the catastrophic damage rapid assessment of technical performance of emerging detection systems and their applications. our future efforts include a more -- more focused effort on homemade explosives. on extending the vulnerability analysis to the full panoply of commercial air frames. we are also taking on a substantial effort to perform

systems analysis of aviation security. to include both the people who would do us harm, with a their vulnerabilities they are trying to exploit. and under the president's initiative near term existence to system deployments will be examined and potentially new and revolutionary technologies will be vetted and tested. i will conclude my remarks by saying there's much work to be done in aviation security. the threat is enduring, smart and adaptive to what we do. the nsa laboratories have extensive experience in conducting the kind of analysis to reduce our vulnerabilities and we are committed to working closely with the dhs, with nist and with our partners across the federal government to mitigate that threat. thank you for this opportunity to appear before you today. i'll be pleased to answer any questions that you might have. >> thank you very much, dr. albright. dr. corsi, please proceed. >> i'm burt corsi the program

manager coordinated national security standards program at nist. thank you for the opportunity to appear before you today. and our relationship with components of the department of homeland security including the transportation security administration, the science and technology directorate and the transportation security laboratory tsl. since 2003, nist's unique capabilities in measurement science has been leveraged in a coordinated way with dhs to help address critical challenges in multiple areas relevant to homeland security. today i will focus my remarks on nist's efforts relevant to passenger screening technologies. let me quickly highlight the work that nist has engaged in relevant to passenger screening in the following areas. additional information about each of these is contained in my written statement. nist is involved in measurement standards in the following areas. trace explosive detection, x-ray explosive detection, use of k9s for explosive detection,

standoff imaging or millimeter images, metal detectors, biometrics to enhance the screening of travelers and conformity assessment support for passenger screening technologies. in each of these areas nist is working in collaboration with scientists and engineers from dhs components with our industry and academic partners and users and voluntary standards organization to set the baseline for standards and test methods for explosive detection. several of these projects lead to national voluntary consensus standards and some of these efforts are leading to international standards. however, in many other projects, the test data, test materials and new test methods are being provided directly to dhs, tsa, s & t and u.s. visit and to our other federal partners for their immediate use. nist has been involved since 2003 in a multiyear effort with

the transportation security laboratory in atlantic city to engage in research that supports standards and measurement needs for trace explosive screening. the research is designed to improve the reliability and effectiveness of current systems as well as support the development of next generation detection technologies. this work is also providing valuable tools to tsa in the form of test kits, and training methods that allow them to optimize the sampling of explosives by the tsa operators. nist has recently facilitated the development of a suite of national x-ray performance and radiation safety standards that cover the gambit of aviation and transportation venues where explosives are screened. these national standards are finding increasing use through close cooperation between nist, dhs agencies and our industrial and foreign partners. the nist standard reference data program is a world class

resource for reference data for thermal physical and speckscopic properties of materials for the science and engineering communities. there are serious gaps in the reference data for explosives. nist has several projects using state-of-the-art systems to acquire new physical and chemical measurement data and also to provide data sets critically evaluated data from the literature. nist scientists have a world class agency for the metal detectors the hand-held and walk-through types. nist developed exacting performance standards one each for the hand-held and the walk-through detectors for the national institute of justices as a standards organization. these standards are used as a basis for procurement by other federal agencies including the federal bureau of prisons and the transportation security administration. nist helps lead the development of biometric standards for the screening of travelers.

they support data-sharing and intraoperability between points of encounter and centralized biometic services such as the dhs inent and the afis program. when screening travelers it's to deploy processes that provide the highest level of security while keeping the traveling public moving efficiently through the checkpoints. to facilitate that, nist conducts usability studies that help ensure screening systems are easy, efficient and intuitive for travelers and inspection agents alike. members of the subcommittee, thank you for your dedicated efforts to improve the safety of air travel for all americans. i appreciate the opportunity to meet with you today, participate in this panel and discuss the role of national standards and strengthening passenger screening. i look forward to your questions. >> thank you very much, dr. coursey. dr. hyland, please proceed. >> good afternoon, mr. chairman, and members of the committee.

my name is sandra hyland and i served as the study director for the 1996nrc study airline passenger security screening new technology and implementation issues as well as vice chair for the 2007 nrc study assessment of millimeter wave and technology for detection and identification of concealed explosives and weapons. technology more commonly known as full body or whole body scanners. the nrc national research council is the operating arm of the national academy of sciences, the national academy of engineering and the institute of medicine of the national academies chartered by congress in 1863 to advise the government on science and technology. i'm not representing my employer bae systems but i'm here to discuss work i have done as an employee and a volunteer with the nrc over the past 16 years. the faa and following 9/11 the tsa have sponsored numerous nrc studies on various aspects of aviation security in order to obtain expert independent guidelines on technology policies and approaches and we are pleased to continue this

positive relationship. my testimony today will center on the earlier reports in particular the discussions related to implementation issues associated with new technologies. the 1996nrc report on airline passenger security screening described not only the technical advances in security screening but also more practical side of that screening. it is important to understand that no technology no matter how promising will work unless it can be successfully implemented within the aviation security infrastructure. to this end the committee addressed both the legal issues associated with passenger screening and the more difficult to quantify public acceptance. and although the report was written prior to 9/11 it is my opinion that the committee's message that it is important to assess the public's reaction to and acceptance of screening technologies remains relevant. the committee reached its conclusions and developed its recommendations based on briefings from the faa and other government entities on their security screening approaches and by holding a workshop attended by representative of groups such as airport personnel will be affected by passenger screening approaches.

my written testimony includes a complete list of workshop attendees. during the course of the study, the committee held one underlying assumption. the level of inconvenience and invasion of privacy, the people are willing to tolerate, is associated with their perception both of the severity of the threat and the effectiveness of the screening in averting that threat. the 1996 committee identified four issues microsoft relevant to the public acceptance of technologies. health, privacy, convenience and comfort. people will differ in terms of the importance they place on these issues and their level of acceptance of passenger screening technologies. aside from considering the reaction of new technologies may illicit tsa will have to accept the level of opposition. i will not briefly discuss the areas of concern identified by the committee. health, issues related to health are more related to the perception of health consequences than any actual risks. specifically, the committee noted while technologies were safe there are public concerns related to, for example, the

potential consequences of exposure to the radiation used in scanning technologies. it will be important then to be proactive in education relating to the minimal exposure levels and convey this information so that it is as accessible to a wide audience. privacy, privacy is probably the most significant factor in terms of whether the public will accept a new technology. in the case of the full body image subscribed in the 2007 report there's significant concerns as it can display a person's anatomical features. as ket noted in 2007 on the resolution of 1 centimeter they have enough detail to be embarrassing to people of an ostmy bag or impress implants. it acknowledges the public's concerns about privacy and carefully balances them against the technology benefits. in 199 cirque the committee noted that this technology would most likely only be accepted if the perceived threat level was high and the technology proven to be effective at averting the

threat but it would be difficult to quantify how high that threat would be. in my opinion given the reaction to the attempted bombing of the northwest flight on christmas it may be the time to revisit the question of the effectiveness of this technology in airport use and whether giving the threats the flying public would accept it. the 1996 report identifies steps that may improve public acceptance of body imaging technologies and trace explosive detection both of which are in my written testimony. convenience is a largely a matter of time. the 1996 committee noted that screening tellings that imposed delays will also have problems with public acceptance. the person to be screened with close contact or another person or technology that requires a person to be in a combined space while there are ways to minimize discomfort it could lead to a tradeoff of technological effectiveness. using air flow to connect samples may ameliorate the concerns of a passenger that

does not want to be touched but may not be as effective as direct contact. the 19ve been very little study of the public acceptance of screening technologies. and when this topic was revisited relative to the committee's work of whole body imaging of 2007 that had not changed. the committee identified a number of intangibles that go in the public's willingness inconvenience and i provided a description of those in my written testimony. however, the committee stated that there's no better way to gauge public acceptance of new technology screenings than field tests. the committee strongly encouraged that in addition to performance data information related to the acceptance of this technology be collected. people find it difficult to provide reactions to abstract hypothetical situations compared to here and now machines so the most accurate reading of the public's reaction to a scenario will be by conducting testing by the proposed implementation. i would like to conclude my remarks with some personal views based on the input from participants in the committee's workshop. several representatives from airport operations and air

carrier groups were concerned that the faa would impose new screening technology without sufficient consideration of passenger acceptance. air carriers are acutely aware that travelers make tradeoffs and increasing the burden on passenger screening can potentially push those tradeoffs away from air travel including the air carriers, airport operators and other industry representatives in the assessment and deployment of new passenger screening technology will help ensure their successful implementation. thank you for the opportunity to testify today. and i'd be pleased to address any questions. >> thank you very much, dr. hyland. and thank you for your contributions to the information gathered by this committee. it is now an order to open for our first round of questions. and the chair recognizes himself for five minutes. before we even get to the question of response or lack of response to the 1997 and 1996 and 2007 reports, i want to ask the panel a threshold question

of whether our concern about public acceptance is real or whether it's theoretical. have you actually determined that the traveling public that is passengers at airports are actually concerned about the things that we think they are concerned about? the reason why i'm saying this is because i spent four hours knocking on doors in oregon this past saturday. i got an earful. but i think that the earful that i got in that neighborhood is very different from the earful that i would get in another neighborhood in my congressional district. choice of sample and what you ask is absolutely crucial. are we speculating about passenger concern or do we have

direct evidence that these are actual concerns of the flying public? >> thank you, that's a question that the 1996 panel struggled with quite a bit. we had experts in how people make decisions to do things they know are risky like smoking. >> did they ask -- did they ask the traveling public what they thought? >> in that case we recommended that the traveling public be asked. but the question -- >> have they been asked? >> not as far as i know. but the most -- >> this town is filled with pollsters, right? >> yes. >> i mean, it's just filled with pollsters. and i'm not necessarily recommending that. but it seems like it's -- you know, you don't go and sell cookies in the market without doing a focus group and sampling the public and so on. and we're deploying millions of dollars of equipment.

we're betting lives on airplanes? >> yes. >> have we polled? have we asked the traveling public? have we actually asked the question? >> i don't know. i don't know. >> mr. albright? >> i don't know either. >> dr. coursey? >> i don't know either. >> so we are sitting in this hearing room engaging in rank speculation about a problem which may not exist? i mean, you read about it in the newspaper. but they're not citing their statistical evidence. i asked this question of staff and i was shocked that they don't have an answer and i'm shocked that you don't have an answer because you all are in charge of our national research effort. how do you know that we have a problem without having asked the question? >> mr. chairman, if i may, i think when it comes to public

acceptance of these kinds of technologies, aviation security, passenger screening technologies being one example, we have to assume -- >> why do you have to assume? >> because it's prudent to do so. >> you can assume that the sky is blue. you can assume the sun rises in the east. but i think that mr. smith and i would agree that it's dangerous to make very many assumptions and bet a whole lot on that. >> i know. but if i may finish, sir. we have to assume that there could be public acceptance issues. >> well, the question is why? what makes it safe to make that assumption? and it's a simple thing to ask the question. i mean, all you have to do is throw it in a battery of questions and then also ask the question, have you flown in the last 12 months? >> sure. there's certainly -- >> yes, the follow-up question is, how many times have you flown? and then you do a simple read of the cross-tabs and you

realize -- you have easy data on crossing the number of times flown versus their attitudes about screening technology, right? >> sure, sure. absolutely. >> so why hasn't that been done? >> i'm not saying that it hasn't but i don't know that. we haven't done it on s & t. >> i'm the only person who has asked that question thus far. the staff was surprised and they didn't have an answer. you all don't have an answer. this is a really quick thing to do. you know, like if this was a campaign and if there were my campaign, i would ask my pollster to ask that question and i would have data tomorrow and they would run it by telephone tonight? >> mr. chairman -- >> so the follow-up question is, when are you going to get it done? >> well, i'll take that -- let me go -- >> give me a date. give me a date. >> let me go to tsa and find out what they've done and i'll get back with you to a specific date. they may have data that i'm not aware of.

>> in what we do, it's kind of a winner take all kind of things or you live or die by the data that guides you. i'm not necessarily recommending that anybody else live that way. but the thing is, that you all are engaged in a very, very important enterprise. the public safety is at stake. a whole economic sector -- a whole transportation sector is at stake. and the trust of the public in what their own government does is at stake. and you're telling me that one of the most -- to me one of the most fundamental questions to our collective knowledge has not been asked? so i'm encouraging you in the strongest way possible to either find out that we have the data and get it here. or to get that battery of questions asked and get it here.

and it shouldn't take very long because mr. smith and i and every other elected up here knows that we can get an answer to questions like that by midnight tonight and have a rough analysis by 8:00 am tomorrow and have the thorough analysis within a day after that. that's the threshold question. i'll get to the underlying question in the next round. mr. smith, you're recognized for five minutes. >> thank you, mr. chairman. several of you touched on the issue of passenger safety when interacting with the radiation emitted by screening technologies. i wonder if you could address the radiation levels faced by passengers and how much increased exposure they can expect in the future? anyone wishing to respond.

>> yes, sir, i'd be pleased to give you some numbers there. and dr. coursey can pipe in, too, because i know there are american national standards institute standards on the radiation exposure, general radiation exposure from things like screening technology. to the extent he wants to comment on that, he can. so let me put some things in perspective with regard to radiation doses to start with. just so we're all sort of calibrated and we're speaking the same because to me, microrim doesn't mean very much until -- unless you understand what you're talking about. so a low dose dental x-ray -- the dose that you get is about 4 million microrim or about four rim of exposure. the average annual -- i grew up in colorado at high altitude. the average annual exposure that you get at high altitude just

from -- just from the sun really is about 4,000 microrim. so one-tenth what a dental x-ray would be. in one hour on a commercial jet, your dose is about 1,000 microrim. in one screening by a back-scatter x-ray body scanner, the dose is about 6 microrim. so in other words, if you take a flight from new york to los angeles, the dose that you receive would be about 1,000 times what you would get while you're on the airplane compared to what you would get standing in the whole body imaging passenger screener. and dr. coursey, correct me if i'm wrong but i think the ansi standard is 24,000 microrim per year.

and it's below the normal from what you go through the screening at the airport if that puts some perspective on the exposure. >> anyone else? dr. coursey? >> yes. i've spent most of my career at nist working in group there so nist has been involved for many years in working with the regulatory agencies on dose health effect relationships. but the nist measurement sciences is how accurately can you measure the radiation. the health defects as regulated by food and drug administration and osha and the nuclear regulatory commission. so there's -- the federal guidance in this country for health effects comes from the national council on radiation protection and measurements. and those of us in the federal agencies follow that guidance. so this is not guidance coming out of nist or tsa.

there's an american national standard 4317 which was developed -- and i think this is a great example of the cooperation here because it had four members from nist. seven from different parts of dhs. two from fda who actually participate in writing that standard. and that's the standard for the safety aspects of the deployment of these x-ray scanners. i might also point out that a lot of folks are pushing for the millimeter wave scanners because there's essentially no radiation effects associated with the millimeter wave. >> anyone else wishing to comment? if not, that's fine. >> thank you very much. mr. lujan, five minutes. >> mr. chairman, thank you very much. and thank you to everyone that's here today.

as we talk about these technologies, i appreciate the fact that i read about the technology that was developed at los alamos laboratories and discussed in a few of the testimonies. and more than that, our objective with homeland security is to get the department to establish a long-standing running relationship between the laboratories and the department of science and tech directorate. currently i think that you work with them from time to time when there's an issue specifically to identify such as if there's a terrorist threat that they may use liquid explosives on what will the damage be to the airplane. as opposed to how can we make sure we're getting that molecular footprint so that way we can identify and prevent any liquids that even have a notion of being used to move forward in that way. so with that being said, mr. buswell, although we're focusing on passenger screening

i've been impressed with the briefings i received from the scientists and researchers associated with the technology. proven technology that's been demonstrated in a pilot. your predecessor undersecretary cohen saw the pilot demo at the albuquerque port. can you explain what dhs' plans are for this proven technology and what dhs' plans are for further applying the challenge to the nsa facilities? >> yes, sir. i'd be pleased to. you know, this is one of those -- is one of those emerging success stories i think from our partnership with the national laboratories. for those who may not be familiar with the technology, it's short for magnetic visibility and it's looking at the possibility of using technology hospital mri machine to look for and not only find but identify liquids. the difference would be t