go forward with it. but these companies don't have any direction or relative benefit until it's too late is any information, but this is going on and going on exponentially, especially with companies and so director mueller, i don't know if you can comment on this particular case or not. i'm not going to identify the company, but they were approached by the fbi because they had used and purchased their equipment in an obvious remain a significant impact that already. >> i don't think i can speak to that particular case, but i would happy to get the information and discuss it in another foreign. >> thank you. i guess the point to the issue is how are going to review this whole process. do we think it's working right currently? general clapper?

>> well, this is related to a previous response about better out reach, better education. if we become aware of pending transactions and i'm not singling out while way, do any of these where there is a national security implications, i have been working this would be office of the national counterintelligence in the tni staff on this very issue. how can we do a broader outreach to ensure pending transactions dependent which could have do better at her out crees. they are pending right at the 11th hour.

>> is the process working? we need to do something different. this is something that we need to be working on with you regarding this issue because to get the on deck. >> i'm not really in a position to comment on how rural effectiveness is, i do think once it reaches us if he is transactions that the intelligence community's views are made known. >> you are a member, a nonvoting member, is that right? 37 agencies. clearly i'm wondering is something we need to look at. thank you. >> thank you drainage. senator rubio. >> thank you. this question is for director mullen. tonight i beg your pardon, if you could hold up.

i missed a very important member, senator mikulski who is next. >> madam chair, i am the luckiest woman serving. thank you helping me to not be the longest waiting. first of all, general clapper, we really do want to thank you for your service. the fact is senator conrad said the numerous successes we've had come the fact that there is not another major attack on the united states of america says something has got to be working and working pretty well. so we went to thank you for that. also general clapper, went to thank you for bringing the rate of your intel team just be cured, usually on the tni and i think it had to be weighed to have all of you here. i want to focus if i could with director mueller. first of all, director mueller,

we've been together 10 years. he came to the fbi a few weeks before the horrific attack on the united state in the terrible events of the world trade center. one of my questions will be is that we look at every issue of the day, whether it whatever what would you advise are these top issues as we respond to the committee has to be a net. what are the majority threats and what we need to do from your event the fbi? with collaboration.

>> if you look at the array of thread quite obviously the threat from terrorism coming out of the fatah, packs and, the zazi, cases where ttp or al qaeda have contributed to the ability of persons to try to undertake attacks on the united states. cnn with the printer bombs as an example as well as the christmas day attacks with the ability of individuals to come up with ingenious ways, constructing ieds to get through our various chart points. somalia, but then also we cannot forget a domestic terrorism and a sense of malicious white supremacists continually in the back of our mind is the oklahoma

city and the next day that we have to be alert to. and the terrorist threat will not go away in the future. second to that, which is as important as the threat of spies, go to the cyberand this will lead into the cyberarena in days of old, in-days of old, ine officers would operate and would have a way of addressing them. and today it's as easy if not easier to intrude into various symptoms and expo treat the information you need with far less risk to the individuals. another area which has been alluded to here is the growth of cyberin all its iterations. and by that i made a criminal robbing banks, the intellectual property, exultation from dod for others.

it is not lost upon us that several years ago a group of individuals brought estonia to its knees as a result of displeasure and actions that the estonian government had undertaken in more recently in church before the russians attacked georgia. it is now no secret that they went too far with the dismantling command-and-control capabilities of the georgian authorities. in terms of terrorism, that would be a high priority, but also protecting our secrets from those governments and other individuals that want to steal them. and then preparing particular nsa and others of the cyber-- i don't want to collect the battlefield, but assign the arena which has often as well as defensive response abilities. >> which takes place to something unique to the fbi

which was the role of organized crime. often in the old days of either the cia agent with the tan coat running down highways are trying to turn people into old gumshoe to the fbi, you now have essentially a non-nation state at yours the field of organized -- trying to organize international time. do you see that as a threat to our critical infrastructure, where organized crime through particularly the area of his. they have flash trades are a number of things that could have had a devastating effect. it would have been another attack on wall street, far less visible and equally devastating. could you comment on the role of organized crime and the role of cyberand another area where we need to stay right on the edge

of our chair. >> the scenario we focus on a think a couple weeks ago that we focused on in the recent arrests we've made with the assistance of the eastern european counterparts and as much as there is a triangle of individuals associated with criminal groups as well as with businesses on a particular supply and monies and businesses and the city is rather traditional criminal groups throughout the world with much more power and access to governmental authority and much more access to the capabilities of using labor capabilities to

attack and obtain funds that would normally get better payoff in a bar. >> thank you commanding chair. i know my time is expired. >> thank you, senator. senator rubio. >> thank you. this is my first committee and i beg your indulgence as i asked her questions that may have been in previous hearings. you have a very difficult job. that being said, direct or what i wanted to ask is about high-value detainees. what is the primary mandate of the fbi when interrogates high-value detainees? is a together for criminal prosecution or gather information that can disrupt and prevent attacks? >> data intelligence. number one is to taint intelligence. cannot wait then, the current interrogation techniques that

are in place, are they sufficient to accomplish that goal or do we need techniques to go outside the army? >> well, the tech needs that we have somehow been approved for use are coextensive with the army field manual, but i are -- we continue to use them both internationally because they been tried and tested over years and they are sufficient i believe to obtain the information that we need. >> so it is your test money that the techniques we have in place today kedah saw the information we need from the detainees. >> that would be the case. my understanding from the reading materials that the cia provides backup on high-value detainees, is that correct? >> that's correct.

we usually are there, provide support, provide questions and will work with the fbi to achieve the information leaders eking. >> are not here to trigger a tough work, but is that the highest and best use of the central intelligence issues or will gather more intelligence of the cia worked hard to more? >> look, the name of the game is to get the best intelligence we can to protect this country and i think right now the process that we have in place to deploy these teams of interrogators, cia, fbi, and cia as part of that process as well. when we deploy the teams of interrogators to go after high-value target, it brings together the best resources that we have in order to get information we need, so it works very well. >> your testimony is at the highest use of the fbi? >> that partnership is the best way to use the resource from all

three. >> then we'll decide among yourselves are uninterested in the detainees in particular. do we have the authority to hold and interrogate detainees outside of afghanistan -- outside of afghanistan? >> with regards to -- let me make this question simpler. i apologize. maybe i didn't ask a raid. the uncertainty over where to hold detainees outside of the best income as an impeding our intelligence effort? >> now. any individual that were after either comes under the jurisdiction of the country that they are in four cases of afghanistan, they are usually put into a military facility that gives us the opportunity to go after interrogate air. >> so the existing detention capability in place today are optimizing our intelligence gathering capabilities that the

testimony? >> the ability to detain them in a place where we cannot interrogate them, that process works very well. >> rising recidivism from former gitmo detainees, how we track that i'm not sure what effort are being taken to keep an eye on that. what is the latest and greatest on a? >> i think general burgess of the intelligence agency would be the best answer to that question, sir. >> say we have a system that is in place now for a few years, where we track the recidivism rate that we put a report out quarterly, dealing with that. and i think the report is fairly explanatory. it is provided to the committee into the others, but i think the process we have in place is a good one. the concern is always confirmed

as one of those things that is a pretty set piece. suspect did is the devil is in the detail as i would say, what there is always some discussion as we come to our figures on recidivism. >> if we can't answer here, i understand. i'm not asking for numbers or features that compromise any information. it is an area of growing to turn? i didn't see it mentioned in any statements of the recidivism rate for guantánamo. is that an area can turn for the intelligence community? >> if we had one recidivist, that is one too many. so we are concerned about those family to track it. that effort is the focus of defense intelligence agency. so yes, sir, we are concerned about it. >> thank you.

>> thank you senator. senator risch? [inaudible] okay, i think we will have one more pound mlb can with mr. panetta and mr. leiter, i'd like to turn to pakistan. i've become more and more concerned as the isi walks beside the street, the failure of the country to turnover to a meeting, one operator, one meter from mumbai attack to india, but what is to go into north waziristan. the development of the safe harbor, the concentration of a number of terrorist groups in that safe harbor, the fact that pakistan has major flood issues and that is chosen to build another nuclear weapon, which to sunlight think seems a very bad choice at this time.

so i'd like to have comments from both of you and mr. panetta in particular, you go there very often. they think we ought to really understand where we are with this country. and i won't go into the failings of the government, but i think there's every reason to believe that concern is rising over what the future is going to be. >> madam chair, this of the most complicated relationships that i've seen in a long time in this town. on the one hand, obviously we are above the target of the leadership qaeda there in the fatah a way to get cooperation of the pakistanis in that effort in trying to target those individuals that concern us and

threaten this country and threaten their country. in addition to that, we've gotten their cooperation on a military bases, being able to go into places like south waziristan and have military presence there moving some troops from the indian border for the purpose of doing that and that has been appreciated as well. at the same time obviously they look at issues related to their national interest and take steps to further complicate our relationship and create tensions between our country and mares and that happens a great deal in our effort is to try to work through those because in the end, what i try to convince the pakistanis as we have a common enemy that we have common issues that require cooperation and partnership of both countries in

order to be able to do with the stats. but i have to tell you that it is very complicated and it does involve oftentimes conflicting viewpoints of how we deal with these issues. >> madam chairwoman, i would say first your citation of points are fair and accurate ones in challenges we face. with respect to the terrorism situation in pakistan, first i would note, we still see al qaeda in pakistan, being at its weakest point since 9/11. some of that has to do with what pakistanis have done with us. some of that is what they allow us to do. but it's critical we have really hurt al qaeda core in a very meaningful way. that being said, there are certainly weaknesses in the cooperation at times and in particular, i think the ongoing dispute that you note about them by attackers feeds into tension between the two nations and can

also undermine some of our counterterrorism efforts not just al qaeda, but also lashkar-e-taiba. >> you, mr. leiter made a comment at the hearing about lashkar-e-taiba about having the ability to strike the united states in europe. could you expand on that? >> i can to some degree i'm not, madam chairwoman. what we have not seen as a history of them doing so. we are certainly concerned that some indicators we see of them expanding their horizons beyond the reasons i'm trent region. certainly have the capacity. it's a large organization with the dude in india could theoretically launched ulcer, but we have not yet seen those steps occur. i think the additional point i would stress that they could still be a very destabilizing factor in the region. so even without striking in the u.s. or europe, a further attack

by lashkar-e-taiba in india would very much hurt our national security and our counterterrorism pictures in pakistan. >> what -- you know, mr. panetta, you mention trying to work through these issues. i just wonder how effect of a position that is. cameo -- >> sherer, madam chairwoman, because, you know, because we are involved in obviously a very important efforts to deal with an enemy that threatens this country ever doing it in their nation in the fata, and the tribal areas, it does require we have to go out of her way to do everything possible to get their cooperation and for that reason i spent an awful lot of time by

talking with my counterparts was in pakistan in here as well to try to see if if we can focus on some common issues. listen, near as we can work on. we work with them. we work at their afghan counterparts as well to try to develop a coordinated approach to dealing with it. at the same time, there are issues that we have with regards to how they operate, the ties they have two certain groups that concern us, but we try to work through in these discussions. i have to be part director of the cia as part diplomat in order to get this job done. >> could you speak to what the rationale is for the building of another nuclear weapon? how much of the country has been under water in really difficult, difficult circumstances? >> again, one of those

complicating issues is the fact that they are a nuclear power. they have a number of nuclear sites throughout their country and they have preceded to keep a development of their nuclear weapons. as far as the broad policy implications of the economy, politics, the stability of that country dealing with the flood damage. you need to ask them why they are not paying attention to this other problems. >> thank you very much. mr. vice chairman. >> has come madam chairman curt general burgess, going back to this guantánamo detainee issue, does citizen rate is in excess of 25% today. that means one out of every four that have been let go, turned over to another country has engaged on the battlefield against the american army be afghan troops. now that's what we know.

i suspect the number is probably higher in that we go through all the individuals who go back to the battlefield. we've -- our policy in place today is even alive by those prisoners to be returned to places like yemen where we have very little control and my understanding on the visit to yemen is they basically were sent back to their travel region and they have a personal obligation on themselves to report back to us -- nobody believes that certainly they haven't on their own initiative, and told us that they are and what they're doing, so they basically have no supervision. we are now down to probably the real hard-core in guantánamo.

do you see any further revisions in our policy with it to those individuals and what -- with what is happening in the middle east today, particularly tv show, each a coming number of other countries, our rain i noticed is the latest. has this had an impact and reflected upon our decisions with respect to release of those individuals to any particular country? >> sera come in regards to the first part of your question, the 25% figure that she mentioned is a combination of both confirmed and suspected. so the whole 25% would not be confirmed by the defense intelligence agency in terms of having to return to the fight were reengaged.

the intelligence people in dia, i was say in the community though i'm reticent to speak on behalf of the community would not push back on your statement in terms of there is concern out there as we returned some to search countries that the following mechanisms are not totally pleased that would make us comfortable and not, but that is more of a policy called. to the last part of your question, sir, i would defer because i don't think it's appropriate for me to comment on policy is the director of the defense intelligence agency. >> sera, if i might add one important factor that i think i should mention it that the president suspended any further repatriations to yemen precisely because of -- they don't have the apparatus there to monitor or rehabilitate.

the new processes that have been instituted, the 25% recidivism rate in the last two years or so, i think there are now five, two confirmed in three suspect that her recidivists. now, the counter to that of courses you need more time or time of the laps of the discover these people. so you know, it remains to seen. there are about 172 detainees remaining at gitmo. and as you correctly point out, the bulk of those. right now i don't embarrass much likelihood of our returning to yemen, particularly in light of, as he points out, the lp will that are going on there and that certainly would they are on any

other countries affected that we might consider for repatriation. >> well, we've got a problem in this area that the chairman and i have heard he had an initial conversation about in senator graham and i have been working on a piece of legislation that's going to be forthcoming. and the problem has general burgess or director amanda, let's say your folks were successful in capturing bin laden out why kerry tomorrow, what are you going to do with it? >> the process but obvious they involve, especially with the two target you just described, we would probably move them quickly into military jurisdiction graham for questioning and then

eventually move them probably to guantánamo. >> we haven't moved anybody to guantánamo in years now and obviously there has been a move toward closure of that facility and i would tend to agree with you, that's probably the best place for anybody to go right now, the safest place from a national securities and point. politically it may not be popular, but certainly it is. i appreciate your honesty and straightforwardness about what she would do. if we were to capture either one of those two luminaries, if i can use that term, i think there were maybe a matter of interagency discussions with their ultimate disposition would be and whether they would be tried or not, that what i'm sure if we could capture that would

be a subject of some discussion. .. i want to go further and see what we can get on the public

record with respect to this area. now i come to this almost by way of saying that nobody ought to think that the intelligence community should have predicted that a street vendor in tunisia was going to light themselves on fire and trigger these protests all around the world. but at some point, mr. director, after that young man's self emulation and the events of that period must have been clear clear to intelligence community analysts that this wave of protest was going to threaten president mubarak's hold on power and at some point analysts must have communicated this to policymakers. when did that happen? >> serve you are looking for a date i would pick january 14, when ben ali and what i thought was a surprising snap decision,

he dismissed the government and he called for new parliamentary elections within six months declared a state of emergency, announced he was stepping down temporarily and then fled to saudi arabia. that i think was the tipping point if you well, and we saw the community i think pretty clearly saw what the contagion effect was going to be and those states throughout the mideast that would be most susceptible to that contagion primarily among whom was egypt. >> are you satisfied with the way in which the intelligence community handled it and do you, looking back now, always easy to come back in hindsight, are you looking at any improvements or adjustments, given what

you've. >> the first comment i would make sir is that we are not like sherwin williams paint. we don't cover the earth equally, and so frankly tunisia was probably not up there on our top 10 countries we were watching closely. so there is the aspect of you know, the spread, the balance of our collection rarities, exactly so obviously we are going to work on that. i think the notion of, as the chairman correctly observed, is we are going to pay a lot more attention to social media and what else, what else can we do there to extract warnings. to me a good friend of mine wrote a piece on this. this is somewhat like 85-year-old man who is overweight and has high cholesterol, diabetes, heart

disease, doesn't eat well, doesn't sleep well and you know the life expectancy is not very good. very difficult to foretell exactly plan he will expire, but you know the conditions are there and that is a rough analogy i think of what we are facing here in predicting these exact tipping points. having insight into the dynamics of crowd psychology. the fact that the movement in egypt had no defined leader or leaders. this was a spontaneous thing. fed, no question by social media. so this is a new phenomenon frankly and i think we do need to improve our attention to that another interesting aspect is the extent to which government permits access to the internet or participation in

facebook. and so we have done a lot of work on that since then, but to me, ken, the tipping point and personally it surprised me when ben ali made a very snap decision and left. >> madam chair, director panetta wants to respond. i did want to ask one question about iran before we wrap up because i don't think we have asked the question. can director panetta respond to one last question? >> if i could because it is an important question and our job is to provide the very best, the most timely, the most relevant intelligence we can to the president and to policymakers here. we have over the years long warned about the dangers in this region. i think last year alone we had about 450 intelligence reports that talks about the factors that were dangerous in the region.

factors like regressive regimes, economic and political stagnation, the lack of freedoms, the lack of reforms, and yet at the same time, it is difficult to predict the future. it is difficult, the most difficult thing is to get into the head of somebody and try to figure out what that person is going to decide. we have that problem with the leaders in iran, in korea, north korea and clearly with ben ali, the same issue. how do you get into someone's head when they make the decision to get out of the country? what we do need to do, i mean so i think we do a pretty good job of keying up the dangers. what we do need to do is have a better understanding and better collection on these triggers. what triggers these events? and there, it is the unmet expectations. it is the large increase in the numbers of youth, educated, out of work for play on the internet. what is the role of the internet and the social network and how

does that play into demonstrations? the military's role. generally we would all say after 20 or 30 years, if someone in government, the military is going to be loyal to that individual and basically support establishing security. that didn't happen. in tunisia and egypt, they were working both sides. and so, understanding that is really important. what i have done is, we formed 35 member task force and the director of intelligence to basically collect on these issues. what is the popular sentiment? what is the loyalty of the military? what is the strength of the opposition? what is the role of the internet? we have got to do a better job at collecting in those areas so that we could have a better sense of what might tip off these kinds of changes. >> before we leave, let me ask the iranian question. let me make a comment and have your reaction, director panetta.

i am the first to criticize the community when i think we have screwed up or made a mistake, but here, as we do with back on it now, is it not a fair statement to say that your station chiefs really did have a feeling of the uneasiness in this region of the world and virtually every country? but certainly they weren't on the twitter list of individuals in egypt who sent this around. they want on the facebook account. they had no idea that this individual in the marketplace was going to set himself on fire. i think that is what we miss, but gee whiz, i don't know how we do otherwise. but my feeling from having talked to your station chiefs, and not every country, but that there was a feeling on their part and they had communicated that back to you and headquarters that there are

powder kegs and that part of the world. >> absolutely. your point is correct. they have been indicating various factors that they were conference center about that we now see playing out in the demonstrations that are taking place throughout that region. >> thank you oath and i appreciate your flushing out the information that we have now, because obviously people are going to look at this as an important case for quite some time to calm with respect to how the community reacts to a surprising set of events and this is helpful. i just want to wrap up director clapper without getting into at least to some extent. your testimony said that the intelligence community continues to judge iran's your decision-making is guided by a cost-benefit approach rather than a determination to pursue nuclear weapons at all cost. last year the administration succeeded in convincing the international community to impose new and tougher sanctions

on the iranian regime. in your view, what impact have the sanctions had on the iranian regime today? >> well, they clearly have had impact on the iranian economy and, which i think is increasingly affecting the average citizen. i'm not sure the average citizen in iran sees it that way, but that is, that is the effect. so, and obviously the point here is to induce a change in behavior on the part of, on the part of the iranians. >> how seriously do you think the regime is taking the sanctions? >> i think, and i will ask others if they want to contribute to this but i think it is clearly a factor on their mind. as the screws have gotten tighter i think they clearly are

seeing that, seeing the effect. can't say frankly that has had an effect on their nuclear program at this point. >> i would add that in areas like insurance, banking, shipping, gasoline clearly and refining, that it has had quite an impact and that has had an impact on the population as well. but the last point that director clapper made about the direct impact is one that maybe we could discuss in another setting. >> i'm i am interested in a classified forum to know more about the effect it has had on the regime and one last point that i think your testimony touches on. director clapper on the fact the iranian regime's expected to contain threats to its stability from the iranian opposition but that his actions have opened up a rift between traditional

conservatives and what are in effect the hardline conservatives. so, if this riff or continue are the traditional conservatives likely to start coming over to the opposition side? the opposition movement? >> well, at this point i've not real sanguine that is going to happen and i base that on the most recent round of demonstrations monday, which the iranian government managed to suppress. and by the way, including -- included in that suppression is suppressing access to the internet and the social media at all. so, again, these regimes are -- have gotten very sensitive, as we have come about the importance. i think another thing i would cite is the executions have spiked at an all-time high in iran and so that has a chilling

effect i think on the opposition. the two opposition leaders for this movement. there was supposed, over 200 of which voted to execute them. so, clearly, and of course you have the irony that the president cited, the iranian regime praising the demonstrations in the streets of cairo and other places. is fine elsewhere but not hear. >> not in our neighborhood. thank you all and again thank you for your service and it has been a helpful hearing this morning. thank you brenda chair. >> thank you very much senator wyden. gentlemen, thank you so much. the hearing is adjourned.

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[inaudible conversations] >> treasury secretary tim geithner was on capitol hill wednesday to testify about the treasury department's budget for 2012.

it calls for an increase of $14 billion to support financial reform and irs collections. this is two hours. >> we understand everybody around here is on a time crunch. i am going to in the interest of times admit opening remarks as prepared into the record instead of sharing the full text of my remarks now. but briefly, i just wanted to say how disappointed we are that the president has failed to lead on the most important fiscal challenges of our time. there has been a lot of talk about the politics of take me on these challenges, and the conventional wisdom is that the political safing to do a i suppose is to do nothing, but i sincerely wonder about that. i wonder how long americans are going to tolerate empty promises about the retirement security. i wonder how long they will put up with leaders who fail to lead us and we are staring a debt crisis in the face. yes we are running up to a statutory debt limit that we are also burning up to a real debt

limit call the credit market. we feel it is our responsibility to do things differently, to lead where the president has fallen short and that is exactly what we intend on doing in today's -- the days and months ahead. with that, i will submit the rest of my statement to the record enable you to ranking member van hollen for brief opening remarks. >> thank you mr. chairman and i will also work to shorten this up. welcome mr. secretary. i think that the president has laid out a proposal that is tough, but responsible, tough because it cuts non-security discretionary spending by $400 billion over the next decade to the lowest share of the economy since the eisenhower administration. responsible because it's it steadily reduces the deficit on making targeted investments in areas like education, clean energy, infrastructure and scientific information, investments that the federal chairman of the federal reserve ben bernanke said would help strengthen the economy in his testimony here last week.

that approach, the president responsible approach stands in stark contrast i believe to the republican majorities reckless approach that they are taking on the floor of the house as we speak. that proposal will put more americans out of work when too many families are struggling to make ends meet and do virtually nothing to address our nation's long-term deficit problem. that is one of the reasons that the bipartisan commission on deficit reduction recommended against taking deep and immediate cuts, because they recognize the economy remains fragile. now, one other point here, because yesterday in this committee, we heard a lot of our republican colleagues criticized the president's budget for not reaching primary balance. in other words no longer spending more than we have by the year 2017.

in fact, many ridiculed the notion that reaching primary balance over the next 10 years was an important milestone. i would point out first that the bipartisan commission did not reach full balance and that 10 year window and yesterday in the spirit of recognizing that achieving full balance in the short-term is difficult i've pointed to the one republican plan that has been put forth and squared by cbo and that is the plan that the chairman of the committee has put forth and he has put it forth in good faith. but, i had hoped that my comments in that regard would have been somewhat cautionary because as i indicated, cbo has looked at that plan and it doesn't reach primary balance by the year 2020 and in fact i misspoke yesterday. doesn't reach primary balance by the year 2040. it doesn't reach balance until sometime between 2040 and 2060. so after 2060, actual balance.

so, i would just caution my colleagues to the extent that you are going to be criticizing the president and the administration for not reaching allen's fast enough and ridiculing the notion of primary balance in the next 10 years, you are also criticizing the one proposal that has been put forward today and you are doing it more so because the president's budget. >> would you yield? this proves how tough this is. this proves what kind of a whole we are in. it is not your fault and both parties are responsible for where we are. it proves how difficult this is in the reason we are at this point in the current budget is because it does nothing to address the drivers of the debt and when you leap into address the drivers of the dead, you can see how tough it is to get out of the hole we have dug ourselves into.

>> yeah, if i could just say i agree. in fact, i am offering this caution in the spirit of the common recognition it is difficult but i had hoped that just by making that remark in the spirit of recognizing how difficult it is that we wouldn't have heard so much from some of their members criticizing the president's budget on that particular point. because it is an important milestone to reach a primary balance in his tenure. macinnis jack lew pointed out by definition you have to go through the balance before you get the full balance so i only say this mr. chairman to say how hard it is but we spent the rest of the day listening to your members criticized the president for reaching primary balance in 2017 so i think it is fair play to say that the one good faith effort on the republican side that has been scored today doesn't get close to that. and it doesn't do it by 2040. obviously you will be presenting a budget this year.

that will be the next effort and let me just close with this. we look forward to working with you wherever possible and finding common ground in that effort. speedy secretary geithner the floor is yours. >> thank you mr. chairman and ranking member van hollen. is a pleasure to talk about these questions. i stated the beginning mr. chairman that i agree that that -- a comprehensive plan. i don't agree with a lot of the content but i agree that you deserve a lot of credit for laying out something conference that and i doubt you are in the leadership to put together a resolution that they does a ten-year path for dealing with these challenges and of course we look forward to working with you on how best to get there. the present budget presents a strategy to strengthen economic growth and expand exports with investments in education, innovation and the nations infrastructure, and we do that by presenting a detailed

comprehensive multiyear plan to cut spending and to reduce deficits. our deficits are too high and they are unsustainable and left unaddressed they will hurt economic growth and leave us weaker as the nation. we have to restore fiscal responsibility and go back to living within our means. the president's budget cuts the deficit he inherited and have by the end of his first-term. these cuts are phased in over time to protect the recovery. in order to make it possible for us to invest in future growth and restore sustainability the president proposes to reduce non-security discretionary spending to its lowest level as a share of the economy since dwight eisenhower was president. to achieve this the budget proposes a five-year freeze of non-security discretionary spending at its 2010 nominal level, which will reduce the deficit by more than $400 billion over the next 10 years. as you know the president also proposes to reduce the request for defense defreeze civil service salaries to improve by

eliminating the range of programs. the savings create the necessary room press to make investments and support reforms that will help strengthen future economic growth and the most important thing we can do to help promote long-term growth is to improve the quality of our education system to invest in innovation and to rebuild our nations infrastructure without these investments we will be weaker and less competitive. as part of the strategy for growth the president proposes reforms toward to our tax system designed to encourage investment. we propose to put in place a permanent expanded tax credit for research and development and limited capital to gains taxes on investments in small businesses doing courage advanced manufacturing and clean energy, to keep taxes on capital gains low and to make college more affordable for middle-class americans. these tax incentives are accompanied by reforms that would reduce incentives to shift income and investment outside the united states and to close loopholes and tax preferences that we cannot afford.

now in addition to these changes we propose to pursue comprehensive corporate tax reform that would lower the corporate tax rate or gore present system as you know combines a high statutory rate with a broad range of expensive tax preferences for specific industries and activities. we need a more competitive system that allows the market, not tax planners and lobbyist, to allocate assessment of business where -- similar share of earnings that provides more stability and certainty and is more simple to comply with and we have to do all of this without adding to our future deficit. we have begun the process of building support for conference attacks reform on the corporate side. i think we have a chance to do that now and we hope we can work with the committee to help make that possible. the present budget also outlines some responsible reforms on the individual side. we propose that we have in the past to allow the 2001 and 2003 tax cuts for the wealthiest 3% and 2% of americans to expire,

limiting certain deductions for the same hayek and come americans and closing the loophole. these proposals will help ensure the savings we achieve through spending cuts are devoted to deficit reduction. not to sustaining lower tax rates for the most fortunate 2% of americans. this budget would achieve a dramatic reforms in our deficit over the next decade that are necessary to stop the national debt from a growing share of the economy and to save the debt ridden at a level that will not threaten future growth but these are only a first step in the down payment on a longer-term reforms necessary to address both long-term deficits. to deal with the longer-term deficits as you all know the deficits we face over the the next entry not just the next decade we will have to build on the cost reduction reforms achieved in the affordable care act and although it is not a country which are short and medium run deficits we need to work together across the aisle to strengthen social security for future generations. we can grow our way out of these

deficits. they are not going to go in in their own and they won't be so by cutting deeply into programs that are critical to future growth and competitiveness. we have to find a consensus on a multiyear plan that cuts where we can so that we can invest where we need and that reduces deficits making a multiyear commitment will allow us to make sure that the changes are phased in as the economy recovers and make a new multiyear plan will give businesses and individuals adequate time to adjust and prepare for future changes. this is a starting point for the discussion and we recognize there are many ideas on both sides of the aisle and be know as you do that we need those parties and vote houses of congress to come together to enact solutions that work best for the country. in december, we were able to find bipartisan consensus on a strong package of tax incentives to help sustain the recovery and restore confidence. we want to bring that same spirit of bipartisanship to the challenge of restoring fiscal responsibility. thank you.

>> thank you secretary. a couple of questions, but first i want to get into credit ratings. you would agree, would you agree with me that if we stay in the current fiscal trajectory indefinitely that we are not going to be able to maintain a aaa credit rating? >> let me tell you a positive way of saying it. i'm very confident and this body will make the changes necessary for us to preserve that status. is important do that. there is a lot of confidence in the political of this country to get ahead of this problem -- not problem. last month moody's gave us, they laid out a debt trajectory in which the u.s. could face credit rating downgrade by mid decade. obviously you take that very seriously and competence matters a lot. so if the administration continues to punch using the "washington post" words on entitlement reform, are we inviting a credit downgrade and

market turmoil? how does that inspire confidence? >> i will come back to the central strategy. as you know better than anybody we face two different types of deficits problems, drivers of the deficit. over the next five to 10 years we have an unsustainable fiscal position. if you get that down to a level where the dead is not growing in the share of economy. without that nothing else is possible and we will do damage to future growth and confidence. that is why we need to bring the deficit down to something that achieves primary talents. that is the minimum necessary. ..

and they will leave us slightly above the long-term average but way below, way below the amount of revenues the country collects from their citizens and businesses so we will leave us with a much more competitive tax system than any of those contemplating facing this contact. one other thing about these forecasts. or two other things. one is the omb has made this year's budget much higher than cbo. the deficit. much more conservatively estimated. is probably too high so there are some things in the forecast that are more conservative than cbo and something far confident than cbo put any in cbo will rule in this case.

and you are right to say if cbo, when cbo about three weeks scores the impact of our projected policies, on their projected economy, they will show a somewhat larger budget deficits then we estimate in this deficit and again when strength of our country is cbo is independent nonpartisan and make governing this context so you and i don't need to beg these assumptions because they will choose russ. >> the point i'm trying to make here is i question the assertion of primary balance given the final arbiter cbo on this is using a different set of projections and you are not going to get there with what i think is a deeply inadequate budget. >> i was just thinking a couple things. you will have a chance to propose a 10 year budget that does better and he will make different choices than we did. but i think we can all agree that it is necessary but not sufficient. the prior balance doesn't go far enough than we will do better

than that over time. >> because i don't want to chew up too much time. on debt limit you sent us a letter saying he wanted clean debt limit because you think about to be done standalone. i simply want to point out and i don't want to get into -- because i want to get to other members. the last time the debt limit occurred in the last session paygo was attached to it. it was the engine is sort that sort of drove the trained through congress and the president was perfectly complicit with this. it was obviously in favor of it and he assigned it. the fiscal commission itself was attached and pastor executive order in exchange for the debt limit, so let's not say that we are only for clean debt limits when just a year ago the president was fine with attaching things on debt limit. that is the point i want to make last thing, the corporate tax reform. it is a little vague in corporate tax reform in the budget. what do you mean exactly and then i assume you are talking

about deferral. i assume you are talking about foreign tax credits as one of your revenue raising or face positions. wouldn't going to a territorial system fix those problems and what is your position on going to a territorial system and then i would like to turn over to mr. van hollen. >> we are suggesting it is best and easiest and cleanest and most responsible to do a clean debt limit extension. this is not a popular thing for people to do and if you lead people negotiate over the terms the risk is to lead people to expectations you can't meet and that leads to suggest you should do clean. we recognize will have a big debate about how to bring down deficits over time and we are looking forward to having that debate and i believe it i think you do it because for the country for us to come together and agree on a multiyear plan that would be laid out in enforceable commitments because then the markets would have more confidence in our political system in dealing with this. one last thing. i would just encourage you not to do anything that will call into question the commitment of

this country. the united states of america doesn't play around with this stuff. to meet our obligations and don't allow the marks to building concerned about our marketability judd is because i will put a risk to the recovery and set us back substantially. on the question of corporate tax reform you are right in the budget we did not propose a conference a plan for corporate tax reform but we are beginning the process of trying to layout the foundation of that and what we would like to try to do is do a comprehensive reform that would lower the statutory rate significantly bring it much closer to the range of our trading partners and do that by broadening the base and eliminating the expense of expenditures and special preferences. do that in a way that it is revenue neutral and strengthen investing in the united states. as a part of that, we will have to examine how we tax the worldwide income of u.s. corporations but as we look at that and we look at all forms of territorial we have to be careful again not to be

increasing opportunities or incentives to shift income investment and i think i will hurt jobs in this country. that is a difficult thing to do but we will look at all ideas in that context. >> no explicit position on worldwide territorial. >> you wants to take this approach. we have to begin -- be careful. over moment we buy what what we do this? as you look at that test, we have to make sure everything meets that test. and when you look at a lot of the territorial they usually fail on two grounds. they either lose a huge amount of income because they make it easier to ship investment outcome united states or they hurt jobs bike by again magnifying the incentive to ship inside the united states so for those reasons yet to be careful looking at those. again we will look at everything that we want to be governed by those test. revenue neutral and more competitive stronger incentives for investment.

>> mr. van hollen. >> thank you mr. chairman and secretary thank you nick and for your testimony. want to pick up on a couple of points the chairman raised first with respect to the debt ceiling we had the chairman of the federal reserve ben bernanke here, who has said that a failure of the united states to meet its debt obligations and to make sure that we protect the full faith and credit of the united united states would be catastrophic. you have said similar things. there have been proposals introduced in the senate and the house by republican members which take the position of that we should pay our bondholders like foreign governments, like china, first before we but pay a medicare recipients, social security recipients, members of the armed services, u.s. government contractors. could you just talk briefly about two things. one, what the impact would be of

that on the credit markets and two what you think about the fairness of that proposal? >> you now i have written and spoken publicly about this before. you know they are ghana spray let me do this as an example. if you think about a family sitting around the table, they decide they are going to not pay their utility bill, not pay their credit card, not pay their mortgage so they can pay their car loan they will be judged in default either creditors. so, this idea that somehow you can minimize the pain to the country, minimize the damage to our credibility by an effect not meeting your obligations, some obligation 20 meet others is a think mistaken. and upon is anytime and any time and it won't deprive this congress of the responsibility of raising the limit. i wouldn't go there and i don't think it helps at all. again, we will be every month

letting congress know what our latest estimate is and we will be open with the congress of where we have flexibility to buy time but it is important to recognize because they're deficits are so large the traditional forms do not i that much time. so again i know this is a challenge to do and not a fun thing to do, you will have the privilege to allow your predecessors to do this and my suggestion is do it in a way that make sure the markets understand that the united states of america will meet our obligations. we will never cap down our committee obligations. we will do that while we have a debate about how we figure out how to bring deficits down to a sustainable level and we recognize as you do that will require both houses, both parties working together. >> the chairman of the federal reserve warned not only about the catastrophic consequences of that, but he urged the congress not to use the debt ceiling as a

"bargaining chip." i hope we won't pay -- play politics with the full faith credit of the united states. let me pick up on some of the other questions regarding tax policy. indicated they fresen's residence budget assumes we will continue the current tax rates for 98% of the american people but that we can no longer afford to provide a tax break for the folks at very top. ..

>> again, you are talking about rates that prevailed in the '90s. and that was a excellent period of remarkable growth in employment investment led by small businesses in this country. >> the director of the cbo was right where you are last week on this question of deficit and essentially said very flatly and clearly on the record, the cbo did not engage in quote, double counting in coming up with the $230 billion savings. now there's been a lot of conversation in the last couple of days about the need to bring some of the long-term health care costs under control. i think it's worth reminding people the health -- the

affordable care act included changes. for example, we got rid of the large subsidy for medicare managed care plans. we made some other reductions. in fact, i think a lot of our members are well aware because they were on the receiving end of a lot of ads against the campaign for some of the decisions they made in terms of reforming medicare. could you speak to that? i think that has been lost in the discussion over the last couple of days? >> well, again, you guys have been talking about this for a long time. you know everything there is to be known about this. i'll be happy to repeat the core tenants in this. cbo scores savings and cost. in cbo judgment, and traditional they have been conservative about savings in health care reform. health care reform will save over the next two decades $1.23 trillion. that's very substantial entitlement reform. it doesn't solve the problem completely. we recognize that we want to go

beyond that. if you put that in jeopardy, you will end up adding to our long-term deficits and that will hurt our credibility in the markets more generally and undermine the market's confidence in our ability to get ahold of the basic deficits. security in contrast is not meaning to our long-term deficits. there's a good case to figure out how to lock in reforms in social security that would help secure the benefits. they are not a contributor in any foreseeable time frame. >> we are going four minutes. that gives everybody ample time. it's not our intention to keep doing this. we want to make sure that people at the end of the dais has a shot. >> i will say thank you. keep my remarks fast. just a couple of questions with

regard to playing politics with the debt limit. i don't think anyone up here honestly wants to play politics with it. we want to take a look at it seriously. we also understand that no one in america believes we can borrow our way into prosperity. that would be the result if we take in action as far as addressing our debt circumstances. to use your example sitting at the kitchen table paying your mortgage. you may your mortgage, you don't go out and take another mortgage if you are in dire circumstances. >> i agree with you on that. we want to work together. >> right. >> to put in place multiyear commitments that reduce our deficits over a period of time in ways that don't kill future growth. we want to do that with you and we don't want to wait to do that. we like to do that. we want to make sure we call into question our basic creditabilities and obligations. >> one the areas that i look forward and appreciate the minister has come out with, publicly with the position with regard to the gse, fannie mae and freddie mac dismantling that

and trying to get back into the private sector. never late than never. your report did not specify various options, various one plan, it gave us various options. one thing it did specifically say, the federal government will stand behind the debt of these obligations; right? our commitment to ensuring fannie and freddie has sufficient capital on any guarantees now and in the future and debt obligations remain unchanged. ensuring they meet their financial obligations is essential to their success. whether this was sovereign debt or not, that off of the table, that's explicit. interesting thing here, we've been asking private sector, right, if they have the civs, off budge to bring it back on the budget. wouldn't that be good here? i'll give you two examples. one i have the legislation to do that.

appreciate your comment. secondly, hearing at capital markets, someone came up with an idea and how it might help save money. that is if you bring these things onrhine, -- online, and put it on the budget, both the portfolios and liability of the debt on the balance sheet with assuming the debt, it would be negligible impact. if you had the treasury reissue the debt, the spread basis point, about 25 difference between them. over the long term, the amount of money that taxpayer paying out as opposed to the way we are doing now would be a cost savings to the taxpayers. your comment. >> i appreciate your comments on the reform plans and look forward to working how to put them in place. we have to craft the ultimate solution legislation. two things important in are following: one, the markets have to understand that we will make sure the institutions have the

resources they need to meet their commitments over time. >> right. >> we are going to make sure they do that. you know why it's important. second thing, there's lots of way to count. we do the necessary thing, we put on the budget in a fully transparent way the full coast of providing this support. >> you know, the cbo treats these things different than the way the omb does it. that's why we are suggesting commonality. we were basically suggesting that the treasury does have to deal the same way the rest of america has to do it. >> i think we are meeting the best test of creditability. we show transparently, the full cost on our budget of the mistakes that these guys made in the past and what that means in the future on our budget. we're going to continue to do that. but i know we'll have to chance to talk about it more. we'll be happy to do so. >> okay. i'm looking at the clock in front of you that continues to go all over the place. >> we have to buy a new clock. >> okay. ms. schwartz. >> well, i can't see the clock. someone is going to have to let

me know when it gets close if they can figure it out. mr. secretary, i want to appreciate your comments on what sounds like a pretty complex set of questions and answers. i wanted too a couple of things quickly. first, i want to acknowledge the president has put forward a serious and timely budget that does reduce the deficit in a way that doesn't hurt our fragile recovery. grateful for that recovery, i want to see it stronger. and invest in our future. appreciate that. certainly the focus on reducing the deficit by $1.1 trillion is important. bringing financial stability to the nation and the focus on spending cuts. it's all there. tough cuts. i mean $400 billion, it's a lot of money. so what i wanted to ask you about, and just before i get there, i wanted to say that i appreciate the comment about the cuts that we did on to the health law. we have negligented to talk about that for the last week or

so. i believe it was every republican who was here at the time voted against what is essentially $1.2 -- almost $1.3 trillion in deficit reduction. that's what it does. i believe it could do more. we have to complement it and get about the business of making sure that we can bring down the cost of health care. under medicare for medicaid for our government and, of course, private sector as well. so we need to talk more about that. i did want -- and that is the notion on the president's leadership on that should be acknowledged. the president's leadership also and it's been mentioned here well is about about -- is also t the fact that tax expenditures also if they are not paid for add to the deficit. just yes or no. i mean is $1 trillion worth of tax expenditures. we don't pay for it. does it add to the deficit? >> absolutely. >> the other side of the aisle seems to not count that. their rules don't count tax

expenditures as spending. i think the president has taken real leadership on this in acknowledging that and wanting to follow through on the budget deficit commission. and i want you to talk about that. hold on to that notion, i want you to answer that, i also want you to just very briefly address an issue that came up in ways and means around the trade adjustment. and i wanted to give you the opportunity to clarify your statement about how important it is to do trade adjustment assistance on it's own as soon as possible. now it's expired. and i did want to give you an opportunity to say something about that. >> yes, thank you for giving me that chance. i'll start with trade and come back to the question about tax policy. it's very important we move ahead on trade adjustments for reasons that you all know. we'd like to do that as quickly as possible. we'd like -- we expect to bring a deal to the congress to consider relatively soon. we're working to strengthen the columbia and panama trade

agreements. if we achieve the improvements that we seek, then we'll consult with congress on how best to move these forward. a critical part of the strategy is going to rely on getting exports to grow more rapidly. they are growing rapidly now. we want to build on that. very important that we move trade adjustments as quickly as we can. >> even before that. thank you. >> on the tax -- you know, again, i think the commission did a great service in pointing out to people how expendive the tax expenditures are. not just that they cost. but if you look at who benefits from them, they are not targeted at things helpful to growth. they grow substantially to relatively fortunate americans. so our view is -- as a commission suggested, a critical test of reform of fiscal restrain of fiscal responsibility is going to be to start to dial back some of those that are the most expensive, the least targeted, have the less basic benefits for growth or for

middle class americans. >> if we did that, we might be able to lower the tax rate, corporate tax rate, for example, on the individual side. we might be able to make some changes. i think our time is up. my guess is we're going to be talking about that as well. >> thank you. mr. aiken. okay. going to hold it. there we go. thank you. >> mr. secretary, a couple of questions. a lot of us have a number of questions. this is pretty straightforward. it appears from a wall street journal article, we're going to increase the irs budget by 9.4%, hiring additional 5,000 or 5,100 agents at the cost of $460 billion. i suppose some of the reason that some of the tax money that the irs thinks could be collected is not coming in could be because those tax manuals when you stack them up on a little wagon, they are about a yard high. don't you think that perhaps we

could save money and do things a lot more simplify if we could simplify the tax code and skip the 5,100 irs agents and make us look better to we don't have argonne squad of 5,100 agents around the country with the economy the way it is. >> you are right. if we were able to simplify, not just corporate, but individual, it would be easier for citizens to meet their obligations, easier to enforce, and that might save enforcement resources over time. just a couple of comments and responses to what you said. all of the people look at the way the irs works say that if you put a dollar carefully into enforcement, customer service, things like that, you get more than $4 back. why is that fair? it's because by helping people meet their obligations, you make sure that other people aren't bearing too large of a cost of being citizens of the country. it's part of the test of the

democracy, and part of the test of fairness. what we are proposing is a set of modest improvements and resources for customer service, for technology designed to make it easier for people to meet their obligations. of course, they are right if we were to simplify the code. that would help save some resources too. >> i appreciate that. somehow or other, the 9.4% and the 5,000 irs agents. >> it's not 5,000 irs agents. relatively small fraction of that is people you might call involved in the process of enforcement. a substantial fraction of those are customer service people and technology people. again, designed to make it easier for people who want to meet their obligations to meet their obligations. >> i appreciate. you are trying to make that distinction. i'm from the irs, i'm here to help you. that's hard to sell. >> the irs doesn't set the tax obligations. that's set by the congress and you in this room. >> i wanted to mention -- we

talked about the debt limit several times with people asking you question. it's been pointed out the paygo and things attached, you want people to vote for that. that's like swallow a radioactive pill and particularly for some of us who have just gotten a message from taxpayers. i guess my concern is if you submit a budget the way you have that has not really dealt with the entitlements and the massive problem there and then you put in the assumptions about tremendous level of growth while you are in increasing taxes, i mean i can understand it looking at may of '03. you take a look at capital gains, dividends, and tax. flat line scoring, looks like we're going to lose more money. you take a look, employment goes up, gdp goes up, and federal revenue year after year. you are trying to make the same

magic happen. somehow to me, it's hard for me to see the budget that you've submitted is really being politically willing to step up to a very, very hard challenge. and that being the case, how can you then say we want you to swallow the debt limit and don't put anything on it at all. i mean the people back where i come from, they want fiscal responsibility. they want it know and they don't want any excuses. and we're the ones that have to listen to them when they call us on the phone. and so i don't know how you can say with the debt limit is just going to be a straight vote. there's going to have to be some guarantees or it's not going to get through. thank you. >> put it down on the supply side. but not on the tax policy, i guess. who's next? >> can i say that i have been a consistent supporter of and there are in the budget a variety of well-designed incentives to encourage investment and low rates on investment. we recognize that's important.

as you know, mr. chairman, in the tax package at the end last year, we included some very powerful incentives for the businesses. i think the most powerful, 100% for all businesses across the country. so we're -- >> that's one thing we liked, actually. >> we're earning some -- we're demonstrating that we think that matters to growth. >> mr. blumenauer. >> thank you. mr. secretary, i appreciate you clarifies about the dedicated people that work for the irs. to label these people as argonne squad i think is offensive on so many levels. it might be the or the of thing that inspired that maniac to crash a plane into the towers. it was congress that gave the irs this mess to interpret. and with all due respect, looking at the last time republicans were in the charge of the tax code, look at i think it was one million extra words that were added to it.

so let's -- i welcome your call to tax simplifying. it's congress that made their job a nightmare. any of you can try what i've done. i've met with accountants and attorneys who wonder why are we not auditing? why don't we invest to collect money? but they appreciate the work on customer service. i hope we are not being reckless talking about the people that work for you as being part of a goon squad. >> thank you. i agree. >> i want to get to my question. i wanted to thank you. but we've had a lot of talk about about the administration punting on entitlement reform. i appreciate your reference to the fact that the single most important element of entitlement reform, the entitlement that's out of control is medicare. and you are committed in this budget to actually administer that health care reform which has in it every single proven,

potential cost-bending effort. >> almost every one. >> we didn't leave many of them out. they are not as strong as they could have been. because people were a little nervous. what we should be doing is taking the newfound backbone and accelerating and strengthening them. these elements used to be bipartisan. in fact, they used to be nonpartisan. and so we can battle all of this us stuff. but zero in on the cost containment that's there. we had dr. berwick testify i forget if it was our committee or ways and means and pointed out areas like medicare advantage, we have actually a reduction in premium. we have 12 million more beneficiaries and 5% increase in the programs. this is is success story. we ought to as a congress be

focusing on the facts and make it work better. because if we don't do that, if we repeal the reform with nothing in place, we're going to have higher deficits no matter how much we cut. but i want to get to the tax reform. i think chairman campy is very interested in working with you as the last two administrations have been to try to fix the corporate mess. i want to just point to one specific item. in fact, i will be offering an amendment on the floor in a while to implement what the administration called for, closing some of these tax benefits to the oil industry. some dating back to 1916 that most people think makes no difference on the production of oil. but i want to just zero in because you've been in the middle of this debate in a 12 -- in a two to $3 trillion global oil market would the loss of five to eight billion a year of tax benefits to oil companies

make any difference on the price of oil? >> it would have no affect on price. no affect on price. they are expensive though. the more you sustain tax performances like that for individual companies, industries, activities all businesses across the country pay higher taxes to make it possible. it's not good policy, it's not fair, it's not consistent with what we want to do. getting rid of those things is better for our competitiveness. >> thank you very much, sir. >> mr. ribble. >> thank you, chairman ryan, and thank you secretary for comes. i've enjoyed the conversation so far. i specially appreciated your tone. i think this country more than anything needs to really have an adult conversation among ourselves about what we want to see for the future. particularly entitlements. and i think you brought a bit of that adult tone today to the hearing. i wanted you to know how much i

appreciate that. before i ask one other question, yesterday i heard from the president that this budget would stop adding to the national debt. do you concur with that? >> well, what this budget does, again, on our assumptions for what congress -- if congress enacts this. it will reduce the deficit to a level that achieves what we call primary balance. it's balance expect for interest payments. and for an economy like ours, growing at the rates we expect over time, meaning our economy normally grows somewhere between two and a half and 3% over the long run. that means you have to get a deficit to around three or slightly below. if you achieve that in the time frame we are suggesting, then you will stabilize our debt burden, net held by the public, net of the financial assets in the high 60s gdp range. that's a level that does not

threaten future growth. it's sustainable. we don't hold that. without doing a better job on health care and affordable care, the deficit will start to grow. the debt will start to rise again. that's why it's important to move forward. >> will you yield for a second on that? i don't see how you can square mr. carney, mr. lew, and the president's comment we are not adding to the debt. the own table s14, the debt goes from $13 trillion to $26 trillion. that's subject to limit. how can you say? the statement was deficits, it's debt. >> if you -- i'm making a point about math and economics. >> i'm looking at your chart. >> if you get the deficit down to that range. 3% of gdp. >> the deficit. >> the deficit. >> when you get it to that point and hold it to that level, then the debt stops growing as a share of the economy.

the question is it still going to be too big at that point. net of financial assets held by the public will be -- will stabilize roughly around 70% of gdp. that's level that we can sustain. but it doesn't hold for a long period of time. because again it's health care costs started to eat away at that over long periods of time. you have to go beyond that. it's necessary, but not sufficient. >> yeah, the numbers are slighted estimated. they added about $9 trillion to the debt in the next decade. >> the period now -- our deficits are unstainable high. the period before you get them down to three, you are adding. in the period where you want to get it down to three, the deficit will grow more than the economy as a whole. that's what makes them unsustainable. once they are down to three, you

will stabilize them at a level that's more acceptable. >> does it take into consideration if the economy beginning recovery like it proposes, don't interest rates typically go up as well? >> you are right. the economic assumptions that matter most, how fast does the economy grow, what happened to interest rates, what happened to inflation. there's no certainty. it's an amount of judgment. ultimately, this is the strength of our system, cbo's judgment will govern the choices that you made. when cbo estimates the impact of the proposed policy, they are going to show slightly higher deficits than we show in the budget. >> just changing gears, do you know what percent of mortgages held by fannie mae and freddie mac? 80%? >> no, it's not that high. look at the mortgages financed today in the market, a substantial fraction are by a combination of fannie, freddie,

fha. it's well north of 80%. >> okay. well north. what assurances can we give the american people that we're not going to have a housing crisis? it's not spread out across the economy. it's held into the gse. >> two points. as we said last week, we need to wind them down and bring capital back into the mortgage market. we proposed a series of graduated reforms that will make that possible. that's absolutely essential to fixing. we're not prepared to live with the mess that helped create the crisis. now it is important to recognize that you want to do that in a way that's careful. you don't want to add to mortgage costs, hurting home values. you got to do it carefully. one point about fannie and freddie, the losses that they face today or are the result of the mistakes they made during the boom. on an ongoing basis looking forward, the guarantees they are

making today are much more conservative terms. more equity in homes, better underwriting, and more expensive guarantee fees. that's why the independent estimates that look at this suggest that we are at the peak of losses. those will start to come down and get more as the government and taxpayers investments back. >> thank you, mr. secretary. thank you, chairman ryan. >> mr. pascrell, are you ready? mr. pascrell. [inaudible conversation] >> the -- i like when we look at alternatives and options. obviously with all do respect to a gentleman that i have great respect for, mr. ryan, he is presented the alternative and the option as he did in 2010 before the election what his

alternative was and how we're kind of an affect it would have on the budget. the alternative was very specific. he did deal with the entitlements. some of that. in fact, he dematerialized one of them. he basically started the process of looking at medicare and it doesn't exist. it's gone. >> would the gentleman yield for a moment? >> sure. >> if you want to talk about the budge, look at the 2009 budget, instead of the individual piece of legislation that i introduced. >> because. may i respond? because this was presented to us in september of 2010 as a legitimate, i thought it was a legitimate, alternative before we got to the 2011 budget. and before we got to the

massacre of the cr. so i thought it was a legitimate presentation. i said so at the time, mr. ryan. i didn't have to wait until after to look at the results of the election. but it is an alternative. and i was going to ask the secretary with your permission whether or not the secretary thinks that this option -- what mr. ryan's option, a republican option to what we are talking about as a budget, what we're talking about in terms of health care and much of this. what does it do to the budget? in your eyes? >> well, some ways the chairman is best positioned to speak to his proposal. i would make the following suggestion. as chairman of this committee, he's going to have the responsibility of putting out a ten year budget resolution in the next several weeks. that's going to have to provide the plan for how to get the deficits down and what you should do to revenues, entitlements in that time frame

and that'll give us a chance to see a different strategy for doing deficit reduction. you'll be able to compare two plans. i guess i'd reserve judgment to see what he proposes then. >> but is that the center of his budget, the budget proposal whatever that proposal is it's obvious in terms of the money that we are talking about in this entitlement, it's the center piece of the entire budget? would you not agree with that? >> i think in the chairman's road map, as i understand it, he does propose very, very substantial cuts in the basic level of health benefits that we provide in medicare and medicaid and social security over a long period of time. and the deficit reduction that it achieves it's substantial as mr. van hollen said, it comes in over decades, not only months or years. it achieve that is through again very substantial reductions in the basic benefits. now again the test of

creditability should be what comprehensive plan achieves the amount of deficit reduction that we need and what does it do for growth and fairness. and again we're going to have a good debate and important debate about what's the best way to get the steps over time. >> i think we could both agree with that, right, mr. chairman. >> i would put a caveat, my plan doesn't reduce, it slows the rate of growth. it increases year after year. >> that's an important reminder. the approach that we are bringing on the discretionary is particular. we want to stop the rate of growth. in real time that means very substantial reductions in a period of time that's happened in a way that gradual. >> can you finish one quick question? >> yeah. >> mr. secretary, can you explain why it's so important for the deficit that cuts not be made to cms in order for them to

be able to fully implement the health reform law? >> well, the -- you know, the answer to that question, if you don't allow these reforms to get traction, to be implemented, you will not get the savings these reforms provide. if you delay them by slowing down the pace, you will delay and reduce the savings. it's just a simple proposition. >> thank you, mr. speaker. >> thank you, chairman ryan and secretary geithner for your testimony today. earlier in the conversation you talked about the basis, one the reasons lower rates and more jobs. that way you create more investment and more jobs. on the other hand, you say respect to high-income individuals the same rules don't apply. when you raise taxes on the

highest tax brackets of americans, the group of people that creates 50 to 60% of the jobs. it's okay. you can do it there and still create jobs. but that this -- you use exactly the reverse logic for corporations. can you explain the obvious problem in that logic? >> absolutely. i'm happy to talk about. it's important question. the test is through the prism of not just how are we reducing investments, but job growth and creation in the united states. that's the critical test. what we propose in this budget is a series of very narrowly targeted, modest changes in taxation that only affect 2% of the richest individuals in the country. >> or 50% of small business. >> jobs are created. >> less 3% of small businesses. those small businesses will be affected. those structures with their income gets treated and flow

through entities. those are overwhelmingly, businesses that are earning money. the median earnings. those 3% are north of $700,000. they are not small businesses in that deficit. and substantial number of those businesses are what we would call our -- look more like law firms or investment or hedge fund, not like the hardware store on main street. those are the rates that prevailed in the '90s whichs the best period for small business growth, job creation, investment that we've seen in generations. so we think that at a time when we have to make choices, for unlimited resources, that's a prudent and responsible step. as we cut spending, we want to make sure those spending reductions go to reduce the deficits, not to sustain tax performances, tax subsidies that are narrowly targeted, don't

help growth that we can't afford. >> next direction that i'd like to go is to talk about the president's position on the debt ceiling increase. the president has said he wants a clean debt ceiling increase. one the issues is there's a crittability gap. on this committee alone, we have 39 votes against debt increases. the last time he voted against one, he said it was a failure of leadership to vote for. help us out on this side of the aisle. we came in on a group of american voters that said enough is enough. help us walk down that path and understand why it's not a failure of leadership today to vote yes. >> i didn't create the system. you didn't either. it's not a way to run the country. >> i would concur. >> congress decides the obligations that we have as a country. we have to meet those obligations. that's our responsibility. but you set the obligations. you set that through a process.

it's not a terrific process. but you set that through process every year. and the debt we have taken on is a function of the choices. all of your predecessors made over time. republicans and democrats. there's no country on the planet that puts it's members through this type of torture. you have to vote occasionally around increasing the limit that has been locked in over time. it's not a sense of a way to run the country. mr. hoyer spoke to the question and said it is a mistake when i voted against, it was a mistake. it's not a responsible thing to do. and i don't think you want to put the country through the position of having to have too much politics around somebody that goes so to the core of our creditability as a country. again if you -- i don't envy the position that you are in. i wouldn't want to in your position. there's nothing to do to say it. expect that you have to do it. there's no choice. >> we have to choice.

>> yeah, you have to vote. i want to compliment what the chairman said in what your leadership has said. again, they recognize right away that we have obligations to the country. we don't play around with these things. we have to do it. and again we completely recognize and agree with you. we owe this to the countries of the country that we have to demonstrate to them to find a way to bring down the deficits over time. we are making the pragmatic judgment if you make it complicated and hard for something that's already very hard, there's greater risk that you are going to mess up the expansion because of that. if the word looks at us and they say, gee, is politics going to overwhelm common sense? then they are going to start to be worried. and you are going to see rates rise. we can't afford that. you need to reassure people. your leadership has done a good job of saying this. there's no risk that the united states of america will not meet it's commitments in a timely manner. again, we reck -- recognize your

position. that's why it's good to find a way to lock in the medium term multi-year plan that brings down deficits that are going to be good for growth and investment. >> mr. honda? >> thank you. as these budget hearings are unfolding against the slash and burn continue resolution being debated on the floor, it's become clear this is a debate between two competing visions of this country. the democratic vision of helping america's small businesses and working families forging a 21st century economy and a republican vision that is co-hearted, fool hardy, and dangerous. secretary geithner, republicans are trying to build a straw man out of entitlement reform. we know for the next decade, they are driven by the endless war and afghanistan and tax

breaks for the wealthy. your budget does not continue all of the tax cuts that expire. the budget documents indicate that that would save $953 billion compared to all of the tax cuts, including interest savings. if you wish to make all of the tax cuts permanent, you would have to find $1 trillion in deficit reduction in order to match the deficits. is that a correct statement or? >> absolutely. and again i think it's important to recognize that tax cuts are not free. they don't pay for themselves. we have to go borrow money to finance them. and i know we are having a big debate about what the appropriate role of government is. the government is a divided country on that. there's no argument that the role of government is to go out and borrow $1 trillion to finance tax cuts for the top 2% of americans. i think there's no -- it's not good for growth, it's not

necessary for growth. it's deeply irresponsible, and it will deeply magnify the challenge of fiscal sustainability. if you don't made the modest reforms in tax provisions, very limited reforms, you are going to have to find $1 trillion in benefit cuts or spending cuts. that's going to be a hard thing to do. >> thank you. also the president made it clear that we need to invest in education. today you mention three critical areas for investment, early childhood, teacher preparation, and financial support for higher education. in contrast, republicans believe that cutting education is critical to creating jobs and growing the economy. these are vastly different approaches. only one can be correct. can you explain why the president is investing in the three areas. and also can you guess as to what the affect the republican alternative of cutting education

investments would be on job creation and economic growth? >> well, i think there is an overwhelmingly strong and compelling case to recognize that we have experienced a damaging erosion in the relative quality of education in the united states. talk to any company in the united states and ask them how hard it is to find people with the skills they need to be competitive in high-end manufacturing, it's overwhelmingly compelling. the world is not standing still. the world is getting much better at these kinds of things. remember, businesses have a choice about where they build their plan. if they don't find the talent here in the united states, they are going to have greater incentives to build the plant to find the engineers to do that. whether you care about opportunity for all americans, mr. whether you care about making sure our children have a better chance, whether you are caring about the competitiveness of the american economy, you have to care about reforms with investments that are going to do a better job in improving education outcomes in the united states. i don't think there's any

argument that you can help make growth stronger if you are cutting into those kind of investments that are so obviously critical to our competitiveness. >> thank you. thank you mr. chairman, thank you, mr. secretary. briefly, i'm one the new folks. after been here five weeks, my patient with the level of rhetoric and probably better described at double speak has worn out. if you paid attention, you heard the ranking member move easily between primary balance and full balance which we both know are entirely different things. you heard the folks talk about not playing politics. there's not a single person on the other side of the aisle. >> would the gentleman-year-old? >> no, sir. >> well, look at the record before you distort. >> we've got a situation here where the president in my mind has done the same thing. this is what he said about the budget.

what the budget does is put forward the choices and significant spending cuts so the middle of the decade our annual spending will match our annual revenues. we will not be adding more to the national debt. to use a sort of analogy that families are familiar with. we are not going to be running up the credit card any more. that's not true, is it? that's not accurate. >> no, it's not. you said in the opening remarks, this is a matter of numbers and math and economics. not disputable. primary balance is not balance. balance is balance. primary balance means your balance expect for interest costs. for a country like ours, we need to be at or below 3% of gdp to stop the debt burden from growing. that is necessary but not sufficient. we get there in the budget over a three to five year time frame. it's very hard to do. but it's not as hard as doing it in a way that's going to not

kill future growth prospects for the country. and the channel is a political challenge in trying to make sure you bring the deficits down without again hurting investments that are important to grow. doing the way that's fair for people. but i don't do rhetoric. >> i appreciate that. and i'm not accusing you of it. to suggest that we are not running up the credit card is -- we will be adding to our debt. i would suggest for the american family, that's not balance. >> just one clarification. >> very quickly please. >> we're very clear about this. we want to stabilize the level of debt. what matters is it stable at a rate that it's not going to hurt growth? >> mr. secretary, i'm not here to pick a fight. i'm not the only person that interprets it differently. the imf released a report that concluded the united states is falling behind on a promise it made to other top economic

countries to have it's budget deaf is the by 2013. let's get to the bigger issue. which is that i've heard you today talk about the importance of lowering the tax rate, broadening the base. i've heard you today talk about the importance of entitlement reform. i agree with you. but the budget doesn't do this. until we can have a debate that is removed from this rhetoric, it's going to be difficult to discuss policy issues. the exact point that i made to the omb director yesterday. we have to be able to move past the rhetoric which is have a discussion on policy. let me ask you a specific question on math which that i've heard the term sustainable deficit. i've heard you talk about trying to stabilize it. 3% of gdp is not the critical number. it's the ratio that's more important. which is the ratio between the size of the debt, excuse me be more clear the size of the deficit, and the growth of the gdp. i'm concerned that over all of this budget with the exception

of 2014 and 2015, even though you do manage to get the deficit to around 3% on an annual basis, you are only at gdp of two and a half, 2.69. every year but two, the budget deficit in larger than the growth as the overall economy. which to me means as a percentage of gpd, our budget continues to grow. i know i'm out of time. i'm curious to your hear your thoughts on that. :

congress has to legislate and in our country have given how divided the country it is it is going to take up houses, both parties to legislate and we are going to have to do it. is not just because people expected from us but because our overall compass and our nation will depend on you all being able to demonstrate that we can find a way to bring these down over time. as you look at how to cut, make sure you worry about stuff that is important for growth. >> mr. brian. >> thank you mr. chairman and thank you mr. geithner. i appreciate it. i think it is important as we have these long-term discussions, a lot of times we hear christian -- questions in the last couple of visitors we have had where there has been a complete disregard for the economic crisis that we just

went through and i think this budget as much as i don't like a lot of it, does make the kind of investments that we need to be competitive, the tax rates as you stated earlier are not the only indicator for growth. it is quality of workforce, this infrastructure. it is all of these other things. i just want to say i think you guys have done with a horrible economic situation over the past couple of years, have done a pretty good job and i can imagine having to do this without dealing with the politics that the president and you and the administration have to consistently deal with. and i think if we look back to the number of jobs that were being lost in january of the month the president got sworn in, to look at the direction of the country and look what the stimulus bill has done, although it hasn't, i mean i'm from ohio. clearly unemployment hasn't gone down quick enough but we have stabilized. you guys have saved the auto industry. i i just have some folks in my office from fort where they have

now 850 people working and the parma plant. lordstown general motors has a third shift and they are making the crew selling like hotcakes. that would not have happened if it weren't for the courage of this administration so talk about rhetoric in washington d.c., let's be fair to each other who are trying to make some pretty difficult decisions here. i just wanted to say that. i think if we are going to change the tone and if we are going to have these adult conversations that everybody in the capital wants to start having i think it starts by saying do you remember when paulson came here and everybody was running around the capital with their hair on fire because we were going to go into a global depression in a matter of days. and if you contrast that with i think some very difficult mature decisions that you guys have made and i'm not here just to smoke. i'm here to say we have to appreciate the difficult decisions that were made under president bush and then present obama and then the stimulus

package and all of these other things are now to propose a budget as we start to turn the corner and move in another direction where you make these critical investments, continued to say this is a priority for our country is very important and i think you guys are showing some leadership. in spite of what some of the critics are saying. two quick questions. one, and we talked about this a million times, china currency. i think it is a major issue. i think it could be a major stimulus for the united states if united states if we do it. where we had with currency? are you continuing to push this? i can see a major stimulus that doesn't cost us any money. >> it is important to a lot of people up here and you know they are moving very gradually, but what you can see in the exchange rate understates the pace of appreciation because as you know, they have moved about 3.5% of the last six or seven months but inflation in china is much higher than the united states in part because of their exchange rate policy and that means in real terms they are moving about

10% a year in annual rates. if they continue that they will make a big change and it is already having a much bigger effect just in that 3.5 are sent business has to look forward and what they see is a sustained increase in wages in china and sustained loss in china so they are left to build the next -- less likely to lead the goods they need in the services they need and that will help reinforce this recovery. that we office he wanted to continue and we are going to encourage them to continue. >> i want to invite my new members are here. we passed the china currency bill last year with 380 votes bipartisan support and we continue to give you that hammer. please advocate for the health care tax as well. a lot of the auto jobs of the people in ohio have lost it. we need help with the administration for that and the trade adjustment benefits so appreciated and thank you. >> thank you for what you said.

>> thank you mr. chairman and mr. secretary. pleasure to have you here today and the first thing i just want to make a comment. i made a comment with mr. lew yesterday but i wanted to point out again that the persons claiming you echoed the claim here and mr. lew echoed the claim that the president has met his pledge to cut the deficit in half. of course when he made that pledge he said nothing about tying it to economic growth. it was a flat ledge to cut in half and it is still 175 billion-dollar short. with that said even with that in mind, and restating that come exactly how does the president plan on helping this congress to make certain brand since the freeze on discretionary non-security spending? you made the comment that the president proposes that congress disposes and i have a third-grader and that is the way they understand. that is not the way it works. 1997 president clinton stepped

up when they had the debate of the debt ceiling and said let's talk about balanced budgets. my question is does the present have any desire to make concrete proposals in this time period other than presenting this budget we all agree is unsustainable? >> as far as the debt limit or reducing deficits? >> i think only talk about the debt limit my constituents say we understand vote on the debt limit is a referendum on past spending by your administration in previous congresses. that is what we are doing. that is raising the debt limit but what about going forward in the future? i understand the president would like to not have to face a discussion about the future and the debt limit but frankly that is why i think the discussion should take place. >> we want to have a discussion about the future. again, the important thing we face is to try to figure out how we come together on a credible conference a plan to reduce the deficit. that is what our citizens expect of us. that is what the world is going to require. that is what is important to the

recovery going for but it is more public hated them trying to figure out how to get them down. of course you are right, we will be an active part of figuring how to shape consensus and the president will help lead an active role in that process but again the budget is the beginning of that process. doesn't solve all the nations problems. there other things we have to do and we recognize again you will have different ideas on how to do it and what we look forward to his hearing your alternatives were suggestions for how quickly we get there and how we get there and then we will have two contracting visions and figure out what makes the most sense. >> and i appreciate that, but i believe your timetable is maybe a april, may be made for the debt ceiling vote and so that we would not anticipate anything from the administration before we have the vote as far as serious discussion on the deficits. >> we are beginning a serious discussion of the deficit right now. accumulator conference a plan but there is.

>> but there's nothing about entitlement reform in there. >> i don't think that there's a fair way to look at the record about this president has done. again the affordable care act which i know your side doesn't like parts of it, delivers very very substantial entitlement reform that delivers substantial deficit reduction over time. >> understand that but your parties embed in your budget, correct? and you also agree that it is unsustainable to have a 768 billion-dollar deficit in two years. we will still be at 768 billion. >> we propose to bring it down to roughly 3% of gdp over 35 year period. please space and so we don't kill growth. >> i am just about out of time. i want to note mr. obama a not be here in three to five years. the question as he promised by the end of his administration. we have two years and ask what i think we have a couple month window here and i encourage the president to step up. to provide a real proposal to help reach an agreement here.

i appreciate a. >> again i want to make one point again. again, we have got a lot of strength in that country, a lot of strength in the budget process although it is not working well for the country right now but please consider this as you think about how to help us fix this problem. we need a multiyear plan that brings it down over time that you can lock yourself into because if you do it year by year nobody will have any confidence you will deliver on it so it has to be a multiyear plan. the countries have found a way to do this. we need to find a way too. >> thank you mr. chairman. >> thank you mr. chairman and mr. secretary nice to see you again. thank you for being here and i would like to echo mr. ryan tomas --'s that i think the the administration is done a terrific job of trying to strike a balance between getting our house in order and also respecting the need to make a long-term investments that will keep this country competitive a generation or two generations

down the road. >> uart referring to both ryan's and around. >> mr. ryan of ohio. ave say not everybody is going to agree with every provision and this budget and there is something that causes me great concern. you and i have had this conversation before that is the repeal of the accounting method which would have a devastating impact on one of kentucky's primary industries, the bourbon industry. in my district alone forman distillers in place around 1300 people in my district and would effectively have its taxes raised by hundreds of millions of dollars they estimate when they have in fact relied on accounting method approved in 1949 -- 1939 but not only with this budget anticipate repealing it prospectively and recaptures their reserve and to me that is like saying you bought a house 30 years ago when you take advantage of the mortgage deduction. not only do use the mortgage deduction but you have to pay

back the money saved what seems to me to be incredibly unfair. i would like, other than the fact that there is a lot of money sitting there that you could go after to balance the revenue side of the ledger, what is the rationale for that kind of essentially retroactive penalty? >> let me start by saying i understand your concerns and these changes like many are painful changes and we do propose ways to make sure that we try to demise the burden by giving people time to make that change the but the basic route is one of fairness. we want to put industries on a little playing field and not favor, i don't want to say create favors but create preferences to disadvantaged other industries in favor one industry. it is a congregated thing to do. our tax code is written with all kinds of unfair examples with

this puts people at a level playing field. understand your concerns and we are happy to talk to in more detail about how we can address those and i understand why it would be a challenge for you. >> and not just for me. there are many industries that are faced with this problem and particularly the bourbon industry which requires, the law requires them to age their product. many of these products are on the shelf for 18, 15, 20 years. we provide depreciation benefits for some companies that gives them an advantage over others. i just want to raise that point. thank you and i look forward to working with you on that. i yield back. >> mr. rick kita? >> did he not come first before he did? mr. young. >> mr. secretary thank so much for being here with us today. i want to pivot to the housing market. as we know it has been lethargic for some period of time.

that in turn is impacting consumer consumption. it is having some effects on our labor market and the ability to match of jobs with a mobile workforce and i didn't see it in the budget. i am fairly new here so i looked in and i thought it was a glaring absence and i did some digging and found that cbo actually scores fannie mae and freddie mac differently. cbo says that fannie mae and freddie mac are entities of the government because they are under the control and ownership of treasury. the president's budget on the other hand as you know says fannie mae and freddie mac are non-governmental entities and therefore leaves them out of the budget. as a member, my colleagues in diet and it is our job to oversee such matters, how can treasury assure us that the

president and the administration is fully accounting for the risk associated with their management of fannie mae and freddie mac? >> excellent question, and again i would be happy to talk to in more detail about this are explained in more detail how we actually do this. what we do as we show an cbo does a similar thing, they show on a rolling basis the estimate of likely losses over time but the ultimate cost might be to the taxpayer as a whole. and we try to explain how we are trying to minimize those costs and what fhfa does which is the provide a range of different estimates under different scenarios for the economy, a stress test about what the losses may be. what we layout for people is how through strategy of more conservative underwriting standards again requiring homeowners to hold more equity in their homes, more conservative eligibility requirements and the higher guarantee fee we layout to clean

economics of why we think the guarantee business going forward is much more conservatively advantage -- manage and because of that both omb and cbo show those losses coming down now over time. >> but you are still estimating losses and why is it you are most likely scenario on average is the scenario included in the budget itself? >> no, we do build and to the budget the estimated cost to the taxpayer over time and we -- the system is change over time. they will still be significant that will come down over time to get in these companies pass defense to offset some of those costs. again we are very transparent and open about this. we account for it in the budget. it is there for everybody to see and people can come to their own estimates what would have mike hospital smiley the cbo will determine for you with the right way to account for this is. >> i love the administration is in the process of reforming in various ways fannie and freddie in its operation. didn't see that included in the budget either. >> you are exactly right.

we propose last friday before the budget came out, we put in a white paper conference of land for winding them down over time, fixing what was broken sword is gradual and doesn't hurt the housing market. we will begin the conversation on the hill about how to translate those reforms ultimately into legislation to fix what is broken in the system but the details are not in the budget. we get them separately ahead of the budget really is. >> at 30 seconds left should there be a government guarantee in the housing market and if so to what extent? >> a very important question. what we laid out in this proposal was three different options are the future. one option leaves the governments role through the federal housing administration sobol and moderate income americans would have the abilities they take advantage of the guaranteed mortgage. to other options that might complement that. one would provide you might call it emergency assistance in a recession deployed only in an emergency to help cushion the effects of the housing market.

the third option would be a much more targeted narrower guarantee that the market would pay for. if the government was exposed to any losses we have to make that up by a fee on the market like we do with deposit insurance. we will begin debate on those options. you could ultimately choose a mix of those options but that is the judgment we have to reach with congress and fortunately i think we can go through the process carefully so we can already have the authority to begin to put in place reforms that will wind down those institutions that bring the private market back into the mortgage financial business as we try to figure out what the best ultimate choice is about the future. >> thank you. ms. cantor. >> thank you very much. welcome mr. secretary. as you know america is enduring a housing crisis of monumental proportions and it is amazing to me that you have not addressed that in your testimony today.

president obama didn't mention it in his in his state of the union address nor did president bush and the recent book he published on his career here as president. just in 2010, more than 1 million more homes were repossessed. since 2,073,000,000 homes were taken back. almost one in five american homes remain underwater, worth less than what families 01 their mortgage and "the wall street journal" reported that home prices are declining in all 28 major metropolitan areas as of the fourth quarter 2010. back in the 1980s and 90s the cost of the savings along crisis reciprocated by reckless bankers were placed on the american people. 170 billions -- billion dollars placed squarely on our taxpayers backs. now the cost of this housing crisis caused by the wool wall street abuses through the creation of asset-backed securities made a few very very greedy bankers quite wealthy at the expense of millions of ordinary citizens and doing

great harm to our republic. this cost is also being placed on the backs of u.s. taxpayers. reports show that the true direct cost involved trillions of dollars and according to numbers i have, these include 12 treasury programs, thus far have cost taxpayers over $700 billion of which the t.a.r.p. is nearly 380 billion, 24 federal reserve programs have cost 1.738 trillion and for the next three years treasury has engineered unending support regardless of the dollar amount to fannie mae and freddie mac. so far we have spent 61 billion on freddie mac and 83 billion on fannie mae. all the state is being financed by foreign borrowing with china now number one in our country followed by japan and the middle east oil exporting countries. snug up against them is the major role of the cayman islands and i would like to ask unanimous consent to place in

the record a report on foreign portfolio holdings of u.s. securities. >> without objection. >> i think of the chairman. my question, have three. is there a transparent -- i will read all three. is their transparent list of which cayman islands financial institutions hold the lion share of the debt that they are financing? number two, who exactly will lose money if freddie and fannie default on their obligations? and number three, how much interest will our government paid this year to foreign interest to finance our debt? >> on the first, i will get it in writing. >> you don't know cert there's a transparent list of which cayman island institutions hold the lion share of u.s. debt and asset backed securities? it is quite striking when you read he read the report that almost all of what are called

corporate debt security are held in the cayman islands. more than any other country in the world. very interesting. who would that be? from everything you know. >> i haven't seen a report that i would be happy to respond in writing. >> it is actually a department of treasury report along with the federal reserve of new york which he used a chair sir i am greg? >> i was the ceo of the. >> and they florida federal reserve system. say i'm not sure you are getting at but i would be happy to report on that. >> theoretically who holds a paper? >> the american people will listen up because you would cause devastating damage to the housing market and you would cause a huge increase in the losses for the taxpayer but came from the mistakes made before the crisis. >> how much interest will we pay this year to foreign interest? >> i will be happy to respond in writing on that.

>> is quite sizable is it not? >> our deficits are very large and that is why we need to bring them down. >> i think the maccabee for deeply worried this country is in hock to foreign interests. this member is worried. >> with american people should be worried about is we have unsustainable debt that so many to bring them down but decided a bunch of numbers earlier in your remarks that were not correct about our financial investments and i will be have to respond in writing on that, but you raised the s&l crisis. as in a crisis caused the americans -- this crisis looking at the direct cost of our programs under t.a.r.p. and gses any fannie and freddie, what the fed did, with the fdic did in and the treasury did directly will cost almost certainly less than 1% of gdp. divestments remain in the banking sector will iron a substantial return to taxpayers. the fdic program and if the fed program will earn billions and billions of dollars for the text paper because they were incredibly carefully manage but i would be happy to report in

detail. >> thank you mr. secretary. my time is up i would say in the early '90s and late '80s they were not financing the majority of our securities and they are today. >> thank you as a secretary for your time today. i just went and looked back at the record, as the step to do it because i couldn't believe what i was hearing when he said that it when you asked about whether not the president was really getting to entitlement reform as a driver of this budget and he pointed to obamacare. mr. almond or if it was here i believe last week said this and i quote rising health cuss will put tremendous pressure on the federal budget during the next few decades am beyond. in cbo's -- does not substantially diminish that pressure. do you want to respond to that? >> i can only quote its estimates of those are the ones that again what congress does in this the theory and what cbo's estimates are and they reaffirm them are that the reforms that we referred to as the affordable

care act will reduce our deficit i $1.23 trillion over the next two decades, 230 the next decade, trillion and subsequent decade and that is because they substantially reduce the rate of growth in health care costs the taxpayer. they still leave us even with those reforms, they still leave us with unsustainable commitments and obligations and medicare and medicaid and social security. >> we are talking about the things that are going to drive deficit and debt reduction into the future. what you just mentioned. we are not touching it in the president's proposed budget. >> again that is not quite accurate. again, the first obligation we all have is to make sure over the next five to 10 years we taken unsustainable deficit that is not a result of entitlement commitment and bring that down to earth. that is absolutely essential to restore and maintain confidence in our recovery to keep interest rates low.

now, you are right even with the affordable care act if you look out over the next several decades am beyond that, we have an unsustainable set of obligations and we need to try to build on those reductions to try to do that, but with the affordable care acts did act it was the most important cost-saving entitlement reform this country has done in decades. just paid for fully but deficit reducing depths are reducing our dramatic skill. now, we are happy to work with you on how best to go beyond that and the president laid out initial suggestions like medical malpractice reform to try to do that but we have to figure out how to build on that commitment. but don't let past the next five to 10 years, because that is still presenting an enormous challenge. >> i will try not to. thank you for the answer secretary. when you talk about covering 40 million more people into government controlled system, that plan, you can't tell me you are actually going to get. >> you don't need to rely on my

judgment. >> well, i did. i just quoted the man. is let me ask unanimous consent that this be in the record and in the time i have remaining, he used the word torture should talk about this debt ceiling concept and what we are going to have to go through. >> can i withdraw that? >> i appreciate your empathy. you are right politicians before us put us on this path and here we are. i think that responsibility, don't use the word torture. i use the word responsibility and i also use the word leadership. we will pick up, we have to, where your budget proposal left off and maybe we can work together and get-somethings done. i also don't understand and i will give you 20 seconds to respond, why we could attach and why it would attach things to it that would actually guarantee or help cure this issue so issue so it does not happen again whether it is balanced budget language, whether it is making sure and just payments are paid first and all of them, not just a car the

car payments year earlier your earlier analogy but others. i don't see that as a responsible thing. i think that is what we ought to do to make sure our kids on have to pay for this. >> again i didn't use those terms. i will say it this way. as you worth with -- work with your colleagues on the side of the aisle and work with us to put in place a deficit reduction plan that goes back to living within our means make sure you don't call into question the basic obligations of this country. we are just making a pragmatic observation i know your leadership shares that this is a hard thing to do. you are finding it really hard to do. people disagree on the right path to do. complicated because we can afford to take risks on people questioning our commitment. >> mr. chairman and mr. secretary is great to be with you and see you again. we have had a number of different individual testify, chairman bernanke, cbo director elmendorf, mr. lew from omb.

ifs each of them this question i will ask you as well. related to the draconian cuts proposed in the continuing resolution that we are considering right now by the republicans and the impact that they would potentially have on the recovery. if so could you comment on that because each of the previous three individual's i have asked all confirm that was a significant concern. >> well i'm a little reluctant to do so because we haven't seen how this comes out and of course it hasn't passed the congress that as many of people have observed him about putting so much of the burden and cutting discretionary spending which is a small share of our budget in one year and going so deeply into critical services that are important to future growth, in my judgment if congress were to pass those cuts, they would hurt our competitiveness, heard our growth prospects and that way in some ways make the long-term death of deficit problem worse. >> so it is risky and

potentially wreck was to cut too deeply? >> again i would say don't -- be careful as to cut spending and make sure you reduce deficits dhume but focus on doing it in a way that will not hurt our future growth prospects. >> thank you. can i say one thing? these things we all care about for competitiveness are things we can afford. if you look at the cost of the reform for the education, they are not expensive for the united states. suggestions we we are making for incentives and innovation are not beyond their means as a country and if you try to balance the budget on the strength of deep cuts on that relatively small share of the budget and not bring a conference a plan that helps you to grow then you will hurt growth. >> just an extension of what mr. rekeyed haverford to, would you say that it is not responsible for us to hold the listing of the debt ceiling hostage with items that we might

warrant debate and ultimately be able to find common ground on but that irresponsibility would tie to the lifting of the debt ceiling? >> i would have course say that but every predecessor who have had has had my job at say that as every president faced with this basic choice and you would expect this to say that because again the stakes are too high. we can afford to take any risks with the recovery still in the early stage after a session this dramatic. we are still living with 9% unemployment and we can afford to take any risks in jeopardizing the process of repairing that damage. >> thank you and just in the last minute i am really pleased to see the president has made a commitment to making sure that intellectual property rights are preserved in the budget and glad to see he has made a commitment to that. i think we all understand the obvious benefits of that but on

i'm closing tax loopholes specifically, we know that in terms of winning the future and the concept of president has pushed in allowing us to out innovate and out educate impede our global competitors, what does the presence budget due specifically to close corporate loopholes and shut up incentives to ship american jobs overseas. >> we propose a series of reforms to reduce both the opportunities and the incentives in the current tax code to shift income to low tax jurisdiction and shift investment outside of the united states. we also propose though some very positive incentives for investment in this country. reposed to make permanent expanded tax credits. we propose very substantial cuts for small business, small businesses themselves and if you look at the combined impact of those reforms we are proposing, i think it would be good for growth, very good for investment in the country. >> mr. woodall. >> thank you this or chairman

and thank you mr. secretary for being here. i and the newest member to this committee and have a steep learning curve as i have been trying to go through the numbers and the president's budget and listening to what he said when he is out talking about the reducing of the deficit and attacking the dead. can you tell me just in simple terms in true or false terms, this budget never, ever, ever reduces the debt. is that right? >> that is correct. it does not go far enough in bringing down the dead, you are right. >> it doesn't bring down the on the debt at all? you have said a lot which i very much appreciated about preferences starting with mr. blumenauer and ms. wasserman schultz following up on that. he said it is not good policy and it is not fair and mr. yarmouth folks had bad

policy. is a reach her testimony you go right into, we are going to start with revenue provisions that promote investment in clean energy and we are going to go on and make revenue changes to make investments in manufacturing facilities with energy-efficient commercial buildings and plug-in vehicles and on and on. can you tell me why it is that tax preferences for this bourbon industry are bad and the oil industry are bad for tax for the other are good and pro. >> a fair point. we do include a series of targeted tax incentives that support investment to clean energy. you know why we are doing that? we think is more important for the country. >> my question would be, why do you? if we wanted to do it on the spending side of the letter i ledger i think that is right but you said over and over and over again your job is to collect revenue and i would associate myself with mr. blumenauer's comment.

is not the iris agents fault. it is our fault. it seems like we have agreement on both sides of the aisle to move to a simpler system and yet even though we are yeah here we are again using your agency, using your department to continue to create these market distortions. if we want to does -- distort the market why don't we do it on the spending side instead? >> you and i agree on that more than you think in this they said we are in favor of trying to find a basis for tax reform that were lower the rate and broaden the base and where we preserve incentives for investment we want to make sure they meet a high bar. very powerful and strong impact that we can justify as a whole. will be perfect but we think it is worth doing and you are right to save that in this budget we are proposing a set of changes built on the current tax system on the corporate side that we think shift the incentives in a positive direction for investment but we also say if we can we would like to move to

conference of reform that would clean it up more to radically. >> would you agree with me that businesses don't pay taxes and their shareholders pay those taxes but there's no secret tour torrent of business to pay those taxes? >> i am not an economist but all economists would review that those costs were borne by a mix of shareholder employees, managers and customers. >> what is the downside than? we talked about reducing the corporate tax rate and we talked about simplifying the compliance process. is a downside for eliminating the corporate tax rate so we are certain we are a magnet for jobs and not moving folks overseas and since we are certain the only taxpayers in the world are consumers and employees insurable there's. >> you are doing fine and explaining all the arguments. to make up pragmatic argument if you are doing that you you are asking officials to direct the bear a much higher tax burden and i think you will find it untenable politically. i will bring it down to georgia

where folks are please to shoulder that responsibility but i thank you mr. secretary. >> mr. lankford. >> i want to continue this conversation on the corporate tax that as well. you mentioned early in her testimony in a conversation about territorial and you mentioned you are looking for those ideas on how we handled that and how do we reset criterion expectations on that. what country do you look at that is doing global taxation that you say it is a good model and how it is and transitional? is there another country out there that does global transaction well? >> excellent question but i don't see anything out there yet that we can said to our particular circumstances at a country. we are special in many ways. we want to keep it that way but anyway we are happy to talk to about that in more detail and we are going to look at alternatives out there. again we want like you will want we want to make sure we are not eroding the tax base of stance when we want to create more

incentives to move that stuff outside the united states. >> is a general principle and following up on the comments as a general principle if you subsidize something you get more and if you tax it you get less of us. generally do assume that? >> i'm not economist but i think most economists would agree with you. >> the issue comes back to the energy side. this they where trying to subsidize heavily one-sided on the clean energy side with traditional energies about to get whacked based on the presence proposal on it. >> wax may be overstating it but i would say existing preferences are somewhat diminished. some of them. >> they will definitely have a pretty hard hit on how they will handle it so that would decrease their side of energy but it is not actually there. my question is based on your statement he said earlier you didn't feel like raising taxes on traditional energy sources. your statement was it would have no effect on price and i'm kind of astounded by that. we will add a tax burden on them which will cause them to drill less and for things like idc's

answer so supply then goes down in their text month was up and you are saying it will have no effect. that is astounding to me. >> the condos would say these places the market set by the global market and modest changes to wear some production happens one affect those prices. >> i would say the same thing that would have no effect on the prices and what if we stop subsidizing ethanol is much for instance? would that have no effect on ethanol as well? >> you know what, i'm reluctant to speak to that because that is a little different market in terms of size in that context. >> i'm saying on energy side can't say we subsidize things and get more. the exception is an energy we can switch it because i get this feeling in reading speeches from the administration they tried the same experiment i'm sure you are where that. jimmy carter made the statement by the year 2020% of our energy for electricity will be produced by solar power and there was a

heavy push towards clean energy options with the exception of cold. but then it didn't occur. we dumped a lot of money in that and it didn't occur. you can just flip it on and say we are going to do it as a country. let me make a couple of quick observations. i'm also new member and coming from his -- central oklahoma some of the words and phrases coming out don't ring true in normal american scenarios. statements made earlier like we are worried about generous state tax rates gives the impression that the federal government owns the property of people who died and the get to choose whether we will have more generous rates or not. you mention the fortunate americans, primary balance and the great frustrations, sustainable deficit. i just don't hear anyone that i'm interacting with saying an you know if we would just get the 26 trillion in debt i think we will be fine. i don't hear anyone saying that except for the administration.

>> we will have sustainable debt and we will be just fine. you will never ever hear me say that. >> that is what is coming across in her budget and we have to get serious about that. my serious we are more worried about balancing the budget and what effect that will have on our economy than we are but by dealing with our debt. let's respect the balance. >> thank you mr. chairman and thank you mr. secretary. i've enjoyed our conversation today. did you have any involvement putting the budget together for the president? >> i did. >> what i'm curious is, i would like to go to the top of page 202 in the economic assumptions and growth, specially in particular gdp. 6.1% is the high end below that i see there outside of 2010 is 4.0 and 2011 and i think i said earlier that average growth gdp around two to 3%. i think you are quoting nominal

gdp rates not real gdp rates. even with real gdp rates, they are still very optimistic. right after 2013, what gives you the idea that we are going to see that type of growth because when i mentioned that to folks back home they are trying to figure out what to buy. again i am repeating conversations we have had it some length. >> it is important question and again you want to have realistic options as you make budgets and at in the end of course cbo's estimates will govern what you do and how that affects, how we estimate the cost of these policies and economy long term but if you look to fill mix of assumptions i think they are recently conservative. the growth rate we assume over time are lower, commit turley lower than the average of pass expansion so the conservative fy11 budget assessment is that it can't be above cbo deficit. it will be lower than that almost certainly but again the

way our system works cbo will look at those independently and you will feel to look at their judgment. >> but why the big spike in 2013 and 2014 when everything levels off to 2.9, 2.6 and 2.5 in the remaining three? >> the way economists think about how recoveries happen is that an early stage of recovery, you should grow should growth of what they call the trend rate of growth and ultimately he returned to the trend rate of growth. for our economy trend growth is like 2.5% of gdp in real terms over time that as you are digging out of a the whole life is you put more people back to work work and start to absorb excess capacity and factories across the country you will grow more rapidly. all economists look at our economy and would agree that growth will be faster than her term than it will be if you look at five to 10 to 10 years. >> my fears if we are going to continue to grow the national debt, i mean we are looking at interest in 2010 of 196 billion expenditures in the federal government and 20201,

884 billion images payments is what i see on page 176. when are we going to give people confidence that they can start investing money here because a deficit means potentially a tax increase is coming. i'm going to take my money invested the tax climate is better for a see a federal government that is under control. see again it is not rocket science. you are exactly right. what we need to give the american people is clarity of what is going to take, what is going to happen to taxes and spending to bring this deficit down and we can afford them over time. that is what our responsibility is that it is important the confidence you start to put in place, those changes will happen again you do to lock them in overtime sue people won't think you will change arrear. >> do you really believe this budget, he talked about earlier some of the folks, it is congress to pass legislation and i agree with that but if congress passed this bill, this budget, to me, i think it is a

responsible and to send a message to the american economy that we are going to continue to grow deficits and continue to -- not deficit, growth debt and where is the confidence going to come? >> let me take a more optimistic side. congress were to legislate a set of tax policies and expenditures policies that achieve this level of deficit reduction into things would happen. one is, there will be much more conference in the of the political ill -- will to ask but people also say that is a pretty good step, a pretty good start but ultimately we want to do better longer-term. if you did that, not me and the precise mix. where not suggesting -- via legislate that deficit reduction and it is clearly committed and locked it would appear mack of time that would be enormous positive first step towards restoring people peoples conference. >> i appreciate that and i'm looking forward to taking action without.

>> obviously we dramatically disagree with the interpretation of your budget that they will leave it at that. i allow -- ask consent that people be allowed 10 days. it kept you a while and we started way so thank you for your indulgence mr. secretary. the meeting is adjourned. nice to see you all.

to support ideas like raising the social security retirement age. from the american enterprise institute, this is a little more than an hour. >> i came today because i really think it is extraordinary important for those of us who believe that our country is off on the wrong track, to begin the conversation and for new jersey state to continue the conversation about how we fit

the problems that ehlers states in our country and a direct and blunt way. and i fear that after watching how things have been going over the last month or two, that we are missing an historic opportunity. and i will not be someone who participates in silently missing that opportunity. a month ago i gave my state of the state speech in new jersey, and what i said during that speech was that i was not going to do the normal state of the state or state of the union speech that you see. george will put it better than i ever could. he said the speeches have become every politicians attempt to stroke the erogenous zones of every constituency in their jurisdiction. they have become these laundry list, things that you do for your cabinets so that after sitting up in the balcony, you mentioned the department of labor and the commissioner can commissioner can sit up straight and smile because of the time

his mother is going to see them on tv. [laughter] i didn't think that was a good laugh reason as as much as i love my commissioner of labor to give a speech like that especially during these times. it is time to do the big things. the really big things. and, i don't think there will be much disagreement in this room and i don't think there should be much disagreement across the country about what this big things are. what they are for new jersey and what they are for americans. for us in new jersey it is three things are good is restoring and maintaining fiscal sanity. it is getting our pension and health benefits under control, reformed and have a cost lower. and it is reforming an education system that costs too much and produces too little for our society today and for our children's future. now, if you look at those three

issues, these are not in and of themselves democratic or republican issues. each governor across america is confronting the same things i am confronting in new jersey. more out of control spending, and many if not most states, state taxes that have been raised to new levels, debt loads that are out of control both for state entitlement and purchase general borrowing. every governor, republican or democrat, is facing this problem and you know if you look at it, just look at our little area of the world. you had me in new jersey elected in 2009 is a conservative republican and one of the blue states in america. and across the river, you have this on every liberal icon, who

is saying the exact same things that i am saying. i defy you to look at the first six weeks of the cuomo administration in albany and discern much of a difference between what governor andrew cuomo is saying and what governor chris christie is saying on these big issues. is not because all of a sudden governor cuomo and i have decided we are members of the same party. we are not. but we are confronted with the same problems and these problems and issues are not partisan. they are obvious and they are long overdue to be solved. so that is why do you see andrew cuomo or for god sakes even jerry brown from california talking about reducing salaries of state workers by eight to 10s

scott walker is fighting in wisconsin, that john kasich is fighting in ohio, that rick snyder is fighting in michigan, that susanna martinez is fighting in new mexico. i said to the people of new jersey when i ran for governor in 2009 that if they gave me the opportunity to be their governor that not only with the state go on a path towards fiscal recovery, but we would also leave the nation because we had a one-year headstart on everybody because of our odd election-year. we would have a one-year headstart on a huge new class of governors that would come in and the election of 2010. now, you can imagine how that was received in new jersey. now, this is a state that during my time as the united united sts attorney was not predominately for a few things, political corruption, "the sopranos", the

real housewives of new jersey and now must regrettably the jersey shore. not a place that is thought of itself as a national leader in something that would matter for our children's future. but i believe part of leadership is understanding, articulating, and believing, and that which is special and unique about the people you serve. and having been born in new jersey and raised there and lived there all my life, i know that if presented with a challenge directly, without any sugar coating that the people of new jersey would step up to the plate and answer the call. and after 13 months now as governor, i think we have plenty of evidence that we were right

in 2009. when i came into office we confronted a $2.2 billion budget deficit for fiscal year 10, the one that has five months left. the one that governor corzine told me just fine, cruise passed into the end of the fiscal year governor, don't worry about it. everything is fine. $2.2 billion, or chief of staff and my first week at governor brought it sheet of paper that showed me if i did not act immediately to stop the planned spending that new jersey would not meet its payroll for the second day period in march. imagine that. the state that has the second-highest per capita income in america had so overspends, over borrowed, and overtaxed that it would not meet payroll in march of 2010. so we acted immediately to use the executive authority to govern -- governorship to

propound government spending without the permission of the legislature, without compromise because it was not defined by compromise and without raising taxes on the people in the state who had their taxes raised and fees 115 times in the eight years preceding mike governorship. 115 increases in eight years. so we impounded spending and balance the budget and we turned immediately towards this fiscal year we are in now and we are confronted with an 11 billion-dollar budget deficit on a 29 billion-dollar budget. the highest budget deficit five five -- by percentage of any state in america and believe me, the partisan democrats in my state believed they had me right where they wanted me. he would have to raise taxes. and they put it right down on the table. they said they wanted to increase the tax that they loved the most, the income tax and

specifically recall that the millionaires tax. of course they have to give you an aside about new jersey math. you see, the democrats in new jersey called it a millionaires tax that is for everybody who makes $40,000 or over. that is called new jersey math. so for businesses or individuals who have $40,000 in income are more they wanted to raise their taxes again from a 9% top marginal rate to nearly 11%. they told me if i did not agree they would close down the government. there would be no budget for two to 11 without an income tax increase. you know this happened four years earlier in new jersey with governor corzine and they were arguing how much to raise taxes. and the democrats controlled the legislature, closed on the government on the democratic governor because they couldn't agree how much to raise the sales tax. governor corzine very famously

invited the press into his office, now my office, and there was a cot in the office. i can tell you it is not normally there. and he said to them i'm going to be sleeping on the scott writer for here until this crisis is averted. so i knew these were the same fellows who had been in the legislature when he was there now threatening to do the same thing so i decided to calm him down early on and advice in the place was under new management. and what i said to them is listen, you guys want to pass in income tax increase he can. i'm going to veto it and if you want to close down the government because of that, that is fine but i want to tell you something. i'm not moving any cot into this office to sleep in here. if you closed close down the government i am getting those black suvs, open a and order pizza and watch the mets. [laughter] and when you decide to reopen

the government give me a call and i will come back. [laughter] don't think i'm sleeping on some cot. take a look at me. do you think i'm sleeping on a cot? not happening. so, we stood up. we stood for our principles. we submitted a budget that cuts real spending 9% year-over-year. not projected growth, real spending, 9%. every department of state government was cut, and we balance the budget without any new or increased taxes on the people of the state of new jersey. for the first time in eight years. and the budget they called dead on arrival without an income tax increase was passed two days early with 99.8% of the line item exactly as they were when i submitted them back in march