we achieved and getting people back to work and push more americans in to poverty. some have suggested that we try to restore fiscal balance without raising any additional revenue from anyone or by cutting taxes further. to do so, would entail deep cuts in benefits from retirees and cuts in investment and education that would hurt growth and opportunity and cuts in defense spending that would damage our national security interests. we do not support and we will not support those alternative strategies. now the president's plan includes very tough reforms and a balanced mix of spending tax cuts and reforms. it preserves room for us to invest and create opportunity for americans and help make

growth in the future stronger. it will help support the elderly and the poor and provides substantial immediate help for the average american along side restoring fiscal responsibility. it will not solve all the nation's challenges but it will put us in a stronger position to deal with the challenges. thank you, i'll be happy to answer your questions. >> thank you, secretary. i would like to focus on infrastructure. i personally believe this country is behind in building roads, streets highways, bridges, apartments and modernizing our infrastructure, same time it all costs money. if you could address a bit that sort of trade off and what is spending and what is investment and how you see us moving in the future with needed expend chrs

on infrastructure. >> of course, we agree, if you look at the state of american infrastructure, today, roads, highways, rail, airports, by any measure we will require very substantial vecinvestments over long period of time. the absence of investment acts like a tax on business, it makes it harder ee eer to get your g market effectively. we feel it's good policy to recognize that now. and plan now. we propose to pay for that through a mix of the traditional means, we use today, as well as a relatively small portion of the savings we gain from winding down the costs of the wars in iraq and afghanistan. and we have laid in the budget a substantial multi-year program

for doing that. there's some people that think we can afford to do more than that. tough because you have to find the resources to do it but this is the approach we feel is prudent. >> you are adding to the deficit by allocating money to spend on infrastructure. >> in this case and all the additional proposals in education, basic science and research, we are meeting the basic test of fiscal responsibilitities, we are showing how the pay for them and how to do it and still bring down the deficit. we meet that basic test of responsibility. these investments have a high economic return and i think that most economists agree with. that it does not just get people back to work very quickly. help bring down the unemployment rate but they have higher long-term return, in terms of

efficiency and economy. it's like a tax when you leave the industry in the state it is today today. >> second, with respect to to tax reform, is administration going to send up a fairly specific set of proposals on tax reform and if so, will it tend to focus on corporate? will you give us a flavor of what you are going to set up? >> we laid out general principals to guide individual and corporate tax reform, we think that process will take some time. what we have done in the past, it's taken years. we want to start laying the foundation for those reforms. we are, within the next couple of weeks, i think by the end of the month, layout a frame work of elements that we think should guide the discussion on corporate tax reform to produce a system that does a better job of improving incentives for creating and building things in

the united states. it's not going to be a comprehensive and complete and detailed proposals, but we will layout a corset of elements to begin the discussion, we view them as foundation laying for the necessary debate we have to have as a country in how to fix the tax suspeystem and make it create growth in a more fair way. in the next couple of weeks we will do a frame work for elements of corporate reform. we are not going beyond the individual, for the foreseeable future. individually we have been clear, and i know there's opposition to it, we suggest that the burden of the refuse knew -- the reven

the individual side should be on the most wealthy of americans. >> you are not going to have a treasury one, or a treasury two, you are more specific? >> we are going to try, on the corporate side, we will be more on specific than principals but not as detailed in legislative language, we are taking that approach because we think, this may hot be true, but we think that there's a lot of common ground in the broad elements of what we heard from the hill on the corporate side and so we want to maximize the chance to build consensus on something that will work. we will start in a different place than for example you're colleague in the house made. i think we are both guided by the idea of how do we make things more likely to have things built and produced in the

united states. >> mr. hatch. >> thank you. -- in an august 14th 2008 edition of the "wall street journal." i would ask to have it in the record. >> without objection. >> president's plan would reduce the gdp ratio but the budget sent it up to 21% by 2022. according to cbo, revenues have averaged 17.9% of gdp over the last 40 years and are are projected to rise even if we extend all the bipartisan tax relief of 2001, 2002003. even with all those extensions, revenues are headed higher than their historic average according to cbo and omb puts revenues

higher as a share of gdp from 2014 onward. i have three question s if you could answer them. considering the taxes are heading higher than where they have been historically, should we really be raising them even more as the president proposes in his budget? secondly, secondly has the president abandon his position that revenue should be less than 18.2% of gcht dp in his budget third, is he committed to keeping the size of government permanently higher given that spending is a share of gdp as averaged over 24%, a share, the size of which we have not seen since 1946, at the end of the second is world war and projected to remain above 22%, which is four percentage points higher than had -- than when

president bush left office. >> this the budget, the revenue as shares of gdp is prompted over 19% over the window. it's not clear how they get there. that makes us recognize that refuse will need to be higher than their historic levels, that is because of the costs produced by the fact that more americans are retiring and being more eligible for social security you are right, and i say it over and over again, we believe the only way to get to sustainable fiscal position is to raise revenues through tax reform and we proposed through tax reform, raising 1% of gdp in additional re revenueses, we do not do it because we want to do it. we see no other way.

if you don't do that and you cannot borrow the money, we cannot borrow the money to avoid it. then you have to find $1.5 trillion, we have looked hard as many people have and we do not see -- that is why not just the simpson bulls commission but the bipartisan senate group, all looked at this basic challenge in saying we to not see how you get to fiscal responsibility without a balanced plan and modest increase in refuvenuesreu can ask the question, what is the best way to have that happen? again, we believe ma the modest increases in the effective tax rate that would come from these reforms you know, they would only fall on the top 2% of americans, we think it would be better for long-term economic growth and fairness than in

those tax increases were replaced by cuts in benefits or cuts in the infrastructure or investment that we are making. we think the economics that are quite good and sound and it's a more responsible approach. >> mr. secretary, there are no actions by the end of the year, order narrow identify contends will face a top tax rate of 39% and capitol gains rising to 28%. and the top earners are scheduled to have more tax a part of obama care. in congress does not act, tax rate on dividends will go over 60%. the result would be that the dividend rate would be the highest among major economies and the capital gains rate would

be the second high he estimaest. and the u.s. headed toward the high taxes in the world. and it will be a significant drag on growth, explain why those high tax rates are good for the economy and our international competitiveness. and explain how the president's budget proposal that would raise tax rates on capital income is consistent with his idea of not one overly financed with debt? >> a good and thoughtful complicated question. let me try to respond to those. can we restore fiscal responsibility? you are right, we have proposed some specific changes that you could do on top of the current

tax system to raise new revenues we think the better way to get there is through comprehensive tax reform that lowers rates and broadens the base and we think you can do that in a way that would be balanced well. these basic objectives of growth and fairness of longer term. i understand your concerns, but the basic divide is can you restore fiscal responsibility and still meet our commitments to retiries and seniors, still preserve a capacity to invest in infrastructure, can you meet those objectives without adding any revenues? without getting any revenues? we do not think you can do that. that is why we have come to this position reluctantly. and we feel those increased revenues can be more fairly born

by the wealthier americans. again, we are in, we face constraints on our resources we have not faced in generations, it's going to require tough decisions, i do not see how you get there, unless you are willing to embrace modest increases in revenue through tax reform, i don't think it's possible. >> senator? >> thank you very much. and thank you for being here. i'm just trying get my mind around the various things that you anticipate happening or are proposing not the happen yard to the federal with budget over the next year or two. as i understand it, the president's budget calls for a

portion of bush tax cuts being allowed to expire, that is the expiration of high income tax cuts, that raises over the next ten years and you are proposing, as you pointed out, that represents about 1% of the deficit reduction that had this budget contemplates. and $1 of deficit reduction for every $2.5 of spending cuts and the spending cuts, how much of that is contemplated in the s eve equester that was enacted by the congress? >> the congress put in tight

caps, nondefense and defense for the next ten years and produced a savings of over a trillion dollars and then another cut that caused a saving of another trillion dollars that would motivate congress to embrace a more comprehensive balanced package of reforms. if congress does not act to put a package that is greater, that will force deep cuts in defense and the rest of the government. very deep cuts and very damaging cuts. and there's though reason we should face that prospect. but the sequester was designed to encourage congress to replace those cuts with a more carefully designed deficit reduction package. >> your budget has put forward a alternative to let the sequester

to take place as you see it. >> yes, we propose a $4 trillion plan, 1 trillion dollars in place already. another $3 trillion, that would avoid the more damaging effects of the sequester. >> you say we will need to raise revenue as part of tax reform, tax reform is not going to happen by the end of this year, it will happen in the next congress or a future congress. so you are saying that even after congress does what you are suggesting, on the refu revenue in the budget, it should contemplate a tax reform package that will raise revenue, of about 1% of gdp, is that my understanding? >> there's two ways to could this, okay, one is to say, if we

are left with the current tax system, we have to find a way generate more revenue in a way that is failur, we propose to l the bush tax cuts for the top 2% of ere they were at the end of the clinton administration, the combined of the proposals would generate the roughly 1% of gdp and revenue. a better way to do that is through tax reform. that would lower rates and broaden the base. and if you meet the other tests we have laid out in the president's principals you could generate a reasonable amount of revenue and allow a fair and balanced deficit plan and have something better for economic growth, you can do it either two ways but now we have a problem

because we do not have this muc debate now, we need to start doing the foundation laying. >> one of the sort of frame works that we all seem to have bought in to around here is that the notion that at the end of this year, we ought to have the payroll tax go back to where it used to be, 6.2%. it seems to me that if we are concerned about reforming the tax code, it would make a lot of sense to find a way to continue in the future, in future years with a lower payroll tax as an incentive for more people to be hired in jobs and i know we have ourselves into this by saying we will fund social security through a payroll tax, but if we

had another way to fund social security that would allow us to cut the payroll tax permanently, i know when the president proposed his temporary cut in the payroll tax as a stimulus to the economy, lot of the criticism was the problem with this is not that he's proposing to cut the payroll tax. it's that it's not a permanent cut. do you think it would make sense for us to contemplate a permanent cut in the payroll tax as part of tax reform? >> i do not at this point. it's an interesting idea, though, and i guess it's possible conceivably that as part of comprehensive tax reform you could find a different mix of what we call payroll taxes and other types of income taxes. it's possible. but i don't think that's realistic given the other constraints we face. >> senator grassley? >> mr. secretary, the first question i'm going to ask you to respond to in writing, because i want it to be a longer or

whatever it takes for you to answer it, but it comes from the president's proposal for a fiscal responsibility fee. the president's been asking this in his budgets for three straight years, imposing a fee on t.a.r.p. recipients to help recoup the costs of t.a.r.p. when the president first proposed this in 2010 for fiscal year 2011, i asked cbo and joint tax to analyze who would bear the brunt of this new fee. cbo responded quote, the cost of proposed fee would ultimately be borne to varying degrees by an institution's customers and employees and investors. so he's proposing the same thing this year and so i would like to include in the record, mr. chairman, the questions i asked cbo and their responses, and then what i would like to have

you do is read that and indicate if you agree or disagree with cbo's analysis, and particularly if you disagree with any of re that you provide a detailed explanation of why you disagree. >> objection. and that was for him. >> yes. thank you. i would like to ask you my first question about the economic impact of tax increases. as you know, january 1st, 2013, when the tax decreases of 2001 and 2003 are sunset, our nation will see a $3.5 trillion tax increase. cbo estimated the economic effect of this tax increase along with a few other policies. cbo estimates that the unemployment rate at the end of

2013 could be as much as two percentage points higher and that growth of gdp could be three percentage points lower. mr. bernanke came before the committee last week and i asked him about this, and i would like to quote him. if no action is taken, this is a quote, if no action is taken on january 1st, 2013, between expiration of tax cuts, sequestration and a number of other measures, there will be a very sharp change in the fiscal stance of the federal government which by itself with no compensating action would indeed slow the recovery. cbo predicts a 1 1/10% growth and increase in unemployment in that year and that is based entirely on their current assumptions so they're assuming that contraction will take place, end of quote. mr. secretary, do you agree with chairman bernanke's and cbo's assessment that the failure to prevent this tax increase will

have serious negative impact on our economy in terms of gdp growth, and unemployment? >> absolutely. but with just one short qualification. what the president's proposing is to extend the bulk of those tax cuts that go to 98% of taxpayers and to let expire those that affect only the top 2% of americans. in addition to that, to limit the value of deductions and exclusions they get. the impact of that tax -- mix of tax reforms and spending things would be very, very modest on growth, but you're right to point out as the chairman has and the cbo has, if you let all the bush tax cuts expire and add on to that the impact of the sequester, that would be a very damaging blow to the economy. >> you're right to say that a modified version of the sunset

would maybe help to some extent but i think you got to take into consideration this is my rebuttal to you, you've got to take into consideration that where most of those tax increases would take impact would affect small business, which creates 70% of the new jobs in america and about 25% of our employment. my last question, the president's budget includes a number of tax increases, some of which i understand are being labeled as tax reforms. however, the president's budget doesn't include a comprehensive tax reform proposal. it seems that the tax increases included in the president's budget are being used to pay for more of the president's spending priorities. could you explain how these tax increases can then also be used to offset the cost of comprehensive tax reform? >> i'm happy to do that. just one quick qualification. the tax proposals that are in

the president's budget, it would affect the top 2% of american taxpayers, affect only a very small portion of small businesses. >> 3%. but they provide 25% of the jobs in america. >> and of those small businesses that are affected, most of them, roughly half of them, earn more than $1 million in basic taxable income. so we're not talking about tax changes that we think would have a material effect on what most people would judge as small businesses. on your question about the president's tax proposal and the spending plans, let me put this in broader context. the president's budget proposes to save substantial amounts of money across the government, proposes to cut spending on national security quite substantially. it proposes hundreds of billions of dollars of cuts in medicare and medicaid. it proposes to shrink what

people call the discretionary part of the government, meaning the whole part of the government is not about defense, national security, medicare, medicaid or social security. to cut that to the smallest share of gdp since president eisenhower was president. now, alongside that, because we want to get our deficits down to a sustainable level, we're proposing some tax reforms that would raise revenue, that's correct. if you don't embrace those tax reforms that raise revenue, then you have to find another $1.5 trillion in cuts. and you're not going to be able to find them without going right to medicare, medicaid or national security. so we don't do that -- we don't propose this with anything but a basic view of the nature of the constraints we face and the responsibility we bear to put these deficits on a path to more sustainable. we don't do it because we think

revenue increases are terrific, are great, best to always avoid them. it's just we face some choices and we don't see how you get an economy that's going to grow in the future consistent with our basic -- on national security without this modest amount of additional revenues. >> senator snowe? >> thank you, mr. chairman. welcome, mr. secretary. first of all, i think one of the critical issues facing this economy and has persistently is the lack of confidence about the future and the lack of direction and certainty about various policies that are emanating from government or not emanating from congress and the administration. my biggest concern is that we have not created an environment of confidence as represented in this budget here today. by all accounts, this is the worst post-recession recovery in the history of our country, the

longest term of unemployment. we have already, you know, increased the national debt by 44%, 45% under this administration. we are going on to the fourth consecutive year of historic annual deficits. so we have seen on the spending side and yet we still have a subpar anemic, weak recovery. if lu to the future as senator grassley indicated about the cbo projections, the fourth quarter of 2013 is a 1.1% economic growth projection, 9.1% of unemployment. it's not only concerns about the facts today that is eroding the confidence, the future of the private sector to invest, take the risk and hire people. hence we've got this poor recovery. but it's also about the future. and i just don't seeny