top 2% of americans, we're proposing those because we're also proposing very substantial cuts in defense and nondefense discretionary and medicare and medicaid and other mandatory programs. and to balance that out and make sure will is a bit more assured sacrifice in this context, we felt in order to achieve a more sustainable deficit, we have to find some initial revenue. again this is a very limited proposal. affects only top 2% of tochl paying americans. and we think they can handle it. the economy can afford it. but you're right to point out that the better way to get to a more sensible tax system as part of deficit reduction plan overall is through a comprehensive tax reform process. >> do you -- i mean are you going to propose a tax reform plan at some point? because when this was done last time in the 1986, there was a proposal put forward by that time the reagan administration to reform the tax code. it was the starting point.

congress picked that up, worked from it and came up with the two rate structure we followed for a while. we say we're going to do. this the clock is ticking. and, you know, if we pump this down the road to the next congress, who knows what the excuse will be next year if we're not moving forward with this. is there something that we can -- that's going to be forth coming? >> i agree with you. better sooner than later. you can't defer it indefinitely. and even if we didn't have the incentive of the tax codes, it will be a good thing to get moving on nowment we spent a substantial amount of time this summer working in particular with the house republican leadership on how to set out broad parameters for tax reform. as you know, we were unsuccessful in that effort. and we feel like, frankly, we need to see a better, clearer recognition on the republican side. you'd be willing to consider tax reform to raise revenues as part of a balanced budget before we think there is going to be the basis for more serious

negotiation. it's because of what we tried this summer that we decided to do some more foundationally for tax reform rather than putting out a comprehensive tax reform plan now. >> the tax rates when they go up at the end of the year, if that happens, hopefully it won't, but what does that do to economic growth? >> well, as i said earlier today, one of your colleagues said this. if you were to allow all the bush tax cuts to expire and this sequestered a hit that, will be very damaging adverse blow to the economy. of course, no one is proposing that. we're proposing to extend the bush tax cuts that go to 98% of americans. only to let them expire those that affect the top 2% of americans proposing a limit deductions for those americans, too. those are pretty modest in terms of the impact on the economy. and it's because of that concern for the middle class and for the

overall economy that we're not proposing to a lot to aexpire the middle class tuvenl cutax c. >> the same discussion was held two years ago. the administration concluded that raising taxes on people above $200,000 would be harmful to the economy. >> that's not -- >> and that's why the extension was made at the time. >> that's not -- >> we're facing the same circumstances now. >> we may. let's go -- that's a very good point. thank you for asking that question this way. as you know, at that point our view was we should protect the vast bulk of americans, 98% of americans, from any increase in the tax burden. but we could afford and the prudent thing was to allow the tax cuts for the top 2% to expire. now as you know, your side of the aisle would not support that. you were not willing to allow the tax cuts for the top 2% to expire. and the only way we were able to prevent a tax increase of 98% of

americans was to agree temporarily with the position you took. but the economy absolutely could have absorbed the impact of fop 2% expire. it would have been a modest change. even with growth as modest as it is, we could afford that. >> i see my time expired. i will point out, however, that four out of five people who pay at that higher rate above the $200,000 income threshold are small business owners. people have business and they have flow through income. they are people who create jobs. i think that was the calculation that was made not only by those of us in congress but also by the administration and with when the decision was made to extend all the rates. >> we should agree on a moratorium to this debate. we do every time we're in this room. you say small businesses and we say 2% to 3%. you acknowledge 2% 3sh, 3%. in any case, we have let others judge the impact on small businesses. but there is no credible argument that exists to suggest

that those tax proposals we're making would affect more than that very, very small fraction of the small business and as you know, a large number of those firms you call small businesses are lawyers in law firms, partners in hedge funds, private equity. but we've had this debate many times. we should agree to -- >> there are a lot of more people up here that wouldn't mind taxing lawyers. i do think, though, there is a very -- can you argue that it's 2% to 3%. it is also the people who do own the businesses and the people who are creating the jobs. and right now it strikes me at least that we want to have policies that encourage job creation and economic growth. i think it would be counter productive to raise taxes on the people who are creating the jobs. >> again, we share that general objective with you. the only disagreement we have is that we do not believe there is a feasible way or a fairway to

restore fiscal sustainability without asking a very small fraction of the most fortunate americans to bear a modestly higher burden for the privilege of american. the only reason we propose that is the at earntive to that because we can't borrow the money to continue the tax cuts is to cut deeply into defense spending, medicare benefits, programs for the poor, or investment in education and infrastructure. if we thought there was a way to avoid that, we would join you in embracing. that we don't think the basic fiscal realities of the country give us an alternative. >> and reforming entitlement programs might be a solution to. that. >> and we're willing to -- we're going to take a different approach to you on that as you know. but again, i remind thought president's budget proposes $350 billion, roughly, of savings

from medicare and medicaid over the budget window. >> out of providers? >> no, not only providers. again, not to compare or go back to history, but you can ask your staff to make the following comparison to you. can i make one more point, please? which is compare the level of savings from medicare, since you guys want to be for courage on entitlements, and the president's budget over the next ten years to those in the republican alternative from last spring. we are proposing tough difficult reforms in the hundreds of billions of dollars of range alongside the other cuts in across government. and we think to go significantly deeper than that would be unfair to middle class retirees. >> thank you, mr. secretary. i'm going to have to leave.

probably happy when you send up your corporate reform ideas that we have. this debate that we're all talking about during the years. if we have it now, the results will be a lot more constructive and make a lot more sense. thank you very much for being so helpful and so constructive. senator hatch? >> thank you, mr. chairman. i won't keep you much longer, mr. secretary. i know you want to go. you wanted to go when you first got here. i wouldn't blame you. >> let me say this. on senator kyle's question. you know, the joint committee on taxation did say that the bottom 51% of all households do not pay any income taxes at all. you raised the issue

pay payroll taxes. yes. we all do. that but about 23 million of them receive refundable tax credits that are more than they pay in payroll taxes. so in essence, they're not really paying anything. and another 15.5 million people get refundable tax credits that are more than both they and their employer pay in payroll taxes. now i'm not suggesting that we should tax the truly poor. i don't think anybody wants to do that. we want to help them. and i spent 36 years here trying to help people. but i am suggesting that we've got to lift people out of the current situation where they are paying taxes. and that basis spread and there is no way we'll ever get there. it seems to me, with this administration's approach. because you want to raise taxes on the upper 2%. i don't see any of that money

going for deficit reduction. maybe you think it is. i don't see any of it going for deficit reduction. i don't see us making real head way. i see us at 100% gdp and national debt. i see our spending is now gone up to 74.3% or something like that of gdp from 69. it was 43% under george bush. but now going to be 70 -- it won't be long until we're 100% spending of gdp. we all know that we're spending too much. and these are some of the things that are driving me bats up here. tell me how you're going to get the deficit done when they're going to -- he comes up with all kinds of more program to spend money on and in the process we're not lifting the economy at all. we're making it a worse economy. and i've also added to that that it's based upon low interest

rates that we know are going to go up. now, i think those are fair questions. >> totally correct questions. can i respond to those questions? >> sure. >> let me try to go through the questions. first, let me start with the magnitude of the debt problems. you used a bunch of numbers. i want to put in perspective. >> tell me they're wrong. >> if we don't figure out a way to -- >> where does this budget make a difference? n. deaf snits. >> we use neutral independent arbiter of our policies and yours to judge the deficit and our policies which will evaluate for you will show if congress were to enact them they would bring our deficits down from their current level unsustainable levels to a level that is sustainable. we define sustainable as most economists would as the level -- this is the minimum you have to do -- where the debt stops growing as a share of our economy. and if the congress were to adopt the propose algz even

under reasonably conservative assumptions, then our debt burden as a share of the economy this is debt held by the to measure it will stabilize in the 7 0s. it would be good if we were lower other time. >> are you telling me the deficit is going to go down? i don't believe that. >> oh, absolutely. >> you're going to prove that to me. i don't believe it one bit. >> it depends on what congress does. of course, we can only propose. . congress has to enact f congress were to enact the president's proposals. >> i'm talking about the president's proposals. >> then they'll bring the deficit down from the current level of just above 8.5%. >> i have a lot of respect for you. you're a very bright man. you've had one of the toughest jobs in history. and i acknowledge that. but i don't believe you can make that case. >> absolutely. >> you don't have to make it in writing to me. >> you don't have to trust our judgment. again, the great strerngth of or

country -- >> you write it to me. you think we're going to mock the budgets down with the current budget this president offered? >> absolutely. it will come down much faster than you think. the question is whether -- i think what we disagree on really is whether we should cut much more quickly than we proposed to cut. as i said in our opening remarks, our judgment that am hurt the economy badly or how we do it in the composition. >> i would just like to lift our workers and our economy by providing more opportunity and -- >> we share that benefit. >> i know you do. >> without objection, i want to point out one thing. you're right to say that rates are low today. interest rates are low today. >> they're not only low, they're almost nonexistent. >> ten-year money, ten-year treasuries is 2%. >> yeah. >> you're right that's a reflection of a lot of different things. >> if they start going up to normal rates -- >> i'm going to embrace your

point. >> sorry to interrupt. >> they're low in part because the concern in europe and because growth is not that strong anywhere. but they're also investors around the world judge those securities, those treasury securities, as a relatively safe bet and they believe that the congress of the united states ultimately will act to restore fiscal responsibility soon enough so we can avoid the risks you and i worry about a lot. which is it if congress does not act that over time the interest rates will rise and hurt growth. there is no risk of that. i don't see any risk of that now. but we would better position to avoid that risk if congress were to agree on a set of deduction officials time. right now, almost any measure can you look at over how people view the assets including

treasuries, they judge us as in a very strong position to meet our long-term fiscal clalgs. they have a lot of confidence ultimately this congress will act and come together and do sensible things in that context. but that requires action by the congress. >> mr. secretary, just have to ask a quum couple of other ques because of what i heard here today. i don't agree with you on your analysis. but, you know, you have all kinds of economists working with you. i can't ignore the fact that you're in a position to be able to make those statements. but why does the president want to raise taxes in any way on small businesses with unemployment at 8.3%? don't small businesses help the unemployment situation by creating and retaining jobs? i mean we all know that

businesses will get hit but the president's tax heights even if the owners don't take one penny and plow it all back into worker's salaries or into building the business. two-thirds of the new jobs in this country, my worries, why does he want to take more money they can use to hire more workers and retain the ones that they have? now, i know you're aware that 50% of all folks whose business income is subject to the proposed rate hikes. that's a fact. and you seem to dismiss concerns about increasing taxes on businesses with incomes over $200,000 in taxable income whether their owners take up any of their income at all. with jobs as scarce as they are,

they could go above 8% if the stimulus was enacted. let me make one last comment about this and then, of course, glad to hear your response. i think i've been very fair to you over the -- over your tenure. >> brave. >> i think you're a bright guy and i think you're a very smart guy and very hard worker. i think you're very wrong on a lot of things, to be honest with you. but let me just say this, why hammer million airs in the small business group? small business owners are the job creators in rural america. and according to crs, 75% of those making $1 million or more in income are small business owners. 75%. now, that group already pays plenty. their effective tax rate is 29%. so they're already paying the buffet rule. not much doubt about it.

i just have a real rough time with we've got to keep increasing taxes but we can't provide incentives to the economy especially small business that really create 70% of the jobs and get us -- pull us out of this so it's more than 49% paying the whole freight in this country. >> senator, of course, respect your views on. this we've had a lot of conversations about. this let me say a few things in response. i don't think i'm going to change your mind. >> you can't have too many on this one. you and i haven't, i'll put it that way. >> we have significantly reduced taxes on small businesses in the first three years of the president's first term. we propose in the budget additional reductions in taxes on small business, for example, zero capital gains on new invest ams in small businesses, extending provisions.

we think those are good economic policies given the challenges we face as a country. >> i agree with that. now, i'm not a politician. but i never met anybody in public office who ever wants to be in favor of raising any taxes on anybody. but as you know, and as you've said, we face unsustainable fiscal deficits. we have to find a way to figure out a way to dig our way out of that and restore balance. as you heard us discuss all morning, we don't see a way to do that is fair and consistent with our other obligations as officials to do that without some modest increase in revenues. and we want to make sure that those revenues come from the people that are in the best position to bear that burden. and these proposals will effect a very, very, very small tiny fraction of small businesses. now, it does affect some small businesses. but most of those small businesses, very substantial fraction of them, are not small by any definition. they make substantial amounts of earnings. i think more than half make more than a million dollars in taxes,

income after expenses. so we don't do this with any enthusiasm. we just do it out of the recognition that we face terribly difficult fiscal challenges. we're adding substantial burdens on average americans because of the broader cuts in spending happening across the economy. to avoid putting additional burdens on middle class americans, retirees, on a defense budget that is cut substantially, we need to find ways to raise revenue through tax reform. that's why we're taking this approach. we don't do it with any enthusiasm. we just think it's better than the alternatives. >> i've only been here 36 years. i've gone through it over and over where democrat administrations say we just need more taxes and we will cut spending. we have given more taxes and spending is never been cut. >> again, i think this is a good debate to have.

i think again if you look at any independent evaluation of what we proposed on the spending side, you will see that we're proposing to cut spending by between $2.5 trillion and $3 trillion over ten years. spending across the government all parts of the government including defense with substantial saves from medicare and medicaid. now, again, it's only in that context. 2 1/2 spending cuts for every dollar of revenue increase. we think that makes sense. again, we have to make choices about alternatives. if we don't do that amount of revenues, where are we going to find the savings to make sure we can live within our means? now as you -- if you're going to not find 1% of gdp of revenues, you're going to have to figure

out a way to cut benefits, cut education, cut medicare and medicaid and defense. >> there's no entitlement reforms being offered. >> senator, that's not true. the budget includes $360 billion in savings and reforms to medicare and medicaid. and compare the medicare ones to the alternatives we've seen from your side of the aisle. you guys go much, much deeper in transforming changes to medicare over the time that we would never support. but we're trying to find responsible, sensible ways to get more savings out of the medicare-medicaid system. as we all recognize, we made unsustainable commitments in those programs. >> and also on the budget, you're taking credit for war reductions and a lot of other things that may or may not be real. >> i'm glad you raised that question. we're treating the overseas con

continue sen ji operatio continue generalcy problem and we're treating it more responsibly than the republican budget of last year. we're treating it like the republican budget last year. we're giving ourselves -- we're proposing to count those savings and allocate a substantial fraction. but we allocate the savings differently. we're proposing to put more to deficit reduction. part of it to a substantial investment program. but in general, we'll be consistent with the way those things have been treated not just in the republican budget recently but in the past. >> let me just say this. you have a tough job. i don't want to make it any more tough than it is. but i'm really concerned. i don't think anybody up here wants to cut entitlement programs if they can avoid it. but we also know that's where we

have to find savings if our kids, grandkids and great grandkids in our case want to have a future. and i just don't see it in this particular budget and the president's budget. look, you have very difficult job. you work very, very hard. i don't think you get as much credit as you deserve. on the other hand, i don't agree with you. i actually think that this administration is putting us into real jeopardy. and i don't blame you for that. completely. but we're going to have to get real about this. >> i think, senator, again, we recognize that we're going to have to have pretty significant changes to the trajectory of growth in medicare and medicaid. >> i don't see it in this budget. >> well, you can ask for more. you have to decide how you're going to get more and how deep you're going to cut benefits. >> that's what we're talking

about. you're our guy. >> i was going to make a slightly different point which is that as you know, we don't think it's realistic or fair to consider even those changes we propose on entitlement reform without changes to the tax system that -- >> i agree with that. i think we're doing to modify our tax system. i don't think there's any question about it. we ought to make it so that we can create jobs and offer small business community which i don't think bget does. >> we have to raise revenues from the tax system. e can't do it without raising t entitlement reform alongside tax reform, we're talking about entitlement reform that saves real money and tax reform that helps contribute to deficit reduction. we think we need bot things. we're not going to forward without both. >> i think we're overtaxed now. i don't want to raise revenue.

i'd rather have us make the tough decisions. i know you want to get down to the dinner. and i have so many more questions. and very seldom am i all by myself so can ask anything i want. >> invite me to come see you, i will. >> okay. i will invite you to come see me. i just want you to know that you've inherited a very difficult job one of the toughest times in history. i have respect for how hard you work. i know that you are trying to do the best you can. i would like to see you convince this president some of the things that you and i both know. he ought to be convinced of. but in any event, i always respect people who work hard. and you're one of the hardest workers i've seen. i wish you worked a little less hard on some of these crazy ideas that this administration has. but i just want you to know that i really appreciate your

testimony today. i appreciated the amount of time you've given to this committee. i appreciate how hard you really work. so with that, we'll let you go and i don't see anybody else. we'll let you go. thank you for taking the time. you are going to convince me about some of these things. >> thank you. >> okay. >> thanks so much. with that -- >> adjourned. >> until that, we'll recess until further notice. thank you.

. you can see entire hearing online. you can also find a copy of the president's proposed budget for 2012 and a detailed breakdown of the treasury department budget plan for the next year. this afternoon a congresstial commission looks into how china treats its dissidents and political activists. the commission will hear from the wife of a human rights lawyer who has been missing for nearly two years. see live coverage of today's meeting at 2:30 eastern here on c-span3. later, the author of the invisible arab talks about what caused the arab spring and lack of coverage by the western

media. the author is a senior political analyst for al jazeera english. we'll have live coverage of his comments at 5:30 eastern on booktv.o booktv.org. arizona and michigan hold their primaries in two weeks followed by washington state's caucuses in early march. super tuesday on march 6th and a number of other caucus onz march 10th. can you following coverage of political events as well as results on the c-span networks and online at c-span.o c-span.org/campaign2012. with two weeks until next round of primaries, where are the republican presidential candidates today? mitt romney is in new york for a fund-raiser at the waldorf astoria. rick santorum is in idaho hoeding a rally in coeur d'alene. newt gingrich in california for a fund-raiser. ron paul doesn't have any public events today. his next