testify. >> thank you, sir. >> you know, i've been here 25 years. i don't think i've seen a more able witness. >> thank you. >> than secretary lahood. >> thank you. >> with that, i want to thank you all colleagues. we have another hearing tomorrow. it's an important hearing. i hope colleagues will participate. . >> the house and senate are debating their own transportation packages. the house version is a three bill, $260 billion package which authorizes transportation and some energy projects for five years. the house delayed a vote on the largest bill until after the president's day recess. the senate is currently working on a two-year, $109 billion bill. and live now to capitol hill for treasury secretary tim geithner. he is testifying before the house budget committee on president obama's budget proposal released earlier this week. house republicans on the committee have complained that the white house is using misleading numbers in reductio.

the hearing will come to order. welcome, everyone, to this important hearing. i want to thank secretary geithner for joining us. this is your second hearing today and fourth this week. so you're half way there. so you are a glutton, i tell that you. we know that defending this budget is no easy task.

so we really do appreciate your time. >> not as hard as your job. your budget. >> it's going to be a fun day. >> you have my sympathy, you do. >> you're about to get mine but in a different way. it's known that one of your favorite sagz, whiyings is plan no plan. it's a phrase you use often during the financial crisis to describe the need for policymakers to plan for every contingency in order sto stay ahead of events. you're in the middle of a firestorm, the crash as a fed new york chair, you people know this. i remember your president sesor and chairman of the federal reserve coming here talking about crisis, deflation airy spirals, all about the impending collapse of the economy. it was a very, very ugly moment. and what came out of that is ugly legislation. the whole thing caught us by

surprise, all of us. and the circumstances could not be more different today. it was back then we faced a crisis that most people didn't see coming. today, we're facing the most predictable crisis in our history and, yet, for a fourth year in a row, you brought us this. this is no plan. this is no plan to restrain spending to grow the economy and most of all, it's no plan to save us from a debt fueled crisis which will be an economic disaster for all of us. if plan beats no plan, then why is the president once again deciding to duck from the drivers of our debt? why once again given us more broken promises instead of leadership? excuses instead of accountability? instead of cooperation where agreement is possible and we like to think there is some of that, why have we seen the president turn his back on the bipartisan solutions that have been percolating out there? why has he decided to base the

re-election strategy on trying to divide americans for political gain? we put together a serious solution last year, the president had an opportunity to advance plans for meeting the challenges, to advance alternatives, to then compromise. and if, in fact, there is a growing bipartisan consensus, for the reforms that are needed. there's a growing bipartisan consensus on contentious issues liken titlement spending and tax reform. reforms based on premium support which would strengthen medicare and introducing choice in competition, they have a bipartisan history. the history dates back to john breaux and bill frist and bill thomas under the clinton commission. it continues with the work done by alice rivlin and pete domenici. it includes the work that i've recently done with senator ron widen from oregon to put a bipartisan option for saving and str strengthening medicare. funneledmental tax reform hass lz a bipartisan history.

in the 1986, i was in high school at the time, i read the book, we did fundamental tax reform that lowered tax rates and broadened the base. the sponsors of that bill, dick gephardt and bill bradley. i would argue this is not necessarily a left versus right issue. this is about those who are willing to tell the people the truth about our nation's fiscal challenges and those who continue to duck from those challenges. this budget takes the latter approach. it represents a very clear threat to the health and retirement security for american seniors. it threaten es our government w haver higher taxes and commits our children and grandchildren to a deminute fished future. i don't know how you conclude otherwise. second geithner, you probably be the first to acknowledge that having no plan is a plan in and of itself. it's a plan for failure. it's a plan to stay in the debt crisis. and having no plan means we're planning for decline as a

nation. the point of this hearing is to find out why that kind of future for our country is apparently acceptable in this budget and to this administration. i hope your testimony can provide answers. i look forward to a great conversation. and with that, i want to yield to the ranking member. >> thank you very much, mr. chairman. welcome, mr. secretary. i think as the secretary will testify in, fact, this budget represents a plan. represents a responsible plan, a good plan and debate we can really in this committee is not between plan and no plan. it's between two very different visions of how we move forward in this country. what this budget does is three essential things. number one, it helps to nurture and move forward our very fragile recovery. i think we all know that when president obama was sworn in,

the dme was in total free fall. we now know in the last quarter 26 2008, we were negative 8.9% of gdp. mr. chairman, you mentioned when the previous secretary of treasury came here the economy was in crisis. that's exactly right. that's the crisis the president inherited in january when the president was sworn in, we were losing over 800,000 jobs every month. they began to reverse it. we passed legislation and help ed rescue the auto industry and many other measures. the reality is that today for the last 23 months, we have seen over 3.5 million jobs, private sector jobs created in this country. so that's good news. is it enough? certainly not. and that's why the president's budget lays out a strategy for

continuing to nurture that recovery and continuing to help businesses hire more people and grow the economy. one piece of that is something i hope will get done later today and that is to extend the payroll tax cut and ui for another ten months. very important provisions for its economy and american people. but that's not enough. the plan the president but forward in this budget is similar to the ones that he brought before the congress last september. american jobs act. also contained a number of other important provisions. you look at the unemployment figures, you'll find that while we've seen growth in private sector jobs, you continue to see layoffs. teachers losing their jobs, firefighters, emergency responders, that's why the president's plan says we need to provide a little assistance to the states. the president's plan calls for

$50 billion investment in infrastructure. absolutely necessary. we have over 13% unemployment in the construction industry. we have roads that need to be built. we need schools that need to be renovated. this is a win-win. it's often curious to me to hear people say that building an aircraft carrier helps create jobs which it does. building roads doesn't. you know, you have to make sure that we have a defense budget and it's a job creator in an aircraft carrier. yes, it is. building a road is as well. and so why we would decide to not invest in our infrastructure which has been essential to our past economic growth and essential to our future economic growth, is a mystery. the president put together a good plan there wlachlt else does this budget do? it makes critical investments in

the future. i'm sure the president is going to talk about that. look at the gi bill. that sends millions of americans to college to ged a better education. it paid after for them and the country. look at the investments they made in science and research. research helped lead to the internet, helped the united states get a head start. we want continue to vest in this country and we can maintain a competitive edge. and finally this budget takes a balanced approach to reducing the deficit in a predictable way. it reduces the deficit as a percent of the economy to under 3%. it gets it down to 2.8% at the end of the ten-year window and does it in a balanced way. frankly, that's where our republican colleagues object to. you have a balanced plan. we are going to make tough cuts and discretionary spending. it goes down to the lowest level of percent of gdp since the

eisenhower administration in this budget. they cut over $350 billion in health mandatory. they cut other mandatories as well. they also do something else. they propose tax reform not just to simplify the code which is absolutely essential, but they do it in a way that other bipartisan commissions have done to help us reduce our deficit. the reality is that our republican friends have taken this position. i want everyone to understand. they talk about tax reform, not one penny from closing loopholes in the tax code can go to deficit reduction. not one penny. that would be a violation of the pledge taken by 98% of house republicans. and so the dilemma we have is not between no plan and plan. it's between a responsible balanced plan the president submitted and a plan that we

have seen before from this committee and others which i would say is total lly lopsided. you're not asking the folks who have done really well, folks at the very high end of the income scale. you're not asking them to go back to paying the same rates as they were during the clinton administration when the economy was booming. then you got to find it somewhere else. and what that budget did is took $700 billion out of medicaid. mr. chairman, it replaces the rising cost of health care costs on seniors through a plan that ends the medicare guarantee. and it slashes important invest ams in infrastructure, education, science and research. so those are the choices we have. and, mr. secretary, i know you're going to elaborate on the plan that you have. i think it's a good plan. it's a responsible plan. and it's a balanced plan.

thank you, mr. chairman. >> we're going to agree to disagree. >> chairman ryan, ranking member and members of the committee, thank you for giving me the chance to talk to you about these important questions. i'm going to talk about four things just briefly about the economy and the challenges we face there. then a bit on the near term imperatives on growths and jobs. i'll lay out the broad element of our strategy and then talk about the contrast between where we disagree. i'll give our version of where we disagree. first on the economy. the economy today is gradually getting stronger. we have a lot of tough work still ahead of us. over the past 2 1/2 years, despite the financial headwinds from the crisis, as people bring down debt and we work through the housing construction bubble, despite the severe cut yakz by state and local governments, despite the crisis in europe, despite the rise in oil prices last spring, despite the

terrible damage to confidence caused by the specter of default this summer, despite all the shocks and headwinds, the economy is growing at a rate of 2.5% since growth resumed in the summer of 2009. private employers added 3.7 million jobs over the past 23 months. private investment and equipment and software is up by more than 30%. productivity has improved. exports across the american economy from agriculture to manufacturing are expanding rapidly. americans are saving more and bringing down their debt levels. the financial sector is much stronger shape helping to meet the growing demands for credit and capital. these improvements are signs of the underlying resilience of our economy, resourcefulness of american workers and businesses and they're signs of the importance of the swift and forceful actions we took with

the fed to stabilize the financial system and pull the economy out of the worst financial situation. we face significant challenges particularly for the average working family in this country. americans are still living with the acute damage caused by the crisis, the unemployment rate is still very high. millions of americans are living in poverty, still looking for work, suffering from the fall and value of their homes, struggling to save for retirement or pay for college. and for these reasons, the president's budget calls for substantial additional support for economic growth and job creation alongside longer trm reforms to improve economic opportunity, improve long term growth prospect and restore fiscal sustainability. i want to applaud the congressional leadership for the progress they've achieved. they've reached on agreement to extend the payroll tax cut and emergency unemployment insurance. this is my second point. don't stop there. there are more things that we can do with bipartisan support, things traditionally had

bipartisan support, it will be good to make the economy stronger in the short term. just because we agree -- we disagree now on the long term shape of tax reform entitlement reform doesn't have to get in the way of doing more things now that would help the economy in the short term. i'll just give you three examples. more help to get construction workers back on the job with substantial infrastructure program will be good policy. helping americans refinance to take advantage of lower mortgage rates is good policy. and better incentives for invest wi ing in the suits better policy. all have had broad support in the past and we shouldn't let the big disagreements we have get in the way of movement on those things now. so don't stop with the payroll tax extension. now beyond the immediate steps this is my third point, the president's buget lays out a long term strategy to strengthen economic growth and improve

economic opportunity while reducing our deficits to more sustainable levels. i know conventional wisdom is this debate does not matter because congress is too divided to legislate in this election year. but this is a very important debate. it matters because it's about fundamental economic priorities, how to increase growth and opportunity and retirement security, how to reform our tax system, how we live within our means. we have to govern with limited resources and make choices about how to use the resources more wisely, particularly given the millions and millions of americans who will become eligible over the coming decades for medicare and social security. and it's important because as you all know, at the end of this year, we face the expiration of the bush tax cuts and the possible position of the sequester and that will force us to come to agreement on another substantial down payment on fiscal reform. so it's a debate we have to have now. we need to get work on how to

build consensus on how to move forward in this case even though we're so far apart in the fundamental choices. we save $4 trillion over ten years, three trillion on top of the caps on discretionary spending we agreed to in august. now if congress were to enact these reforms, it would lower the deficit from just under 9% of gdp in 2011 to just under 3% of gdp in 2018. that would stabilize the overall debt burden as the share of the economy in the second half of the decade. that would put us back on the path towards fiscal sustainability and leave us much better position to con front the remaining challenges we face. and they're foremidable still that build in future decades as more americans retire. now under this plan, discretionary spending is

projected to fall to its lowest level as a share of the economy since dwight eisenhower was president. and the president's proposal would also slow the rate of growth of spending in medicare and medicaid through the affordable care act reforms and additional proposals we laid on the buget fdget. as we reduce spending, we also have to protect investment that's are important to expanding future economic growth. and that's why the budget makes a series of targeted investment proposals in education and innovation and manufacturing and infrastructure. these are not expensive proposals. there's things question afford. we propose to pay for them within a framework that reduces our deficits to more sustainable levels. now in order to achieve this balance, this balance between significant substantial deficit reduction over time with still some room for invest ams that matter, we're proposing to raise a modest amount of revenues for tax reform. the president's plan proposes roughly $2.5 in spending cuts

for every dollar of revenue increases. these revenue increases would fall only on the top 2% of americans, not on the rest of the 98% of americans. they would raise revenues by roughly 1% of gdp. although slightly less than the proposals in the simpson-bowles commission. focusing on the top 2% is a more fair and better way to achieve fiscal sustainability, better for the economy and better than the impact of an equivalent amount of cuts in things like benefits to middle income seniors or into infrastructure and defense spending. we propose tax reforms that raise revenues not because we think it's good politics for us or that any of us like to do it. we propose it because we do not believe it is possible to meet our national security needs to preserve a basic level of health

care and retirement security to compete infecti ieffectively wie increase in revenues as part of a balanced plan. now, we illustrate in the budgets a range of specific tax changes that could be added on to the present tax system to raise the necessary amount of revenue. but we think the best approach to get there is through would be through comprehensive tax reform. we've outlined a general set of principles that will be designed to make the system more fair, more simple, better encouraging investment in the united states. we're going to lay out in the coming weeks a broad framework for corporate tax reform designed to achieve that objective, more simple, more fair, better for investing in the united states. and we think that's a good place to start. i hope as the chairman said, there is the prospect of bipartisan consensus on a framework of tax reform like. that final point. i know there are members of congress who are critical of the

proposals and would prefer a different strategy. you can judge our plan against the alternatives. let me say where we agree and i think where we disagree. where we agree is that our fiscal deficits are unsustainable. they have to be brought down over time and do a lot of damage to this country and we agree the commitments we made in medicare and medicaid are unsustainable and unaffordable over the long run. but we disagree on some fundamental respects. some of you have suggested that we cut deeper and faster with more severe austerity now. in our judgment, that would damage economic growth. it would reverse the gains we've achieved at getting more americans back to work and it would put more americans into poverty. a program of severe immediate austerity now is not a growth strategy. we can't cut away economic growth. you have to be very attentive to

an economy still healing from the crisis to make sure we're doing things that help growth and not hurt growth in the short run. second, probably more fundamental contrast between the two plans is there some that suggest we restore fiscal balance without raising any additional revenue from anyone. or even by cutting taxes further. now in our judgment, to do so would necessarily entail deep cuts in benefits for retirees and low income americans, cuts in invest ams in education and innovation and hurt growth and cuts in defense spending that would damage our national security interests. so the choice we face is not about whether we should reduce or deficits because we all know we have to do that. it's about how fast we do it, how quickly we do it, fundamentally about whether to do it with a balanced plan that helps growth in the short run and long run or with a plan that

will place more of the burden on cuts in national security, medicare, low income programs, education innovation, infrastructure in ways we think is unfair and damaging to our interest as a country. these are tough reforms. but it's a balanced mix of spending cuts and tax increases. it gives us room to make investments that will improve opportunities for americans. it will help protect our basic commitment to retirement security and health care for the elderly and the poor. it provides substantial immediate additional help for the average american alongside reforms to help restore long term sustainability. it's not going to solve all of our challenges. even if you embrace the proposals today, we're still left with substantial additional challenges. but it would put us in a much better position to meet those challenges. thank you, mr. chairman. i'd be happy to try to respond to your questions. >> thank you.

i guess we will agree to disagree on a few of those points. here's the crutch of it i want to get to. do you think this budget averts the deterioration of our fiscal problem? >> as i said, you know, we're not claiming this solves all the problems facing the country but it does meet the critical essential test -- >> which is? >> of restoring our deficits to a more sustainable position for the next ten years. the tests there which is a test you embrace in your plan, too, is to make sure you get deficits down below 3% of gdp and hold them there. and if do you that, what happens is our overall debt burden is the economy stops growing at a level we can manage and starts to come down. so we meet that test. and then we help lower the trajectory of cost growth in the outer decades that comes from millions of americans retiring. but we still would face even with this framework more work to do in that long term demographic

challenge. >> bring up slide 13. because i just don't see the rhetoric matching the results. and i'm looking at your budget. page 58 in analytical perspectives, you say that this is your budget, says that the government positioning gradually deteriorates. that our fiscal condition deteriorates. these are your numbers. >> it shows, mr. chairman, is -- >> your deficit. >> good chart. just exactly what i said. if you look at 2012 for the next ten years, it stabilize that's debt burden as a share of the economy. >> so -- >> then what happens is, exactly what i said. >> so we allow it to take off? >> no. and then you're right. as millions of americans retire, then those costs and medicare, medicaid start to increase again. that's why we're saying openly and directly to you that we're going to have work to do. now -- what you do is, i think on your budget although i know you're

going to have a new one coming is you would lower that path in ways that would substantially increase the burden of health care costs on middle income seniors. and although we agree with you, we're going to have more work to do. but we're not going to adopt an approach that would undermine that basic benefit. >> go ahead and show slide a if you can. so you brought it up. i know you didn't actually want to see this chart. the red is the status quo. that's the base number we're on. >> you could have taken it out to 3,000 or to 4,000. >> this is last year's budget. >> yeah, right. we cut it off at the end of the century. economy, according to cbo, shuts down in 2027 on this path. >> i like this chart. i sthaw this yesterday. you're talking about a half century going out. but if you look at the gap between us -- >> i understand the gap. >> it's a pretty small gap. and that gap, though, that 10