20 gap is all we're debating to day is a gap where you're achieving that slightly diminished path. >> this is your time. it will take a long time. here's the point. leaders are supposed to fix problems. we have a $99.4 trillion unfunded liability. our government is making promises to americans that it has no way of accounting for them. and so you're saying, yeah, we're stabilizing it but we're not fixing it in the long run. that means we're going to keep lying to people. we're going to keep all the empty promises going. what we're saying is in order to avert a debt crisis. you're the treasury secretary f we can't make good in our bonds in the future, who's going to invest in our country? we do not want to have a debt crisis. and so it comes down to confidence and trajectory. do we have confidence that we're getting our fiscal situation under control, that we're preventing the debt from getting to the catastrophic levels? and if you go to the preceding

chart, number 13, you're showing that you have no plan to get this debt under control. you're saying well stabilize it but then it's just going to shoot back up and so my argument is that's europe. that is bringing us toward a european debt crisis. because we're showing the world the credit market's futures, seniors, people organizing lives or on the promises being made to them today, we don't have a plan to make good on this. >> mr. chairman, as i said, i don't -- maybe we're not disagreeing in a sense that i made it absolutely clear that what our budget does is get our deficits down to a sustainable path over the budget window. and let's talk to the why do they take off again? why do they do that? >> because we have 10,000 people retiring every day. >> that's right. >> and health care costs going up. >> millions of americans retiring every day. and that will drive substantial rate of health care cost. and so you are right to say we're not coming before you today to say we have a definitive problem. what we do know is we don't like

yours because what yours would do is put an undue burden on middle income senior and raise the burden on them for rising health care costs. you're right that governing is about, you have to make chioice between the immediate and urgent. >> in interest of time, we have -- we're fine that you don't like our path. that's what politics and republicans and democrats and difference of opinions are all about. but if we don't come up with a plan for this country, we're going to pull the rug out from under people who are relying on the benefits. we don't agree with your interpretation of our plan. we provide less for the wealthy. we think that's the smart way to go on funding the important guaranteed programs. >> i don't -- >> put all that aside -- >> i don't think that is a fair description of your plan. >> i do. put all that aside. if we don't start showing the country that we have a plan to

make good on these promises, to secure these retirement benefits, then we'll have a debt crisis. let me go to something where maybe we have a little more agreement on. on tax reform. i've enjoyed reading some of your quotes where you said there's a better way to do tax reform than what you're proposing in the budget. i think you say a better way to do it is through lower rates and broaden base. i couldn't agree more. we've had all these bipartisan ideas. we've had all the bipartisan working groups. let me just go to a couple charts. go to slide ten. a lot of folks think that if we lower tax rates then the rich are going to rip everybody else off. they're going to get away with murder. take a look at the facts. when we have lowered tax rates over -- since 1980, the share of the tax burden for the wealthier

people has gone up. 1986 is a good example right there. the shares shot up. so the wealthy actually pay a higher portion of the tax burden as those tax rates have gone down. why? three reasons -- we provides middle and lower income relief for families throughout that time. cutting top rates actually increased economic growth. upward mobility and prosperity. >> not so much, actually. >> alas -- >> i'll get to the next one. we'll show you an adjustment of that. and third, we've taken away loopholes that benefit the well off. >> also not so much. >> no. so that's the point i'm trying to get to. so in 1986, we closed loopholes, lowered rates. we went from a 70% rate to a 21% rate over that decade alone. and so let's go to slide 14. this shows -- this is the cbo's chart.

index progressist in taxes. this is income distribution which goes to your earlier point. it shows you that in 1980 to today, we are not lowering the distribution of the tax burden. it shows you that like after '86, by closing loopholes and lowering rates, we can get better growth and the wealthier will pay a higher proportion of the burden. so -- and that's controlling for changes in income distribution. so the point i'm trying to make here is there ought to be a bipartisan element of compromise here because what we've shown, for those worries about the distribution or the burden, you can actually keep higher end people paying more of the tax burden and get a better system. but we need another round of base bartering and rate lowering. >> i can respond? >> it's time for a new round. that's my point. >> i can respond to this?

>> yeah. >> as i said, i agree with you that we're going to need tax reform. we should all embrace it. the basic elements will lower rates and broaden the base. so let's talk about -- >> individuals as well? >> absolutely. so let's talk about what i think separates us still in terms of basic strategy. the dominant plans out there that have bipartisan support, simpson-bowles, domenici-rivlin, the senate six share in common with us a basic recognition that you need through tax reform to find a way to generate a modest amount of additional revenues. so in our proposal, in our budget, revenues this year of gdp would rise modestly back up to around 20%. that's slightly lower than where they ends up in simpson/bowles.

higher than you're going to get through current law. 1% gdp higher. i think in your framework last year you showed revenues rising to 19% of gdp. >> right. >> although, you don't necessarily xpris explicitly em rate reform. i think the two main differences between how we think about this today, we have to test this when we start to get serious about it, is a explicit commitment you need from both sides. it is part of a balanced plan, need tax reform that is going to raise 1% in additional revenues. and one other difference. you have to ask yourself, how do you want to allocate that burden? in simpson/bowles, rivlin/domenici and we would take the same approach is you're going to have to have infeeffec

tax rates. you have to have the effective tax rates go up modestly. we think they should go up only for those top 2% of americans. >> let me end you because time is cutting out. i want to be -- he's got to go to a signing thing. i want you to go to the signing thing. that's not what you're proposing in this budget. everything you're saying sounds great. but your proposing to raise tax rates and then add more complexity to the tax code. all this green stuff, all these tax credits. >> as i said in the opening remarks, we're showing you -- in some ways we're trying to mo motivate tax reform. >> by proposing the opposite? >> no. we're saying if you have to raise as part of a balanced plan 1% of gdp in revenues as every other bipartisan board said you have to do and do it on top of the current tax system, here's how -- here's some ways to do it. but we're saying then, the president said this over and over again, we think the best way to get will is through rate

lowering, base broadening, more simple, more efficient and more fair. but the main fundamental difference between us is how much revenue are we going to lead. can you kpit to raise revenue, we'll be on the way. but then we'll have a debate about who should bear that burden. our judgment is the top 2% of americans should bear that burden through higher effective tax rate. that's our judgment. >> let me get you there. i'm going to have the last word. we'll keep going around. i'm not trying to pop you here. but this is what is frustrating to us. your rhetoric never matches your actions. i'm not talking you about personally. i'm talking about the administration. >> i don't think that's fair. i don't think that's fair, mr. chairman. >> you're showing us a budget to raise tax rates and add complexity to the tax code. >> right. add. so -- >> the burden of governing when you propose a budget -- >> this is your fourth one. you haven't proposed what you said in four budgets. >> that's not true. what we said is here what is you

have to do as part of a balanced comprehensive deficit plan if you get enough revenue out of this. and what we propose to do in this context is to modestly increase the effective tax rate on the top 2%. >> the top effective rate goes to 44.8% on individuals. now -- >> not the top -- >> first of all, assume that i'm right which thing has been checked mailon times. i know, yeah. the point is -- yeah, exactly. the point is you're raising effective marginal tax rates. in wisconsin, nine out of ten businesses file as individuals. you know, we have all -- >> we're only going to raise them if, you decide to agree to raise them and decide you'd rather not, but you're right, they will raise effective tochl rates in the top 2%. >> these things you say, you're not putting in your budget. this is the fourth budget. we hear all this happy talk about coming together. >> but, mr. chairman, we

never -- >> we don't see the proposals in black and white in your budget. >> we never claimed this budget included a comprehensive proposal for individual tax reform. we spent, as you know, four months working with the house republican leadership this summer on a way to get a balanced plan with comprehensive tax reform that raised revenue alongside substantial savings in medicare and medicaid. and we found in that process, frankly, that you were not really there yet. not quite ready. and so for that reason, we decided that let's do some foundation laying and lay out some broad principles. >> i don't even know how to respond. mr. van holland? >> is this on? there we go.

welcome, mr. secretary. having participated in some of those rounds, my sense was he had they basically collapsed because of the fundamental issue we're debating in this economy, whether to take a funneledmental approach to addressing our challenge. we didn't have a partner to compromise on a balanced approach. let me just say what the co-chairs of the bipartisan simpson/bowles commission said. everyone recognizes, including you, that as you get to the second ten years, we got a lot of work to do together. but here's what they said. in the framework he announced in april and what he submitted to the committee in september, the president embraced many of the goals and principles outlined by the fiscal commission and incorporated the policies we proposed. we're pleased that president's latest budget continues to focus on deficit reduction and are also encouraged to see real specific policies for limiting tax expenditures, slowing health

care cost growth and reducing spending throughout the government. i would suggest that if we could have a partner in coming to that balanced approach that we talked about, we would be able to tackle some of these things. now, i'd like to put up a chart just to address what is the sort of continuing myth which is that relatively small changes in the top marginal rates are the chief driver of job growth. and that's just been proven false by history on numerous occasions. what you see here is after the 1993 budget agreement when the top marginal rate was raised to 39.6%, you saw over 20 million jobs created during that period. after the 2001, 2003 tax cuts, so-called bush tax cuts where they reduced the top rate, by the end of that period, you saw a net loss of jobs. now obviously there are lots of

things going on. the major point here is that minor changes in the top marginal tax rate are not the primary drivers of growth in our economy. of course, the other benefit of that higher rate was, as the secretary said, it brought in more revenue. in the year 2000, it was the raft ti last time we had a balanced budget. a budget which helps contribute to long term economic stability and growth. so i think it's important to keep in mind these historical facts as we debate the whole question of tax policy. now, i want to go to another slide here because yesterday -- this is just very briefly this shows the trajectory of the president's budget as proposed. it is a plan. it's a responsible plan. and it is the secretary testified it gets the deficit below 3%, 2.8% of gdp at the end of the ten-year window.

and many have said this is a budget full of gimmicks. i want to show you what president obama's budget would look like if we used the so-called gimmicks that were used in the previous administration's budget. just because a lot has been made of that. if we go to the next slide. what you see on the left are all the costs that were not counted in the bush budget over the ten-year period. in other words, the bush budget assumed that we weren't going to fix the emt. and so if you were to convert president obama's budget into the president obama methodology, you get the fomg. l following. the top red line is the president's budget.

using straight forward accounting techniques. that's what probe's plan could claim if you use the bush administration's accounting. so secretary's acknowledged that we've got a lot of work to do. ten years and beyond. >> that tells me your ensmiemy omb. >> well -- except for in this case, omb actually did it the way i think we want them to do in terms of calculating the likely outcome. i just want to end with this. i do have. [ no audio ] >> i have to leave early because

i have positive sign the payroll tax cut conference. you raised the issue. the chairman raised the issue. fundamentally we have to figure out a way to come together to resolve these issues. we believe it's important in the short term to continue to take measures that are described in the president's budget to boost the job growth. i remember more than a year ago a lot of our republican colleagues were pointing to the new government in the uk as an example of how we should proceed here. we should have an austerity budget. they're not very good. it's a good thing we didn't follow that proposal. the second is we look to the future. the secretary's pointed out that when you take the kind of measures with respect to health care that we're taking in the chairman's budget last time, what you do is shift the risk of

rising health care costs to seniors on medicare. rather than take that approach, we need to spend a lot more time, finding a way to reduce the growing health care costs throughout the american health care system. and the reality is that the affordable care act put in place a lot of mechanisms that we believe will begin to do that. and will prove successful. but there is more work to be done there. what you need to do is come together in a way that deals with the fundamental problem and not just shift the problem from medicare to senior citizens. you have to take more and more out of middle income and seniors. i want to ask with respect to the experience that we've seen with the governments took strict austerity approaches, what is

their -- what is the evidence so far? >> well, it depends on the circumstances. you know, we're not in the position the uk is nor anything like the rest of europe in this context in the sense that we enjoy still and you can see it in the price of u.s. financial assets enormous confidence around the world that this congress, this city, this government will ultimately find a way to put in place more long term fiscal reforms. and so there's confidence out there in markets that ultimately congress is going to come together and do the right thing in this context. and that's dwhy we're able to offer lower rates. if we were to in the face of being able to borrow at 2%, if we were to now decide we're going to try to turn this deficit swollen by the crisis, swollen by the bush economic policies and try to reduce that

to balance in two years or thre kill this economy. you would kill this economy, and you would dramatically set back long-term cause of deficit reduction because you would swell the long-term deficits by inducing another crisis. that's not what the ryan budget proposes, i would point out, although there are some people that suggest we need to cut faster now. >> thank you. >> mr. garrett. >> thank you, mr. secretary. so let me get this straight. your testimony has been so far that you agree that the tax system that we have in this country is far too complex and is not working but you're not going to give us a new tax reform system now that would be simpler. rather, would plan in this budget give us a more complex tax system until later on in the term. >> no. i know you don't like the proposal, the specific tax proposals. >> is it more complex is what you just said sfwl absolutely.

if you try to get more revenues out of the current tax system in a rational way, you will do things that are complicated, no doubt about it. that's why it is better to do it through tax reform. >> you're giving us a system too complex today and giving us a proposal that is more complex. >> it is the nature of the beast. >> mr. secretary, i think of all people, especially you, that you would understand our system is to complex for the average individual to understand how to fill out their tax return, that you would be coming to us not today but prior to this with this simpler tax system today and not waiting until the end of your term. >> i know we'll have a chance but i think we're aligning the fundamental difference. even in tax reform that raises the revenues that, for example, simpson-bowles suggests we need or domenici-rivlin suggests we need, in that context the effective tax rate on somebody is going to go up because you are raising revenues. >> mr. secretary, all due respect, that's not the question. >> it is.

>> i am asking the question so i know what the question was. the request he is when are you going to give us a simple tax return, a tax reform and your answer is not now. >> not in this budget, no, we're not. >> that's the question. when are you going to give us -- >> when we have evidence on your side you guys are willing as part of the balanced fiscal plan raise revenue through tax reform. what's why we spend so much time with your leadership discussing in the summer. >> i understand. in other words -- go ahead. i will yield. >> that's leadership. wait for other people to do something and then we react? >> mr. chairman, you guys just spent about six months threatening to default on obligations you gave us. >> secretary -- >> if you call that leadership, fine with me. we can have that. what we did and it was in the spirit that we could have to work this out in a bipartisan way is sat down with your leadership for months to try to work out whether we could find consensus on balance -- >> reclaiming my time, do you go all those months we never got

from you the same thing you said telling us right now you're never going to give to us. >> did the leadership share with you the proposals we discussed? >> we never got formal legislation from you. >> nor from you. we didn't get that from you either. >> on entitlement reform and tax reform -- >> not on tax reform you didn't. you said we would like to get to 25. that's not a tax reform plan. >> where is your tax reform plan? that's why we're here today. >> if you want to bludgeon me into admitting we're not giving you a tax reform plan, i confess. it is not in the budget. it is not proposed now. if you want to use your time for that, that's fine. >> my second question is where is your entitlement reform plan? >> we have in the budget -- >> same. >> hold on. $360 billion of specific scorable savings in medicare and medicaid over the ten-year budget window and an additional $250 billion of other mandatory

savings. those are part of the -- >> secretary, let me rephrase my question. where is your long-term entitlement reform plan? not ten-year budget window, the long-term reform. >> if you want to use your time that's way, that's fine. we're not proposing to solve the problems of the country for the next 100 years because we feel if we can agree to fix them on the next ten years people might have more confidence we can work on the next 50 to 100 years. if we can't agree on how to solve the next ten years why are you to worried and focused on the next century or millennium? if you think we can't solve this modest problem -- >> my time, mr. secretary, you're all willing to take shots at the plan that mr. ryan has proposed which does try to solve it over the long-term, and you are critical of those plans, significantly of those plans, and all we would like to have in a debate or dialog on this is to say here is the plan that we proposed, mr. ryan proposed.

where is the plan that you have proposed long long, not 100 years and i would yield to the chairman. >> you have to make a decision. can i say one thing? i think you have to decide for consistency are you going to say you do not like our plan which proves we have a plan or we don't have a plan? you can't have it both ways in this case. we're not claiming to do what you would do to medicare. we're not claiming that. we're not going to do it. >> i am going to run this tight because we have a lot of people here. you have a schedule. we don't see it that way. the chairman of the federal reserve doesn't see it your way. ms. schwartz. >> thank you. mr. chairman, i hope we are fair about that. there are seconds to go and i am not sure we have to gafl people down before the time was up. >> we were just getting momentum. >> i understand that, but it wasn't because the time was up. you were just finished with hearing it. i think really there is a very

clear difference of opinion. >> is it going to go this way all day? >> not for me. you will have another four and a half minutes of a little more comfort zone here. the fact is that there is a very different approach here, and i think that, mr. secretary, you spoke very well and very clearly about the fact that the president is putting forward a ten-year plan. that's actually pretty good i a very tough time and seeing our way through it and growing jobs and stabilizing the deficit and being able to make the ensure o economic competitiveness would be ahey next ten disagree or the other side can disagree but calling on the president for not having picked their timeframe seems to be not what the argument really s the argument is they actually disagree with the plan that the president has put forward. what i wanted you to talk about a bit because you already well articulated where we have come from and the challenges ahead is

that one of the keen differences between what the republicans want to do which is cut everything is to not only have a balanced approach but make the kind of investments that are going to ensure america's economic competitiveness. you outlined some in your testimony. i wanted you to take a few minutes to talk about how important it is to make the kind of investments and research and development and i am particularly interested in advanced manufacturing and innovation, and i did want you to not only talk about what's in the budget but mention two ideas that i have, one you and i have talked about a good bit, very successful already and i would like to see us do again which is the therapeutic tax credit. this was a billion dollars that we made sure went to over 3,000 companies, a start up biotech companies across this company, companies that are alive today working on therapies and devices and that may save lives and save money. i would like to see that be done again if we reach some place

where we can actually move forward. i think it is really important for the united states of america to stay on the cutting edge of innovation, particularly in the life sciences and this is one-way to do it. i appreciate the level funding for nih and the work you're doing in r skpchlt d. the other piece is intent vising innovative businesses that out patents, and this has been a tax policy in other nations that has been successful in drawing out new industries, innovative industries that are making products based on a patent and a new patent. i am working on legislation that would do that here and provide tax incentives again so we can grow those new, the growth industries, so i want to mention those two specifics and give you a couple minutes to talk about really a have positive way how we're not only going to get out of this tough economy but continue to grow and not leaders in the world economically. >> i am happy to take a closer

look at those two specific proposals and welcome your support for them. the simplest way to describe what we think makes sense for long-term growth and opportunity is better education outcomes, support for basic science and research, not just nih and medical discoveries but of course across a range of parts of science critical to future technological development. >> energy is a big piece of it. >> energy, better incentives for investment in manufacturing. >> greater productivity in technology. >> and the substantial long-term investment in infrastructure so that those core things, education, innovation, infrastructure, better incentives for investment, we think should be a core traeg and if you look at the combined cost of those things, they are very modest, well within our capacity to afford as a country and you have to do so in ways that are response and i believe pay for those things and we layout how we propose toay