>> this is important, i think, mr. secretary, because most of what we have done the last six years has not helped this problem. i would lay before you that just as many as we have helped a few that we have helped we have had a few more added to that list, and you know that quite well. this is going on and on and on. what help does the taxpayer get if somebody can't meet the nut and then has to get out of his house, bring down the whole neighborhood, if he can't pay his taxes then somebody on the rest of the street thattes to pay his taxes, and this is dragging down on the entire economy. i don't really see anything tangible. i will listen but the minute i have left, in this budget that addresses the deepest problems going on in america because that's our dream. people work hard for their homes. we think it is better to put them out so we lessen risk? that's why fannie and that's where the other group is period. >> congressman, i am agreeg with

you. the only thing i was saying is that wbl fhfa has the authority now and that's why it is not in the budget and we think they have the authority to do it in a way that's good for the taxpayer. our problem is we don't have the authority to compel them to do it because when congress passed the law to put in conservatorship congress and democrats in it context in this senate, wanted to keep them purely independent of the executive branch. that's our constraint. we're working with them and i think we can make progress in this area. >> i hope so. i would conclude in the final seconds that i have that this gnawing problem is never going to get us back to the promised land. i am telling you we have not, either side, has not done the job and why fannie and why freddie seem to be on holy ground, i don't know. thank you, mr. chairman. >> thank you. >> thank you mr. chairman and mr. geithner. thanks for being here. i just want to follow up a little bit on mr. chaffes

question. the budget. you think a budget is important. >> absolutely. >> last year's budget that the administration proposed do you remember how many votes it got in the senate once it was forced to vote on it? >> the way it was done it got very few votes. >> zero. >> because it was the way it was done. >> because of the way it was done. >> i am not a budget process expert but it was the way it was done. >> it didn't get any votes. i guess my question is is this a waste of time for us if last year's budget which is similar to this year's budget coming from the administration, this seems to be a waste of time. if it is not going to get a single vote in the senate, the democrat controlled senate, why do we want to go through this process? why even go through the time of putting a budget together if you haven't worked with your democratic cleggs in the senate who didn't give you one single vote? >> that's not what i said. of course again i said we spent a fair amount of time over the summer as you know working with the republican leadership and cleesly with democrats and the

proposals in the budget try to build on the talks we had over the course of the summer and of course even the work of the super committee in the fall so we think this is good policy and the reason why it is worth paying attention to it because if congress were to adopt it it would be good for the country. >> doesn't it show you how far apart you are from even your own democrats? you can't get a single vote in the democrat controlled snad. >> i am not worried about disdistance between democrats. i am worried about the sdas between republicans but that's why it is good to have the debate. >> over 80% are in taxes at the individual level. i am in that category as a farmer in indiana. of the businesses that have profits of 1 million or more, ever 60% are unincorporated pass 24r50us. my question is is the president's tax policies, including those in the healthcare legislation would push the top individual tax rate to 44.8%. do you think there is a disparity?

if you take upper income tax rate of 39.6, reinstate pep, it is 2% and medicare taxes of 3 approximate the 2 gives you 44.8%. do you think that is a disparity between small business owners and corporations who pay upper tax rate of 35%? >> i think to do fair comparison, the economics of taxation, you have to look at the effective tax rate on the pass throughs and the effective tax rate on the corporations. i think if you do that you will find the disparity very small sbl do you have numbers? >> i would be happy to respond to you in detail. >> the president also said that failing to extend the payroll tax cuts, the current level, would obviously have a large tax increase and in the budget you don't extend that payroll tax cut after this year. >> that's right. >> why not? >> because there are things you have to do to come out of a crisis you only want to do on a temporary basis. we propose a lot of different things on a temporary basis. for example, last year we

proposed and you embraced of one year period of 100% expensing for businesses. you couldn't make that permanent in a responsible way. it is good policy for short-term process. there are some things you should do on a temporary basis and this is one of them. >> the ceo is saying we can see the economies stag gnat for the next five years. why not make it a five-year fix instead of making it towards the end of 2012 when it looks political? >> good question. cbos analysis that shows what i think you show very moderate growth for a long period of time is on the assumption that all the bush tax cuts expire which is not something we support. we want to extend them for 98% of americans. it is our judgment that the economy is likely to be in a position at the end of next year where it can withstand the effects of this short-term temporary payroll tax expiring >> this is what i get tired of. i really believe we need a civil debate in washington and i get

tired of being republicans being thrown under the bus saying republicans want to destroy medicare and social security when that's not the case whatsoever and the president turns right around and cuts the payroll tax rates to which would actually fund social security and medicare so there is less money going into those programs. >> that's not true, though. >> it is the same thing, though. there is less money going into social security and medicare. >> the way the law works any shortfall that comes from like a temporary payroll tax cut is made up automatically by general revenues. that has no impact on -- >> the taxpayer. it still will come from the taxpayer. those funds don't see any less money going in? >> no. that's the way the law works. the question is should we be -- i am not sure i understand. do you want to extend the payroll tax cut longer? >> i am fine with that. >> i don't think you can justify doing that. we'll have to work through this at the end of the year. >> fine.

thank you. time expired. i would remind the witness, you're the witness. they're the questioners. this is the legislative branch on this side. let's keep the questions the way that the constitution is. >> sometimes i have to ask a clarifying question so i can answer your question. >> all right. let's make sure it is that. we are to mr. castor. >> thank you, mr. chairman. welcome, mr. secretary. i would like to ask you about identity theft and tax fraud. in the fall of last year my local police chief, she said where are all the criminals on the street? all the drug dealers were gone. all the other petty theft criminals gone off the street. they thought we're doing a great job. crime is down. then they raided a motel with rooms where they had laptops set up one after another and they found where all the criminals were, and they were filing fraudulent identities to claim

the filing the tax returns to get refunds. they have quite a racket going on. they call it turbo tax because it is so easy and they can put in hundreds of these and you should see what the postmaster general has, just row afro of those debit cards -- row after fais row of debit cards, green cards, other checks coming to post office boxes and in fact the bust last year was $130 million worth. they think that's just the tip of the iceberg. this is not just in tampa, florida. this is happening all over the country. we have got to get a handle on it. here is one of the problems. the tampa police department advised me their investigation was complicated at every turn by laws that prohibit the irs from sharing information while we all value those personal privacy

protections, there must be a way for irs to cooperate with local and federal law enforcement to investigate the fraud. for example, in the big turbo tax bust they even had taped confessions by some of the people but because there was a missing link in the evidence on the actual tax return they could not bring them to prosecution. the u.s. attorney is completely frustrated, law enforcement, all across my state is very frustrated. here are the two primary issues. first, what can you do to address that? we filed legislation, my republican colleague who is a former sheriff nugent, he understands this but we can't wait for legislation and, two, the irs has to have better screens and filters, checks, especially now here is tax filing season. the tampa police department said just in the first part of the

year they have $9 million more in fraudulent returns that they have recovered. we have to get a handle on this to protect the taxpayer and if we're looking for cost savings, we can start by putting a stop to this fraud. >> you're right. i appreciate you drawing attention to this problem. doug shulman, the commissioner of the irs is doing a very good job trying to get us in a better place to try to reduce the ability of americans to, again, illegally benefit from tax benefits they don't -- they're not entitled to. one thing we're going to need is we are going to need more resources for the irs to make sure they have enough in the enforcement budget and i would be happy to look at the lijlation and consult with the irs and have any colleaguings talk to your staff to see how we can reduce the remaining barriers. >> and colleagues i ask for your help as well. if you go back and talk to local law enforcement and they tell you they're not aware of it, they just haven't found it yet

because it is so easy. they steal the identities of people that are deceased. we have had cases where people working in nursing homes go in and steal personal information and even children go file and, see, here is the problem with the irs. they said if your return or if your refund is less than $10,000, that's not enough for us to investigate. that's a real problem. they have to come up with strategies where if somebody has a post office box and they're getting 25 checks, the irs has to be aggressive on this and cooperate. >> they're very aggressive. they don't have unlimited resources. they have to devote the resources to where the highest return is and getting better tax compliance done. i agree we have a problem. we're working on it. happy to talk to you about how best to solve it and i very much appreciate the support we have gotten to make sure the irs has the resources they need to do a better job in this area.

>> thank you. >> 25 seconds. ms. black. >> thank you, mr. chairman. thank you, mr. geithner for being here today. we of course had time together yesterday. >> we did. >> and spend a little time here today. i want to start out by making a comment about this division and devisiveness here on capitol hill. it has disappointed me in the last year i have been here. i came from a state legislature where i worked with bipartisan support on difficult issues and i know what that's like. it is hard work. it is hard to do. i have gone through the budget, and i haven't read the whole thing yet, but i did read the first pages of this budget very carefully, and it is the president's message. i want to read a couple of things here to remind people that this is not a way to start out a discussion of bipartisanship when you have in the very first pages of this

document did i vice sifness. here says i presented another balanced plan to achieve $4 trillion in deficit reduction. unfortunately, republicans in congress block both our dech sit reduction measures and almost every part of the americans jobs act for the simple reason they were unwilling to ask the wealthiest americans to pay their fair share. it goes on several pages. i am not going to read the whole thing. it just continues to talk about republicans, republicans being bad people that don't want to work with him. this does not set a tone of bipartisanship, and this is the leader of our country and i have to start off by saying that. this is very disappointing to me that would be the first page of the document before we even get into talking about what is good or bad in here. let me turn the attention to something that again is very important to me as someone who comes from a healthcare

background. first, i want to ask you would you agree that medicare is the biggest driver of our debt? >> over the next 50 years, yes, not over the next ten. >> you don't believe that currently with 10,000 seniors retiring every day that it is a driver of our debt currently? >> no. object why usually the biggest parts of spending in the budget are medicare and medicaid and social security and the defense budget, so those costs actually matter a lot, but the growth that really starts to hurt us builds a little more gradually. >> well, and you are right because we did see the chart at the beginning, and you even acknowledge there that that begins to grow pretty rapidly with the retirement, the rising number of millions of americans retiring. >> starting 20 to 30 years from now, yeah. >> but what you are saying to me is we should not worry about that now because that's not to be worried about in l 20 years down the road. >> no.

i am a very strong supporter of early action on these things because the longer you wait, the more damage you're putting the country in. what i am pointing out is that we believe it would be a substantial step forward for us to come together and agree on how to fix our problems the next ten years even if we can't agree to solve them for the next 100 years. >> i know my time is running out rapidly here. i do want to at some point in time send you some questions and have you answer them for my purposes of writing, but the president did acknowledge this was a problem because he had the simpson-bowles commission take a look at this and they had bold entitlement reforms in there in the document in the moments of truth. did the president adopt any of those in this document that we're looking at? >> i am glad you raise that. i should point out we're much closer to the broad strategy in simpson-bowles than what people refer to commonly as the republican budget. if you look, for example, maybe

one exception in the sense that neither the republican budget nor our budget provides a detailed social security reform plan. if you look at the broad balance of spending and tax cuts, we're much closer to sbsz than is the republican budget. >> and i am going to reclaim my time because i only have 48 seconds left here. we did not see bold measures in this budget reform because what i have read in there, what i have seen, is that the way that this administration determines that we should balance this budget at this point in time with the medicare is on the backs of our providers. >> we are proposing $370 billion roughly. you can decide whether that's bold or not over ten years. it is a substantial chunk of money. >> i think it is pretty bold. >> we think this is fair. we're putting those primarily on pharmaceutical providers and other providers of healthcare. >> physicians. >> not significantly on

physicians actually. some modest changes to beneficiaries in that context, but you can choose a different way of doing it but if you don't do it that way, you do it on beneficiaries. >> miss bass. >> thank you. thank you, mr. secretary for your time. i just wanted to ask you a couple of questions, and then thought before my time is ended that you might want to take a few minutes to respond to several things that you didn't really have an opportunity to respond to because your time ran out. you said a few minutes ago that you felt that the budget that you are presenting stabilizes the debt burden in a few years as a percentage of the gdp, i think you said down to 3%. i wanted to know if you could specifically describe a few ways that that happens.

>> it takes $4 trillion in spending in deficit reduction over ten years to get the deficit down to the level you achieve that measure of sustainability, and we propose to do that with a mix of spending cuts and increases in the ratio of roughly 2.5 to 1, the spending cuts in the form of the trillion dollars in caps and cuts on discretionary meaning defense and non-defense discretionary spending we agreed to in august combined with an additional 1.5 trillion spending cuts that compose part of substantial reforms to medicare and medicaid and other mandatory programs like, for example, farm subsidies and then alongside that we propose a little more than $1.5 trillion in revenue increases which is roughly 1 percentage edp. the combination of those would reduce the deficit over the next five to seven years to below 3% of gdp which again is a level that you need to achieve once

people call primary balance, the place where revenues cover your expenditures minus interest, and for an economy like ours that normally grows at 2.5%, it is a level that would stabilize our debt burden at a manageable level. again, that only buys us ten years or so. ten years is a long time, though, pretty substantial contribution. we'll have to go beyond that and build on the affordable care reforms and the medicare reforms to do other things to get our healthcare commitments to a more sustainable level. >> you know, as i listen to my colleagues on the other side of the aisle, especially in the early questions, there were several questions that came up around tax reform and entitlement reform. i am here as a freshman member, so it is just my second year, but i want to know if historically you can give a couple examples where a president put forward a budget that included major policy changes along with the budget

because major policy changes along with the budget. because it would seem to me, and i want to see tax reform especially. but i don't know if it would even be appropriate to be included in -- >> you're right, the chairman would know this better than i but the major tax reform changes were not proposed in budgets. they were done in a separate process. the tax rating committeeing normally took over the burden of that responsibility. on the entitlemental reform side, you're right to point out that this is the most successful renorms that were proposed by a by partisan -- to that's good history and a good example.

so we have laid out both in the budget and outside the budget some reforms, but that can only be the beginning of the process. because as you know, the way the balance of powers is written in the constitution, congress has the power of the pen and has to write the laws of the land. and it's just obvious to say this, and this is the challenge we face. you cannot do these things without finding bipartisan agreement and we did some, i know we were disappointed by the outcome, but we did some -- we did some important foundation in the supercommittee dialogue and we're going to build on that going forward to find out how to come closer together. >> and maybe we need to see some of those proposals because it seems like some of my colleagues have not seen that proposal.

>> again, i -- you know, you got to start by exchanging ideas and you have to start by agreeing on a fundamental principle. then it's easier to move forward on the details. we're not debating whether or not we like our plans at the moment. we have to figure out how to make them overlap a little bit. >> mr. secretary, thanks, good to see you again. >> good to see you. >> i'm sure this is not the funnest part of your job. >> i enjoyed this discussion because this is about fundamental things. but you like yours and we like

ours. >> i spent years -- what were you thinking is what i wanted to ask you. >> it's a legitimate question to ask. i ran because i'm afraid for my grandchildren, it's as straight and forward and simple as that. i'm here for them because we have a problem. if we cannot, somehow, the administration and the congress, republicans and democrats finally recognize that we have a major problem and admit it and be honest with the american people and honest with each other, we cannot move forward. and i think you would agree with that? >> yes, i would. >> i would plead with the republicans and the democrats, debate every idea on its merits and come up with a solution. i'm willing to do that. i'm willing to work with you to do that.

here's some concerns that i have. last week mr. bernanke said the best approach would be to put in a long term solution. >> i think he would be thrilled with ten years. >> i want to address two things, one is cost of medicare, we came up with an idea, and it was an idea that warranted debate. i want to talk to you about interest payments. you've got nearly $5 trillion of interest by the end of the decade, ---6% of outlays. based on projection, if we look at the trend lines here, it's going to go to 25% or 30% or

40%, given that the estimates that you use for interest rates stayed pretty much the same. i want to know what your feelings are about confidence regarding interest rates if the trend line there continues beyond 2020. >> that's a very important point. you're using the nominal deficit number and what matters for confidence and credibility and interest rates and growth, is whether the debt ratio of the economy stays at a moderate level and if you were to go that chart in terms of gdp, you'll show that deficits come down to the level that stops the economy from growing. >> so you're pretty comfortable with the interest rate

projections that you have in your budget? >> absolutely i am. because they assume, they have to assume that congress would enact proposals to bring the deficit down that far. >> and we have an increasing of dollar value of debt each year? >> this is very important. we're a $14 industrial chron econo $14 trillion economy. what this shows you, it stablesize as as a share of the economy in the second half of the decade. as i acknowledged, that's not enough. if you just did that and then went home, then 30 years out you have a real problem.

>> especially when you put 60% in terms of medicare. this becomes a practically crisis problem. i know you're concerned about the ten-year window. my youngest grandchild is 6. i'm here for the longer term. >> i am not minimizing the long-term problems. i know them better than almost anybody, all i'm saying to you is, that we budget in ten-year windows. that's our obligation and we are proposine ining a balanced pack >> and i wish the president would have passed simpson-bowls, it was his own commission and they didn't accept it. >> on the simpson bowles, i

think one of the principles they laid out, when we're talking about medicare, medicaid, social security. the principal is to not put the burden on the backs of the vulnerable. i think that's the disagreement we have here. >> can i say something about simpson-bowles? a few differences on simpso simpson-bowles. it has a social security package that weighted to -- we're very close, on the tax side we're very close, we go deeper on discretionary spending, on nondefense than simpson-bowles propos proposed.

so we're actually very close on broad strategy to simpson-bowles with those two exceptions and the proposals we made last april and last september. we show you how close we have come to the basic context. where you guys are apart from simpson-bowles is two things. one, they have much higher defense levels than you, and they have much lower revenues, and that's the difference. if we can use that as a start for negotiations, then we're in a good position. >> there was another comment earlier regarding small businesses. and i think you were attempting to define what small businesses were and also trying to indicate where the