a kentucky derby horse, probably, right? >> just to give you an example, when the clinton administration left office in 2000, cbo projected surpluses over the next ten years of roughly $5 trillion. in that eight-year period we swung from $5 trillion projected surpluses to projected deficits in the range of about a trillion. it shows you what can happen in a short period of time when people make bad policy choices or when you face financial crises. ten years is hard to predict. 20 years is impossible. 40 years is ridiculous. >> thank you for that. i do want to make one comment on mr. price's question to you about small business owners. they used -- republicans use this argument a lot and say that this 2% of small business owners represents 30% of small business income. does that not essentially undermine their point because

this very small percentage of small business owners is making a lion's share of all the income from small business owners and therefore -- >> another way of saying it -- >> it's kind of hard to argue that 4.6% more of their taxes is going to be an impediment to them. >> they may be small by somebody's definition but they're rather rich. i think the more important thing to say is if you're not going to raise revenues by allowing the effective tax rates to rise modestly for the top 2% of americans, top 2% of small businesses, who are you going to ask to pay more taxes? whose benefits are you going to cut? that's another way to think about the trillion. the reason why this is so important for the outlook for the business community is if you try and find that 1% gdp in revenues, in this near term period, through cuts in infrastructure, defense spending, medicare benefits, low income programs, infrastructure, then you will do more damage for the demand to the demand for their products.

they will have less products they can sell. they won't be better off for that reason. we think this is a better package for growth in the alternative if you are going to commit to lower the deficits. >> i can't let you get away since you're talking about products. i have to mention the proposal of the administration again to do away with the lifo accounting method which would have very dramatic effects on the bourbon distilling industry in my state and something that has become a growing expert. yesterday i asked mr. zince whether or not in constructing the proposal to end lifo that there is a consideration of the broader economic impact of ending that. and, of course, i'm particularly interested on the distilling industry than others. has there been an analysis of broader economic impact? >> we have looked very carefully as we always do on the impact of those proposals on the industries affected. in our just a minute the impact is modest and manageable, but,

of course, no one likes to see their taxes go up. and our basic problem, of course, is when you have to govern with limited resources is who are we going to ask to pay for those special taxes? they do go to a broad range of industries. i understand they have a long tradition. i understand the merits of them but the fundamental problem is we face unsustainable deficits and we have to find a way to make the system more fair so that businesses and similar circumstances are paying roughly the same effective tax rate. >> is there an analysis because i know for instance one corporation based in my district which does $3.4 billion worth of business pays something like $800 million on excise taxes on its product, a heavily taxed industry. is there something we can look as port of the record that we can anl size. i know part is about oil and gas and that's the lion's share of it, but oil and gas doesn't taste at all like bourbon. i'd be happy to demonstrate that to you. >> i think the chairman should

serve bourbon at our hearings to show the -- >> if you have that kind of analysis, i would love it. >> i'd be happy to give as much information as we can to you in that context. >> thank you, mr. secretary. >> mr. chaffes. >> are you calling upon the senate to pass your budget? >> i thought you might ask this question because i heard you guys do this over the last few days. i'm not a budget process expert. you guys are the budget committee. but i'll offer a few things in response to that. the senate does not need a budget resolution in order to pass appropriations bills, pass tax cuts, tax reforms, pass entitlement reforms, pass mandatory savings. as you know, pass the american jobs act, pass the payroll tax cut. that's a budget process question. what we want to do is get this -- we'd like to senate and the house together to find more things they can do together that

would improve economic growth and jobs. >> i would love to hold hands with harry reid. we have done our job in the house in the past and passed budget bills or the budget here. it's a simple question. are you calling upon the united states senate to pass the president's budget? >> we are calling -- absolutely calling on the united states senate to embrace -- the house as well to embrace the fiscal reforms we proposed in the budget. absolutely. >> are you calling upon the senate to pass the president's budget? if so, why is it reasonable for them to do that? >> i answered your question. can i just say one thing? it is not -- the test of governing and legislating if i'm not mistaken is not for you to send the senate things that you know will not have bipartisan support. that's not a test of legislating, i don't think. >> i'm asking about a democratic president, president obama, and this administration and you as the secretary of the treasury, are you calling upon the senate, which is controlled by the democrats, to vote on and pass

your budget? >> as i said, absolutely we would like the senate and the house to act on the senate reforms that the president has proposed in the budget. that's what a budget is for. i was pointing out that you said you have done your job by the -- i don't think that's the test of legislating in a divided country with divided government. >> so is it fair for me to say that you're not calling upon the united states senate to pass this budget? >> no. it would be fair to say what i just said which is that, yes, we would like the senate and the house to pass sensible fiscal reform that would help the economy. we'd like that to happen. >> i find it stunning that the senate has yet to pass a budget more than 1,000 days. it's terribly frustrating on this. >> you say that to me if you want. you're using your time poorly because you guys have been saying it for five days in a row. >> i don't want you to tell me how to do my job because we're doing our job here. we're doing our job here. we are passing budgets and we are passing legislation that sits and stalls in the united states senate. and it's frustrating. you can smile and laugh about it all you want. >> i can help you with other questions.

i can't help you with that one because that's about the senate. >> i think that's part of the challenge. the white house is not calling upon the senate to get involved in this game and pass a budget. that's the way we come to a reconciliation. that's how we work these things out is when we pass something and they pass something and we come together in a conference and we work on it. if they refuse to do their job, if they refuse to actually -- and the white house is just going to sit here giddy with the silly little smirk and laugh about it like, oh, we can't do anything about it, then we make no progress. that's part of the frustration. let me ask you about the january budget and economic outlook that was put out by cbo that estimated that the stimulus didn't cost $787 billion but actually cost $821 billion. would you agree or disagree with that analysis? >> i haven't seen that. but i'd be happy to take a look at it and get back to you. >> thank you. i would sincerely appreciate it. on page 2 of your testimony in the top paragraph, for members who are looking at this, you have this one particular

sentence in here that i would take some issue with. it's the end of the first paragraph, top page, page 2. these savings are sufficient to stabilize our debt as a share of the economy by 2015 and begin placing our debt on a downward path. what's troubling here is when i look at the total debt held by the federal government, when president obama took office it was roughly 9 trillion. now it's going to be projected under your numbers and your budget to be at $26 trillion. the president has never put forward a budget that actually balances to actually pay down the debt. is that correct? >> we propose reforms that as i said would reduce the budget deficit to a level that is sustainable defined as a level that stabilizes the debt burden at an acceptable share of the economy and starts to bring it down. that's the -- >> what percentage would that be? what percentage of debt is acceptable? >> the deficit level you need to stabilize the debt has to be slightly below 3% of gdp. if we do it in this timeframe

that would stabilize the debt burden as a share of the economy and we measure this as net debt held by the public, net of financial assets, in the 70s as a percent of gdp. that level is a manageable burden for us. as we all said and your charts show, that's a start. because if you only do that, then in the succeeding decades those costs start to grow again. >> i would like to address the $25 billion agreement amongst the 49 states attorneys general and the five largest mortgage lenders. in new jersey homeowners will receive $762 million in direct relief. with the majority going to refinancing. however, the overall agreement 17 billion or principle reduction is nothing compared to

the 700 million total in negative equity for homeowners in this country. that is, to me, a big deal. in august of 2010 the new york fed in this document found that a principle writedown of a mortgage with 18% negative equity would cut the probability of default 40%. that's a big deal. within one year of modification. considering nearly half of all outstanding mortgages are owned by mehdi mac and fannie mae, correct? my friend from new jersey? it seems we have a simple solution. tell me where it isn't so simple. secretary donovan recently commented on fannie and freddie. we need to break the logjam of principal reductions. and as you well know, treasury has offered triple incentives to

banks and mortgages, mortgage companies willing to cut mortgage principal for under water homeowners through the housing affordable modification program. you have talked about it some time, haven't you. the need for principal reduction is very apparent not only in new jersey but some other states obviously while the decline in the median price, median price of a single-family house, home, outpaced the national average by 3.7% drop, a 3.7% drop with bergan county having 8% drop last year. that's big. and an even higher drop of 8.4% right next door. mr. secretary, the need for principal reduction for freddie and fannie held mortgages is

apparent. is it contained within the president's 2012 budget? and if it isn't, why isn't it? >> it doesn't need to be in the budget because we believe that fannie and freddie have the clear authority to provide principal reduction in cases where it is clearly beneficial to the taxpayer to do it and there are a range of types of mortgages where that is the case. so we -- sounds like you support, we are working closely with the gses, fannie and freddie, fhfa, to encourage them to take another look at the math because we think it is in the taxpayers' interest to do it. >> 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 has to pay his taxes, and this is dragging down on the entire economy. i don't really see anything tangible. i'll listen, with the minute i have left, in this budget that addresses the deepest problem going on in america. because that's our dream. people worked hard for their homes. and we think it's better to put them out so we lessen risk? that's where fannie and that's where the other group is, period. >> congressman, i am agreeing with you. the only thing i was saying is we believe that fhfa has the authority now, and that's why it's on 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 this context in the 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'm 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. stutsman? >> thank you mr. chairman and mr. geithner. thanks for being here. i just want to follow up a little bit on mr. chaffes questioning. 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. right? >> because of 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 comes from the administration, this seems to be a waste of time. if it's not going to get a single vote in the senate, democrat controlled senate, why do we 'en want to go through this process? why even go through the time of putting a budget together if you haven't worked with your democrat colleagues 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 of course worked closely with the democrats. and the proposals in this budget try to build on the talks we had over the course of the summer and, of course,'veen the work of the super committee in the fall. so we think this is good policy. and the reason why it's worth paying attention to is 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 senate. >> i am not worried about the distance between -- i am worried about the distance between -- but that's why it's 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, over 60% are unincorporated pass-throughs. 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%. if you take p.e.p., reinstate p.e.p., that's 2% in medical taxes -- medicare taxes 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 >> do you have any 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 amount in a large tax increase. but 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. so we have proposed a lot of different things on a temporary by sis. for example, last year we proposed and you all embraced a one-year period of 100% expensing for businesses. you couldn't make that permanent in a responsible way. but it's good policy for a temporary basis and this is one of them. >> but cbo is saying we could see the economy stagnant for the

next five years. why not make it a five-year fix or five-year rate instead of making it towards the end of 2012 when it looks political? >> good question. cbo's 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 te stroi medicare and social security when that is not the case whatsoever. but then the president turns right around and cuts the payroll tax rates to -- which actually funds social security and medicare, so there's less

money going into those programs. >> that's not >> 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 -- >> from 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. i -- should we be -- i'm not sure i understand it. do you want to extend the payroll tax cut longer? >> i'm 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. i yield back. >> time is expired. i would remind our witness, you're the witness. they're the questioners. this is the legislative branch on this side. you're the executive branch on that 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's that.

we are to ms. castor. >> thank you, mr. chairman. welcome, mr. secretary. i would like to ask you about identity theft and tax fraud. because in the identity theft and tax cut n. the fall of last year. she said where are all the criminals on the street. all the other drug dealers are gone. 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's so easy. and they can put in hundreds of these. and you should see what the

postmaster general have. just row afro of those debit cards, green dot, other checks coming to post office boxes. some that they've been able to get -- in fact, the bust last year was $130 million worth. and that's just the tip of the iceberg. this is not just in tampa, florida. this is happening all over the country. and we have got to get a handle on it. here is one of the problems. the tampa police department advised me that their vision was complicated at every turn by law that is 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. so here are the two primary issues. first, what can we do to address that? we've filed legislation, my republican colleague who is a former sheriff, nugent, he understands this. but we can't wait for legislation. two, the irs has got to have better screens and filters, checks, especially now here is tax finaling season. the tampa police department said in the first part of the year now they have $9 million more in fraudulent returns that they've recovered. so we've got to get a handle on this to protect the taxpayer. if we're looking for cost savings, we can start by putting a stop to this problem. >> you're right. i appreciate you drawing attention to this problem.

and doug schulman is 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're not entitled to. one thing we'll need is we are going to need some more resources to the irs to make sure we have enough in the enforcement budget. i'll be happy to look at the legislation and consult with the irs and have my clients come talk to your staff and see how to reduce the remaining barriers. >> because the -- colleagues, i ask for your help as well. if you go back and talk to your local law enforcement and they tell you they're not aware of it, they just haven't found it yet. it is so easy. they steel the identities of people who are deceased. we've had cases where people working in nursing homes go in and still personal information, even children. here is the problem with the irs. they said if your return -- if

your refund is less than $10,000, that's not enough for us to investigate. that's a real problem. they've got to come up with some strategies where, if somebody has a post they're getting 25 checks, the irs has got to be aggressive on this and cooperate. >> they're very aggressive. but remember they don't have unlimited resources. they have to devote those resources to where the highest return is and get better tax complying done. we have a problem. happy to talk to you about how best to solve it. i very much appreciate the support we've gotten to make sure the irs has the resources to do a better job in this area. >> thank you. >> 25 seconds. ms. black. >> thank you, mr. chairman and thank you mr. geithner for being here today. we had some time yesterday. >> we did. enjoyed it. >> a little more time here today. i want to start out by making a comment about this division and

divisiveness here on capitol hill. and it has disappointed me in the last year i've been here. i came from a state legislature where i worked with bipartisan support on very difficult issues. i know what that's like. it's hard work. it's hard to do. but i've gone through the budget, and i must say i haven't read the whole thing yet. but i did read the first pages of this budget very carefully. it's 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 divisiveness. here it says i presented to congressional republicans another balanced plan to achieve $4 trillion in the deficit reduction. unfortunately republicans in congress blocked both our deficit reduction measures and almost every part of the american jobs act for the simple

reason they were unwilling to ask the wealthiest americans to pay their fair share and it goes on several pages. i'm not going the read the whole thing. but it just continues to talk about republicans, republicans being these bad people that don't want to work with him. this does not set a tone of bipartisanship. this is the leader of our country. i've got to start out by saying that. this is very disappointing to me that that would be the first pages of this document before we even get into talking about what's good or what's bad in here. now, let me turn the attention to something that is very important to me as someone that comes from a health care background. first i want to ask you, would you agree that medicare is the biggest driver of our debt? >> over the next 50 years, yeah. not over the next ten. >> but you don't believe that currently with 10,000 seniors retiring every day that it is a driver of our debt currently?

>> obviously, the biggest parts of spending in the budget are medicare, medicaid, social security and the defense budget. those costs actually matter a lot. but the growth that really starts to hurt us builds a little more gradually. >> well, and you are -- you're right because we did see the chart at the beginning. 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're saying to me is we should not worry about that now because that's not to be worried about until 20 years down the road? >> not at all. a, i'm a very strong supporter of early action on these things. the longer you wait, the more damage you're putting the country in. what i'm pointing out is that we believe it would make -- it would be a substantial step forward for us to come together to agree to how to fix our problems for the next ten years,

even if we can't agree on how to solve them for the next hundred years. >> i know my time is running out very 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. the president did acknowledge this was the problem because he had the bowles-simpson commission take a look at this. they actually had bolden titlement reforms in there, the documents, entitlements of truth. did the president adopt any of those in this document we're looking at? >> i'm glad you raised that. 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. but if you look at the broad balance of spending and tax cuts, we're much closer to simpson-bowles than is the republican budget. >> i'm going to reclaim my time.

i only have 48 seconds left here. we did not see bold measures in this budget reform because what i have read in there and what i've seen is 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's a substantial chunk of money. >> i think that's very bold. >> you're right, we think this is fair. putting those primarily on pharmaceutical providers and other providers of health care. >> like physicians. >> not significant on physicians actually. and some modest changes to beneficiaries in that context. but, you know, you can choose a different way of doing it. if you don't do it that way, you can do it on beneficiaries. >> ms. bas