screeria -- nigeria. - regulations.

and later, idaho governor butch otter delivers the state of the state address. white house budget director shaun donovan was on capitol hill again wednesday to defend the president's 2016 budget request. the nearly $4 trillion proposal was released monday. his testimony before the house budget committee is almost three hours.

this hearing will come to order. i want to welcome all to the budget hearing of the president's fiscal year 2016 budget. as we begin we've been directed by the department of justice that it is most appropriate to swear in each witness, to please take no offense, mr. director, but as we discussed if you would please stand and raise your right hand. you solemnly swear, affirm that the testimony you are about to give will be the truth the whole truth and nothing but the

truth? let the record reflect that the witness answered in the affirmative. thank you. good morning, all. i want to thank everybody for being here and being on time. as we discussed in last week' hearing with the congressional budget office director there's no question that our nation is on a fiscal and economic path that is unsustainable. our national debt has topped $18 trillion and continues to grow ever larger. our vital programs that folks rely on are heading toward insolvency and our economy isn't growing nearly as fast as it should be. if we maintain this status quo we'll have a future of less opportunity and less security for the american people. so it's clear. it's clear that we need to move in a different direction and that requires new ideas that can actually deliver real, positive results. unfortunately, what the president has proposed in his budget fails on so many levels to solve the challenges that we face. director donovan, i want to thank you for being here today. i look forward to your testimony and explanation of the president's reasoning behind his

budget proposal. but to be honest with you, my colleagues and ion this committee have very serious concerns with what the president has put forward. a lot of what we have in the president's budget is just more of the same policies that have been tried over the past few years and have led us to the current state of high and soon to be rising again deficits and an underperforming economy. the president is proposing $2.1 trillion in tax increases and $2.4 trillion in spending increases. he's suggesting that washington ought to take more from american families and job creators in order to spend more here in washington. that's a formula that hasn't worked in the past and is not likely to work starting now. every dollar that's taken from americans in taxes and every dollar borrowed is a dollar that can't be spent on paying for your child's education, on buying a car, on paying your rent, on paying your mortgage or buying a house. all things that american people want to do we would suggest are made more difficult because of the president's budget. now, despite the president's

massive tax increases his budget never, ever, ever comes to balance. the president is saying we should keep spending more money that we don't have and leave the serious problem of our growing debt to someone else or to some other day. $8.5 trillion will be added to the debt over the next ten years and the president seems content to do little about it. even more disturbing is the fact that the president is once again just ignoring the challenges in our retirement programs and leaving current and future generations to fend for themselves when these programs eventually collapse. isn't that just doing nothing and breaking the promise to today's seniors and tomorrow's retirees. in order to increase spending across the board, the president's budget would unravel bipartisan agreements that have secured a modicum of spending restraint in recent years. we can all agree that there are smarter ways to control spending and get our fiscal house in order. that the president is not proposing a smarter way to restore fiscal responsibility, he's simply abandoning the

effort. at the end of the day a proposal that never balances and ignores key drivers of the nation's debt is not a serious plan. to make matters worse the president's proposal is filled with a trillion dollars in budget gimmicks like phony war savings and several unpaid for extensions of current law, including the doc fix and stimulus credits. the american people are looking for credible solutions, not misleading assumptions and questionable accounting. hard-working taxpayers deserve nothing less. they deserve our very best. starting with his state of the union address, the president has sought to repackage his old ideas under a new slogan, middle class economics. unfortunately, it's the middle class that's being harmed by these policies with wages stagnating, businesses facing barriers to growth and opportunity and more tax dollars being taken out of the pockets of americans and wasted away here in washington. director donovan i want to thank you again for joining us today. it's clear that we have significant differences of opinion, but i look forward to hearing your testimony and i hope and pray that we will be

able to work together to find honest solutions to the remarkable challenges that we face. i'm pleased to yield to the ranking member mr. van hollen, for his open statement. >> thank you, mr. chairman. i want to join the chairman in welcoming you here director donovan. thank you for your service to the country. and i'm pleased we're here to address the president's fiscal year 2016 budget. unfortunately here in congress we haven't completed action on the fiscal year 2015 budget process. in fact just a few weeks from now, the short-term funding for the department of homeland security will run out and as we gather here, republicans in congress have threatened to end the funding for the department of homeland security because of disagreements with the president's immigration reform policy. so i would urge our republican colleagues to pass your own immigration reform bill here in

congress and not threaten the funding of the department of homeland security, especially when we've seen increased terrorist threats in europe and elsewhere around the globe. the chairman also mentioned the issue of budget balance. i would just remind my colleagues who were returning and the new colleagues who joined us that last year's republican budget only came into balance because it kept the revenues and savings from the affordable care act and yet just yesterday for the 56th time i believe, in the house they voted to repeal the affordable care act. you can't have it both ways. that is truly phony accounting to say you've got a balanced budget and then rely on revenues from the affordable care act. so the good news is that we're actually meeting at a time the economy is much improved. we saw from the december jobs report growing jobs. in fact jobs grew last year at the fastest pace since 1999. deficits have been cut by two-thirds in terms of the share of the economy. the stock market has doubled.

it's all very good news. and much of it would not have been possible without the tough decisions the president made right after he was first sworn in to stop the economic freefall and to put the economy on a path to recovery. it is certainly a good thing the president ignored the advice of many here in congress who proposed a european style austerity program simply to totally gut federal investments. the reality is that since 2010 more jobs have been created in the united states than in europe, japan and all the advanced economies combined. while there's been a lot of good news there is one stubborn challenge that remains. and i want to put up a chart here. this is a chart that goes from 1950s to the present. and the top line the dark blue line is worker productivity and the bottom line is worker compensation for most workers. and what you see is that from 1950 to the late 1970s, workers'

productivity was matched by gains for the average working family. but starting in the late 1970s, you had this great separation. american workers working harder than ever but not seeing the real gains in their paychecks. so where did all those gains go? can we go to the next slide. most of those gains have gone to folks not just at the top but the very, very top. the top 1%. now addressing this issue, it's not just a question of economic fairness. the fundamental issue here is one of economic growth and a pro-growth strategy is one that promotes more broadly shared prosperity, giving hard-working americans a larger share of the economic pie can make the entire pie grow faster and that is the focus of the president's budget. it's a budget that boosts the take-home pay of middle class families and those working to join the middle class. its reforms include tax cuts for

families, significant tax cuts to cover the cost of child care and college. it supports increased retirement savings by working families and increases the child tax credit. the president also understands that raising pay requires strategic investments to sharpen our competitive edge in the 21st century. it helps accomplish that by investing in education from early education through k through 12 through college by making a $478 billion investment in modernizing our infrastructure, by closing a lot of the tax breaks that drive companies overseas, and it does that while reducing the baseline savings by $2 trillion over the ten-year period and stabilizing the debt to economy ratio. so that's a pro-growth strategy that lifts the paycheck of -- paychecks of all americans. we know the trickle down

economics failed we know the idea of providing tax rate cuts to folks at the top failed. it did succeed in raising incomes of folks at the top and increasing the deficit. let's have a budget that helps 100% of americans and helps the economy grow even faster. that's what the president's budget does, and it's great to have you here, director donovan. >> given the time constraints, i ask that members insert their written statement into the record and i'll hold the record open for seven days in order to accommodate those members who may have prepared statements that they'd like to insert. mr. donovan i want to thank you again for your time today. the committee has received your written statement and it will be made part of the formal hearing record. you have five minutes to deliver your oral remarks and you may begin when ready. >> thank you chairman price, ranking member van hollen, members of the committee. thank you all for welcoming me here today to present the president's 2016 budget. in my first few months i've heard from so many of you on both sides of the aisle the need

to get back to regular order on our budget process and i hope that this on-time budget that i'm presenting today is the first step in helping us do that. the budget comes on the heels of a break-through year for america and builds on our economic and fiscal progress, including the fastest job growth since the 1990s and the fastest sustained period of deficit reduction in 60 years. the budget is a blueprint for the president's vision for middle class economics in the 21st century. this means helping working families by making their paychecks go further preparing americans to earn higher wages and making america the place where businesses decide to innovate, grow and create good, high-paying jobs. the budget shows we don't have to choose between investing in the middle class and being fiscally responsible. first, because we cannot afford a return to mindless austerity, the budget proposes to end sequestration, fully reversing it for domestic priorities in

2016, matched by equal dollar increases for defense. by replacing sequestration with a combination of smart spending cuts, program integrity measures and common sense loophole closures, the budget makes room for investments in our economy and our national security. for example on the domestic side where sequestration would cut r & d to nearly its lowest level since 2002 adjusted for inflation, the budget supports cutting edge research like precision medicine efforts to combat antibiotic resistance and the brain initiative which is helping to revolutionize our understanding of the human brain. likewise, rather than cutting inflation adjusted national security funding to the lowest level since 2006, the budget makes responsible investments to protect our national security restoring readiness and the investment in modernization needed to ensure america's needed technological edge. i want to emphasize that every investment in the budget, including both discretionary investments made possible by reversing sequestration and

mandatory and tax changes are more than paid for through spending and tax reforms. for example, the budget would provide new and expanded tax credits for middle class families and would more than pay for these investments by reforming capital gains taxation and making it more costly for the biggest financial firms to finance their activities with excessive borrowing. it also uses one-time revenues from pro-growth business tax reform to pay for an ambitious six-year surface transportation proposal that will give states and localities the certainty they need to invest in infrastructure that will spur innovation and accelerate job growth. meanwhile the budget also achieves $1.8 trillion in deficit reduction not including reductions to oco primarily by focusing on the key challenges. health care cost growth and inadequate levels in the face of an aging population. building on the historically slow rates in years that have

significantly improved our fiscal out look the budget includes roughly $400 billion in health savings which grows significantly over time raising about $1 trillion in the second decade. the budget also raises about $640 billion in net revenue for deficit reduction from curbing inefficient high income tax expenditures. and this year's budget again reflects the president's support for common sense comprehensive immigration reform along the lines of the bipartisan senate-passed bill. immigration reform would reduce deficits by almost $1 trillion over two decades while strengthening social security and growing the economy. as a result of these measures the budget maintains deficits well below the 40-year historical average during every year of the budget window. it meets a key test of fiscal sustainability, putting debt as a share of the economy on a downward path showing that investments in accelerating growth and a strong middle class are compatible with strengthening the nation's finances. to ensure that our country

remains strong and prosperous both now and in the future, it makes smart investments to give every american the chance to contribute and to share in the benefits of growth. i look forward to working with congress and this committee in the coming months. thank you. i look forward to taking your questions. >> thank you mr. donovan. sometimes it's difficult to find the consistency within the statements that are made and the actual budget and i want to go through a couple items. the first that i'll just point out is that the mindless austerity that you refer to and the president refers to is actually the president's idea of the sequester when it came up in 2011. so it might be a little better to put that in a different phrase. i do want to however, turn to the issue of this dollar for dollar point that you've made and the president made. the president stated this past monday that he would match --

quote, match the investments that were made domestically dollar for dollar with increases in our defense funding. as you just stated in your opening statement and in your prepared remarks this budget ebds sequestration, fully reversing it matched by equal dollar increases for defense. if you dig through the budget to your tables and the table that i'm referring to is on page 132-s-10 that show the discretionary cap changes over the budget window, you show in your rhetorical gains for defense that are early that are taken back in the out years. after 2021 you propose reductions in defense and nondefense categories. interestingly, however the reductions for defense are almost $100 billion larger than the nondefense reductions. as you can see on the slide. and over the entire budget window, you proposed an increase for defense above the caps of $9

billion but an increase for nondefense of $102 billion. so, mr. donovan, i would ask you how do you account for this mismatch in the president's words and his action as demonstrated in the budget? >> congressman what we've done is to look at the six years replainingre remaining of sequestration and in each of those years to add back dollar for dollar relative to the baseline which is obviously based on current expected law. so the critical point that we are making is that we ought to be particularly given that discretionary spending is now near its lowest level as a share of our economy as it's been in 50 years we ought to be looking to do more on the discretionary side and we do add back dollar for dollar relative to the current baseline and then to offset that with the smart fiscal choice of finding both

mandatory savings and new revenues that can more than offset those discretionary increases. and so what we're really talking about is relative to current law, ending sequestration and adding back over the remaining six years dollar for dollar. >> i appreciate that. but the budget is a ten-year window. we look at ten-year numbers. cbo looks at ten-year numbers. omb looks at ten-year numbers. i would point out just tangentially that the defense budget is at its lowest point in 50 years as well. so this discretionary side is getting pinched on all sides. and i just think it's important -- isn't it disingenuous for the president and for you to say that these dollar for dollar matches are in place without completing the sentence, which is oh, by the way, at the end of the budget window they're not? in fact we spend a whole lot more money for nondefense than

for defense? >> one of the things that we made clear in the budget, we've worked very very closely with the department of defense and the joint chiefs to make these additions. i think we've done them really focused in a strategic way in the key areas that allow us to keep our technological advantages over our adversaries while also looking for smart savings. we are also working with them, and we expect to present a plan to congress in the next few months to look at what we do about overseas contingency operations and trying to make sure that enduring costs are added into the base budget as well. so i think this is an area where we can certainly have conversations going forward about whether the far out years of the budget need to be adjusted. as you know, the military really plans through their fit op through a five-year period and that's the key focus in this budget. >> let me just urge you to add that clause, that at the end of the budget window, they're not

dollar for dollar. folks back home say they can't understand why we're spending the kind of money that we're spending on things like the epa and nlrb which are job killers in my district and in our state when we're not funding the important areas of defense. it's a very dangerous world as you well know only demonstrated every single day. i want to switch to the issue of social security disability. as you know the social security disability fund is going in insolvent next year. there's a proposal to reallocate payroll taxes to address the looming insolvency of the disability fund. what impact does that transfer have on the social security retirement trust fund? >> well, on a combined basis, the two trust funds would be -- their reserves would remain in place until 2033. so it is a very very small impact. in fact i would point out that

this kind of reallocation has been done many many times under both parties and, frankly, has been done in both directions. it's a simple step that we can take, a small reallocation, that would ensure that folks who have paid into the disability trust fund earned those benefits, that those benefits wouldn't be cut next year by 19%. >> let me -- and that's the point, that they would be cut by 19%. but let me -- let me just call your attention to a question that one of my colleagues, congresswoman black asked last week of the cbo director doug elmandorf. she asked if moving moneys from one fund to the other wasn't robbing peter to pay paul. and he said you're not going to accomplish that by moving money around between them, unquote. do you agree with the director's

assessment? >> first of all, i would say that we should not pit the recipients of disability insurance against others who rely on social security because -- >> isn't that what you're doing? >> -- because they really are the same people. because you may be disabled before you reach retirement age and then benefit from social security later. second of all the impact is very, very small. what we're talking about is moving the exhaustion of reserves in the retirement trust fund from 2034 to 2033. we do much more in our budget to strengthen the social security trust fund beyond those -- that time than that very small reallocation, again, which has been done under both parties many, many times in both directions. >> let me talk about what this administration has done to social security. i want to draw your attention to this slide. this is -- when the president came into office -- when the president came into office, social security trust fund was slated to run -- become insaul

insolvent in 28 years. in six short years it's down to 19 years. so this is what the administration has done in just a few short years. so we would suggest to you that taking money from the social security trust fund and moving it to the disability trust fund is not sound economics especially at this time given what we see on that slide. let me move quickly in my final couple of minutes to the issue of interest on the debt. we all know that you can't have national security without economic security. one of the most corrosive effects that can be had on economic security is debt. $18 trillion plus in debt. and the interest that's paid on that debt, as you'll see here, continues to increase. do you know the federal government's interest outlays for fiscal year 2014? >> i don't have that number in

front of me. >> about $229 billion. and at the end of the 2025 year -- at the ending of this budget that the president is proposing, do you know what the interest outlays would be? >> again i don't have that in front of me. >> $785 billion. so nearly a three and a half times increase in the interest on the debt. i would just draw your attention to the lower left corner and the source for this is your organization, the office of management of budget. this is in 2025 where the interest payment on the debt would be $785 billion. taking that those numbers are actually -- are correct is the interest at that time more than what we would be paying on defense under your budget? >> i think the important thing about what our budget does is to reduce those interest payments in fact, by $72 billion in the last year of the window by a total of $260 billion over the full window and that's on top of

the substantial reductions that we've seen in our deficits in the out years through the steps that we've already taken. in fact based on cbo's numbers just for the lower rising costs of health care, we're saving almost $190 billion in the year 2020 alone just over the last few years. >> my time is running out. that kind of comment about saving to my folks back home looks like bankruptcy. going from $229 billion in paying interest on the debt this year to $785 billion at the end of the ten-year window can in no stretch of the imagination be called decreasing the payment for interest on the debt. so we believe that you've got -- we must as a nation get a handle on the increasing debt. otherwise we're going to lose our national security through losing our economic security. >> thank you mr. chairman. again, thank you, director donovan, for your testimony. at the beginning of his questions, the chairman mentioned that sequestration,

that setup was the president's idea. having been very involved in those discussions i recall very vividly that the president had proposed that we actually pay for some of the increased defense and security spending by closing some special interest tax breaks like the tax break for corporate jets and hedge fund owners and those kind of things. so i have a very different recollection. but i am heartened to hear the chairman say that he supports the idea of restoring in equal parts funds to nondefense discretionary and discretionary. he criticizes some of the out year trends. the suggestion is that the idea is that we should be restoring year by year defense and nondefense compared to what we are. as you indicated and testified and what the documents make clear is that for the upcoming fiscal year, 2016, you provide approximately $37 billion to defense and to nondefense is that correct? >> that's correct. >> all right. so i hope actually that's the

basis for some agreement going forward. that's exactly what the president is proposing and we can discuss how we arrange it in years six through ten compared to what's in the president's budget. i want to talk a little bit about the revenues in the president's budget. you know the chairman used a figure for revenues that included revenues generated from immigration reform, including about $456 billion generated from additional economic activity by moving the underground economy into the sunshine. and i think mr. director you've incorporated the benefits of immigration reform, including that revenue, in the budget, is that right? >> that's correct. in fact we've used cbo's numbers on that. they total about $160 billion of deficit reduction in the first decade, but critically and this goes to our long run fiscal picture, those grow dramatically in the out years. about $700 billion in deficit

reduction that comes from immigration reform. and importantly, given the demographic challenge we're facing, just frankly more and more retirees per worker that we have in this country through the mid-2030s, immigration reform is one of the most important things we can do to strengthen our social security system as well. number of the just monday this week it showed the actions he took would strengthen social security. >> i'm glad you raised that because i was going to mention that in the context of the chairman's comments about social security that the actuaries have said one thing to do to strengthen social security is to adopt that in the president's budget. let's talk about some of the other revenues generated because i think this committee needs to dig into this issue. this is an interesting slide. what this shows is how cbo, the congressional budget office, categorizes different areas of

spending. so you can see those blue bars are spending. this was annual spending. annual spending 2015. you've got the amount we spent on social security as a country, the next bar shows medicare and medicaid, next on defense next on nondefense. you can see that red bar dwarfs the others. that's what cbo calculates we spend through the tax code by providing tax breaks and credits and that kind of thing for different purposes. now, a number of these are for very good purposes right? we want to encourage savings so we let people put aside money in tax preferred savings accounts. some of them i would argue are totally unnecessary counter productive and inefficient. and what the president is proposing to do in this budget as the director said was -- is look at some of those tax expenditures. and again i want to emphasize, the tax expenditure director

donovan, if the government gives you $100, isn't that pretty much the same as if we say you owe $100 less in taxes from an economic perspective? >> i think that's a good argument. >> all right. so that's why they're called tax expenditures by the economists and by folks at cbo. now, one of the things that's interesting, if you go to the next chart is show how some of these are distributed. and again, this is what the congressional budget office found, that if you look at all those tax expenditures the value of those tax breaks, that 17% of the value of those tax breaks go to the folks at the top 1% of the income scale. and part of the reason for that is that we actually give preferential tax treatment to unearned income versus earned income. in other words the tax code is stacked against people who earn their income through hard work and in favor of people who make money off of money. and so the president's budget

here says let's try and rebalance that so we're rewarding hard work through the tax code. so, mr. donovan if you could talk about the middle class tax cuts here and how they are in fact paid for by, for example, taking capital gains back to the rate it was when ronald reagan was president after the 1986 tax reform. so first some of the tax benefits to middle class families and then very briefly how you deal with those by actually adjusting the tax code to reward hard work going forward. >> what the budget proposes overall is a set of middle class tax breaks that would provide about 44 million families an average of $600 a year. it does that through really targeting the most important things to help families get ahead and grow their wages from expanding to $3000 the child

care tax credit. a close to $50 billion increase in targeted tax cuts for paying for college that would not only strengthen them but simplify and streamline as well, making those tax cuts more understandable and more accessible. as well as critical investments in helping people save for retirement. the way those tax cuts are fully paid for is through, as you said, mr. ranking member increasing the capital gains rate to the rate it was under president reagan, 28%, but also critically what it would do is treat capital gains fairly among our highest income and lower income folks. and what that is is through stepped-up basis. right now hundreds of billions of dollars of capital gains are escaping taxation each year because families are wealthy enough to hold those assets and pass them on to their children,

whereas many lower income folks middle class folks, are forced to sell those assets to support their family. if they do they are taxed at their original basis under capital gains. but if you can pass it on to your heirs they're taxed at the market value as they're passed on, so hundreds of billions of dollars escapes. we're concerned about that not just on a fairness bounds but also because it encourages people to hold assets out of the economy. they could be putting them to productive use. instead they are holding them in passive ways that are not producing the economic growth and investment and job growth that we would want. the last way it's paid for is through a fee on the very largest financial institutions, about 100 of the largest financial institutions to discourage them taking risky bets with the money that they have invested there, and that's really the package that we would use to fully pay for those middle class tax cuts. >> thank you mr. director. i think that's an important conversation for us to have as a

committee, because one of the reasons you see those tax expenditures skewed in the way this chart shows with 17% of those tax expenditure benefits going to the top 1% is because of these features in the current tax code that tax unearned income at better rates than earned income income earned through hard work. and so when i hear our republican colleagues say, oh, this is just redistributing income from folks at the top to folks in the middle, the reality is the current tax code because it gives preferential treatment to unearned income, actually is providing an income tax break redistributing income from the middle, those who are working up the income ladder. we never hear anything from our republican colleagues about that. they have a tax plan that cuts the tax rates for millionaires by a third which redistributes income from the middle up.

apparently no problem with that. what we're talking about is adjusting the tax code that unfairly taxes hard work as less preferred rates than capital gains unearned income and money made off of money. so it's important to keep in mind when we discuss revenues generated that we are talking about these tax expenditures on which we spend more each year according to the congressional budget office, than social security medicare defense or nondefense as separate categories. we look forward to that conversation. >> gentleman yield. the gentleman would concede that the middle class is the beneficiary through mortgage deductions employer sponsored health care. >> absolutely. as i indicated in my statement, there are a lot of good things in there including preferential treatment for savings and mortgage interest. but the preferential treatment of money made off of money compared to money made from hard work is what the president is getting at in this budget.

>> thank you. the gentleman yields back. mr. okita for five minutes. >> thank you, mr. chairman. thank you, mr. don van, for being here today and thank you for following the law and getting the budget in on time. let me thank you for your leadership there. switching gears a little bit from the tax front in reading your budget and hearing your testimony today, there's talk of debt stabilization. if we put up the first slide here on deficits, you'll see that the deficits continue to go up. of course deficits -- the debt being a cumulative of all the country's deficits. so here's your budget. the deficits continue to go up. and let me read you something as you're looking at that chart. the fact that we are here today to debate raising america's debt limit is a sign of leadership failure. it is a sign that the u.s. government can't pay its own bills. it is a sign that we now depend

on ongoing financial assistance from foreign countries to finance our government's reckless fiscal policies, increasing america's debt weakens us domestically internationally. leadership means that, quote the buck stops here unquote. instead washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. america has a debt problem and a failure of leadership. americans deserve better. now, folks on this committee might think i'm quoting myself but i'm actually quoting our president when he was a senator march 20th 2006. mr. donovan does the president view our $18 trillion national debt, the cumulative effect of all these deficits including the ten you posted here, as a problem or not? >> congressman, first i think it's important to recognize that the deficit has come down faster under this president than at any time since the end of world war ii. >> you see the bars, sir? >> well, just measuring our

deficits in nominal dollars -- the way an american family would measure their debt is to say how does it compare to what i earn. and not just us a broad range of economists. >> they would say debt is bad. we want as less of it as possible. >> so looking at it relative to the size of our economy, which is the way cbo and a broad range of economists on both sides of the -- both political parties look at it the key measure is can we bring our deficits down as a share of the economy. we've done that. the budget man maintains the deficits under 3% of gdp and reduces the deficit by a cumulative $1.8 trillion over the 10-year window. >> regarding our gdp, did you know mr. elmandorf have downgraded our growth down to

2.3% gdp? the family budget, so to speak, isn't growing as fast as it used to. i think we have to take that into account. let me switch gears and go back to some of the tax discussion that we've already had. if we go to the second chart here, the president's increasing taxes. yeah, there we go. we see the average of the last 50-year average for revenue here in this country. and we see what the president would like to do taking our revenue percentage as a percent of the gdp up to 19.7%. with annual deficits, as i just showed before, hovering in the half trillion dollar range, does that not indicate that we have a spending problem and not a revenue problem, even with right, increasing revenue rates as a percent of gdp in this budget. as i showed before, your budget still never balances. so why do we need to be collecting more when clearly we

have a spending problem? >> so, first of all our budget is -- does reduce spending. it achieves $400 billion of reductions in medicare and medicaid spending and in many other places. there are about a hundred different cuts and consolidations of programs, both on the discretionary and the mandatory side. not only on the health side but it also includes crop insurance it includes a range of program integrity measures, it includes real property savings. and so we do -- >> but you're raising taxes in the static world to increase revenue and you still never balance. why raise revenue? >> these revenues -- >> why raise taxes? >> these revenues are consistent at the end of the window at 19.7% with the level of revenues that we had in the late 1990s a period of very strong economic growth and when we balanced our

budget. >> you think we had strong economic growth because we raised taxes in the 1990s? >> it certainly was consistent with a period of very high economic growth. what i would say, though, is the key issue and it was raised earlier is that we are facing an unprecedented demographic challenge going forward. we have more workers and that's why we need to make sure we have revenues to keep those benefits for those who have earned them. >> mr. yarmouth from kentucky. >> thank you mr. chairman. it's good to see you, director donovan. i have to comment on a comment that the chairman made in his opening statement and i heard the same comment from speaker boehner within the last couple of days and i'm sure that we will hear it again and again because it's obviously in the republican talking points. but the comment was the budget contains policies that have failed over the last few years. now, that seems like an alice in wonderland kind of statement to me because on the one hand if your definition of failure is 58

consecutive months of job growth, 11 million jobs, all of the gains in the stock market, the reducing the deficit by 65%, if that's your definition of failure, then i'd love to see how they would characterize the bush years. but even more absurd about the statement is when i look at these policies reflected in your budget or contained in your budget, i'm asking myself and i would ask you to comment, which one of those has been in place over the last few years to have failed? it seems to me that i don't recall expanded child -- early childhood education, expansion of the earned income tax credit, again, changes in the tax system, have any of these policies been in place over the last few years? >> i guess congressman one area where i would say we did make some progress and that our budget does reflect on a bipartisan basis is the murray-ryan agreement that reversed some of the sequestration spending.

so for the last two years one of the reasons that our economic growth has started to pick up is that we moved away from the austerity of sequestration and, frankly, from the kind of manufactured crises of government shutdowns and others. many economists have shown that there are hundreds of thousands of jobs that have been created by moving away from sequestration. so what the budget is really trying to do is take an example where i think we have on a bipartisan basis been able to make progress. follow that model of saying let's do dollar for dollar increases on the discretionary side, defense/nondefense, and then pay for it which is good fiscally, right to pay for it with long-term savings from mandatory programs and from revenues. and that really -- if i can go to one area where there has been progress and that we try to build on on a bipartisan basis is let's take that model that has been successful with

murray-ryan and started progress and build on that going forward. >> my comment was really based on the fact that they're accusing these -- saying this budget is just a rehash of policies that have been in place when in fact most of the proposals in this budget have not been in place. might be even higher growth. your last comment before i started questioning related to demographics and their impact on growth and so forth. as a matter of fact, when dr. elmandorf was here he said the most significant factor in the reduction in potential growth in gdp was the demographic trending. and so the move to immigration reform is something that if were in place i would assume would cause cbo anyway to increase their estimate of job growth -- i mean of gdp growth? >> absolutely. they show significant growth not only in the number of workers, which really goes directly to the demographic challenge that

we have, but also increases in productivity for our economy as well. and so there are lots of ways that it's pro growth. actually cbo itself, we use their numbers in the budget. they last week did an analysis of the president's executive actions, which obviously because they only focus on a smaller group of folks in terms of visas and other things and many who are already here have a smaller effect, but still cbo said that $7.5 billion of savings over ten years would come out of the president's executive actions and that reversing them would raise the deficit by $7.5 billion. >> one quick question about tax policy. mr. van hallen was talking to you about the capital gains tax. you moved it to 28% on defensiveividend income. isn't one of the benefits of raising the taxes on dividends, when we cut the tax down to 15%

several years ago companies were paying out massive dividends and some doing bonus dividends because the tax rate was so low, so a higher tax rate conversely should keep money at work in the economy. would you say that's true? >> that's exactly right. that's what we tried to do and this is broadly speaking is to think about the tax code in ways that can encourage growth. and i talked earlier about the stepped-up basis on capital gains and the way that the current law actually discourages productive investments. we also do this with international tax reform for example, where money is parked overseas and we're encouraging it to come back, readjusting our international tax rates to bring money back -- >> the time has expired. >> mr. chairman, thank you. director, good to see you again. i'm just thinking of a comment members on both sides of the aisle have said over the years i've been here.

where we decide to spend our money really shows where our priorities are. i think that's a fair statement. i guess you do too? >> i would. >> so let's bring up the first chart just very briefly. it was brought up before. i think funded. the president's priorities are all too

squeal. >> what we see here is more spending and more taxation. $95 billion is proposed for

taxation on the american public through their taxation in this area. at the same time, we're just beginning to see some relief, $550 a year people are seeing savings by going to the pump. you want to do the opposite and put more burden on the american public. if you can bring up the next chart, family budget versus the federal budget, if they found that one, you're all about increasing revenue to the federal government. that's where the federal government is growing over a period of time. but you're willing to take it away on the taxes in the family budget. and the family budget is hurting. it is not as rosy as you paint. let's take a look at food stamps. are you aware that more than 46 million americans receive food stamps in the country right now. are you aware of that? >> i am. >> that's more than when the recession started. are you aware of that? >> i think there was an enormous increase when it actually started. >> but it's more than when it started. and are you aware that food

stamps are twice as high that's $80 million as when it started in '07. that's pl$38 billion. we're still at twice the level from what e whenen it started. let's take a look at poverty to see whether things are as rosy as the administration points. are you aware that unicef found that just last year in the richest nation in the world, the u.s., found that one in three children live in poverty today? are you aware of that? >> i'm aware that we're pursuing a lot of policies. >> but that's where we are still half a dozen years -- that's where we are still with this administration. not quite as rosy as you paint it. are you aware that it grew by 1.7 million while in the same time period, if you looked around the world, 18 other

countries were able to reduce their childhood poverty level. our level goes up. are you aware of that? >> congressman, i'm glad that we agree that we're making progress on poverty and raising people's wages is an area that we should work on. >> reclaiming my time. but it hasn't been done over the last six years. unemployment, you talk about things being good. just yesterday, the 5.6 unemployment rate is as he calls it, the big lie. and that gallop pegs the real unemployment rate at 7.1% and under-employment rate at 15.1%. are you aware he says that the economy is not producing enough jobs to replenish the middle class, which is why we see this chart and why we see food stamp charts go up and why unicef and others say we have a problem with poverty in this country. >> congressman, the hidden up employment rate is dropping faster than the regular unemployment rate.

and, in fact, we've made much more progress. >> the gentleman's time is expired. >> thank you. two jersey guys in a row. that's good. that's progress. [ laughter ] >> however, the last jersey guy talked about a myth. i've got to address that before i make my remarks, mr. chairman. and that is when you compare the family budget to the federal budget, there are some similarities. and a tremendous amount of differences in the obligations of the family budget and obligations on the federal level which we over the years, voted for. that doesn't hold up. the second myth is what the chairman talked about. and that is he said takes this budget, the secretary is here to talk about it and the director is here to talk about it this budget takes more from job creators. let me tell you something

about who the job creators are. they right-hand turn necessarily in plush offices at the top of buildings. they're the workers of this country. they're the middle class. when we had the problem in 2008 capital was not being invested into this budget. into the economy. and that's why the federal government had to come up with some stimulus as they've done in 98% of all the recessions we've had in the 20th century. don't rewrite history. tell us what the facts are. the third thing is about if you took a chronological map of this country's economy over the past 50 years you would see taxes shifting -- shifting -- from assets to individual incomes. and you want to talk about redistribution of wealth? look at what we tax also also

sets and look at what we charge tax incomes over those 40 and 50 years. in fact one may make an argument that we had reverse distribution. we had reverse socialism in this country. when we take from those people who are the earners out there and who create the jobs because the demand and give it to those people who think they deserve it because they live on the top floor. they're the three myths. i don't have time for anymore right now. i'll go to others after. i've said many times before mr. director health care reform is entitlement reform. it begins the process of entitlement reform. when we see how much projected over the years by all experts how this is going to cut expenditures or reduce those expenditures in the increased cost of health care. not only did it reduce costs for medicare, but it also reduced costs for beneficiaries.

through the aca we found significant savings for medicare without cutting benefits by creating innovateive payment and delivery models. those are expanding right now. away from fee-for-service and talking about results-or yented. in fact, the opposition, our opponents talk pded about doing that and changing the health departmentcare system in this country. i support that. provideing health care more efficiently and curbing medicare fraud. of course, if you have enough people to check the fraud, it's a good thing, like in the irs. of course, if it doesn't happen, it doesn't happen. mr. donovan, do you think slowing the rate of growth in health department health spending can be attributed to health care reform?

>> i think there's growing agreement that a portion of the slowing of health care cost growths that we're seeing is due to structural reforms in our health care system including those introduced by the affordable care act. and, in fact this is the single most-important factor as we look long term to our deficits in debt to make progress on. as i think i said earlier, cbo today projects that spending for medicaid and medicare in 2020 is going to be about $190 billion less just through improvements we've seen after the affordable care act was passed. and the budget contains some very important bipartisan efforts that we can do to accelerate this. one is a permanent payment fix in our budget. and, including in that additional reforms that would accelerate what you're talking about.

>> in conclusion, mr. director i hope we see the day in the near future that more folks from the other side will at least say there's some positive things happening in the economy. just recognize it. >> gentleman's time is expired. >> thank you very much, mr. chairman. and just to the statement from the gentle man of new jersey that you have two people speaking from new jersey in a row, i think there ought to be a law against that. [ laughter ] >> a law against what? >> a law against two people from new jersey spooeking one after another. there may be a law about it. >> there's more people on the panel. you're deceiving. >> thank you, director. thank you for being here. you know to mr. garrett's point of one of the things that i think the american people don't quite relate to when the president is speaking and even respectfully to your opening statement is the fact that i don't think the american people think that the situation is that great.

i think the polls show -- but more importantly than polls is in our districts. i think people are, frankly, concerned. they're concerned about how their families are doing and how their income has not been rising. so i think the credibility gap that exists between what is sometimes said by the president as to the simpluation, the country and reality frankly is rather large. now, a couple things that i've heard today. that -- and this is -- these are things that, by the way, when i go home, people, frankly, are in awe. they their jaw drops. when they hear that if government takes less of their money that that equates to government spending is something that does not guilty gel with real life. in other words all of these government expenditures in some of the graphs that we show today are because we're not taking

their money so therefore, that e kwatquates to government spending: where in real life does not taking somebody's money equate to spending: again, the credible credibility gap, i think increases when statements like that are made. by the way, if that's the case, i think that what? our gdp is what? $17 trillion? what we take in revenue and taxes is about roughly about $3 trillion. ballpark figures. so, in essence, that means that we're spending $14 trillion because that's money that the government is not taking from the economy. so should we then call that $14 trillion in government spending? no. that's ludicrous. and it's ludicrous to say that money that we are not forcefully taking because people don't pay this willingly, they're forced to pay is somehow government spending. credibility gap. when one says that going from

200$200 plus million in interest payments to a little bit under $800billion in interest payments and that that is less in interest payments, it doesn't pass the straight-faced test. and i would just respectfully ask one more thing which the chairman asked a number of times. and wasn't able to quiet get an answer. when the president states that it's a one for one dollar on defense and nondefense and, yet, it's a one-for-one dollar except that later it's not a one-for-one dollar. that is what creates, among other things, a huge credibility gap. for the american people, loss in faith of their government. and it's a tragedy when the american people do not trust or have faith in the federal

government. they don't have trust or faith in the u.s. congress, in the add min strax, administration and in our institutions. i would just throw this as a word of caution. it's okay to differ on policies. but what is not fine is to try to of la skate, confuse by trying to hide the truth with saying it's one-for-one except that later it isn't. kpept kpept except for later it isn't never comes out. you can keep your doctor if you like: kpeptexcept that's not really what they meant. i would caution all of you to be a little bit more careful when you speak to the american people. when you're speaking to us, you're speaking to the american people.

when you say 200$200 million in interest payments to $800 billion in interest payments is a reduction in interest payments, frankly, it does a huge disservice to the american people. i would gist caution you to be a little bit more straight forward. >> the gentleman's time is expired. >>. . >> mr. chairman, can i say one thing. i do think it's important given that i'm married fromy edied to a woman from new jersey that if you were to pass a law banning people from new jersey speaking, i would have to recommend to the president that he veto it. >> showing great wisdom. [ laughter ] >> good morning. highways, bridges, transit systems, airports and seaports drive economic growth in america.

in this global economy, the countries with modern transportation systems are going to compete best. they're going to be able to innovate and grow. and if part of our strategy is to boost wages, investing in infrastructure is one of the smartest things we can do. but when you look at our transportation infrastructure policy over the past few years it's obvious we can do better. millions and millions of americans are employed in transportation and infrastructure: and these jobs often pay a higher wage. especially my area. in my district the median household income is $35,000 a year. so if you have a job in construction or an engineering, civil engineering at court tampa bay or tampa bay international air port you're making a higher wage. i know it's true in my community, and i'm certain it's

true in my of my colleagues communities, too. so i want to thank you for a strong, six-year infrastructure proposal. see, lately, congress has kind of been treading water. the last transportation reauthorization expired in september. we've had to draw general revenue to plug the holes in the highway fund. so what i hear back home from my community, from the state, from business leaders is they want greater certainty. they don't want a one-year extension. they don't want a two-year bill. they want a six-year, robust investment bill. so i want to thank you for proposing that in the budget. can you go through and outline the transportation infrastructure plan in the budget? what you project for economic growth and then explain you link funding for a new highway built

to business tax reform rather than what we typically do on user pays principle for highway bills. why should we take that forward? >> i'm so glad you asked that. it's really one of the most important things that we can do to grow our economy and create jobs: it's something that's really been a bipartisan effort in past years and i hope that it can be again, this year. what we're proposing is not only a six-year extension, but, at a level that would increase by 40% the investment that we're making in our infrastructure. as i said, it's paid for, more than fully paid for, actually, through our comprehensive business tax reform proposal. specifically what we would do is ask companies to bring money that they're holding overseas, to bring it back into the country. we''d have a toll charge of 14% on those roughly $2 trillion of

earnings that are held overseas. and we would restructure going forward the international tax system to a 19% rate: allover this would of this would be revenue neutral tax reform. it follows a structure that congressman camp and others have proposed in the past. we think it has bipart san support mplt and because it could pay for a six-year proposals, when we've been sort of kicking the can down the road with small inkremtcrements of funding many times over the last few years, we think this is a great way to take this one time revenue, invest it while we are working toward a longer term solution beyond the six years for a funding source. >> i've got to ask for your help on one thing too, when it comes to infrastructure. the port tampa bay has had a project in the army corps work program for a number of years. congress has authorized it.

it's been on the work plan and because the feds stepped up in previous years and said okay, we're going to have the construction dollars set aside we've been able to get a 70% match from private user support and we were waiting for the state of florida this legislate legislative session to put up the rest of the money. but it disappeared from this budget. and i'd like to give you this to ask for your help to take a look. because you have to admit a 70 pntd % match from the locals is a great match. they typically only say 35% match from local sources. this is a very important public/private partnership for the largest seaport in florida and one of our primary economic engines. so i'm going to give you this and ask you to look at it. >> mr. cole is recognized for five minutes. >> thank you very much, mr. chairman. i've got three things i want to cover, mr. director. but the first one is just, for

the record, so to speak you were the secretary high when tornadoes ravaged oklahoma in particularly my hometown in may of 2013. i want to personally thank you and hud for the tremendous job you did in responding and continuing to respond in helping us recoverment through you, obviously, i want to thank you and the administration. that ought to be noted and we don't forget it in my home. so just thank you very much for your service during that critical period. it made a big difference to a lot of people's lives in my district. >> that's very generalous of you. >> secondly, this is just to focus your attention. you haven't done this yet in your official capacity, but i would just ask that significant bipartisan concerns have been raised with respect to the recent fiduciary rule that will be re-proposed.

all i want do ask is will you commit to a full review of the economic analysis to assure that these bipartisan concerns have been addressed? >> absolutely. and i think congressman, i don't have any specifics about release of that rule, but i think when you do see it you'll see that we have really listened to concerns from the first time. >> i appreciate that. again, i'm not asking for anything early. again, it is extraordinarily important for a lot of folks. so i appreciate you giving it a lot of attention. now i want to move back to a couple of items in the budget and discuss that with you. you know, in previous -- or in a previous budget that the president proposed, he had something where it's actually sort of bipartisan support for chain cpi and means testing for certain entitlement benefits and saved hundreds of millions of dollars. that's not in this particular budget as i read it, is it? >> thaekt. >> does the fact -- and i'm not

trying to trap you but secretary burr -- excuse me then-secretary and secretary burr will when she's here. that's not off the tiebl. table. is that still the administration's position that while it's not in your budget, it's not something you would rule out if we were in a meaningful discussion about how to find a compromise? >> obviously, as you say i can't get into specific negotiations here. i think the way that i would frame this is that when it was proposed, i think the president made clear that he was hoping to reach a broader agreement a so-called grand bargain, and had offered what he thought was not necessarily the best policy but was doing it in the spirit of trying to get to that agreement. and i would say we continue to have concerns about it. those concerns have always been there. but i think it's also fair e

fair to say, as director said now secretary, said last year that we are willing to enter into negotiations and to look at some hard things and we look forward to conversations going forward. i think particularly things in the budget are thing that is we want to focus on building the murray ryan precedent. >> fair enough. i'm going to take that as a long yes. but fair enough. [ laughter ] >> with all the qualifiers. another question, and just really a philosophical question do you think the budget can ever be balanced without meaningfully discussing -- we already know that. we've cut $65 billion, a bipartisan agreement to get that done since president bush has been in office. that's pretty substantial reductions. but the area that keeps growing is the mandatory spending,

entitlement spending, whatever hitle you want to use. is there any way to balance the budget without coming to some sort of broader agreement to slow down that spending? not necessarily cut, but reduce that payment of growth. >> we were just talking about social security. i'd be everyone more specific. social security is not one of the primary driverers at this point of deaf sit and debts. it really is health care costs. that is the key thing along with our demographic challenges in the long term going forward. i agree with you that we need to take those on. i would say we have. and, particularly, in the work that we've done through the affordable care act and elsewhere, to lower health care cost growth. the proposals we have in the budget, sgr fix and a range of others on delivery system reform that would go farther on that and comprehensive immigration reform we think are the most important things we can do on that front.

>> the gentleman's time is expired. thank you. the jentle lady from michigan is recognized, ms. dingle. >> thank you, mr. chairman. director donovan, it's great to see you here today. you know we all get in these budget hearings and i think sometimes the american people watch and sometimes think we're talking gobblety gook and right-hand turn able to follow the discussion. so i'd just look to talk about some things in simple terms so that as people are listening up there in america, they understand what they're saying. i think we all agree that we care about the middle class and the middle class is still hurting. and i think that members on both sides of the aisle believe we've got to balance the budget and reduce the deficit. so the question is how do you get there? i think that the president's budget does a good job of getting there. yesterday, i heard directly from the army about what sequestration would do in michigan and costing jobs. i think all of us have been

hearing from our con stitch went wents across the country who have lost education opportunities, haven't found a new job, reduced sfrs edd services for senior et cetera because of these arbitrary budget cap that is we've seen. dr. donovan, could you talk about the types of investments we'd be anyone to make if the budget caps are increased and we do have a reverse sequestration in 2016? and then explain for us how we can afford to spend the additional money and these investments and still meet key metrics that show as being fiscally responsible. >> well,maybe i would focus on one of the air yas we haven't talked about yet. we've talked about infrastructure, investing in families. i think one of the most important, and this is certainly true in michigan manufacturing

has seen a real resurgence under this president. it's not just in the autoindustry, but it's in many, many other areas. this budget is very strong through lifting sequestration, doing more to invest not just in manufacturing directly the budget contains a proposal that would allow us to fully fund the 45 manufacturing institutes that the president called for early on in his administration. but it also makes sure that we're doing things to scale up the most innovative technology. we're actually winning the race to do advanced manufacturing, the highest technology man ewe manufactureing. we're proposing a $10 billion public start-up fund that would allow us to scale some of the most promising inventions from our r&d and take them to scale hundreds of thousands of jobs. we also want to make sure that americans are ready for those jobs. we're proposing to double the

amount of training spots and apprenticeships which are critical in making sure that in these advanced manufacturing jobs, folks are ready to take though. and so there are many things that really focus on building on this resurgence in manufacturing that we've seen these last six years. >> thank you. and talking about that, too many americans are still struggling to find jobs that pay. what does your budget do to address unemployment and improve wages for those that are employed? >> well, we have in the budget this year a kovrpcomprehensive unemployment insurance effort that would make sure that when somebody does fall into unemployment, that the benefits that they need are there. but, also that we would make reforms that really encourage states to connect them to jobs as quickly as possible. so that's a critical first step. we obviously think that we ought to be raising the minimum wage and doing other things, making sure childcare is available.

paid leave. you know, we have american families making terrible choices, to have to give up a paycheck to stay home with their children, with their parents. and we just don't think that those are the right choices to force middle class families to make. >> and then i'm going to give you one last question because i have to do it. headlines in the detroit papers today were the budget doesn't address the third bridge crossing again. so could we ask that we do work with the white house and the appropriate agencies to look at the funding of the custom plaza? that's so critical. the canadian government has been so very, very supportive and we do need the u.s. government to help us on that. >> we've been working closely with them on that. and we're optimistic that it can move forward. >> thaing. i yield back. >> the gentle lady yields back.

>> thank you, mr. chairman. i was struck with the last question. the government cannot put a dollar into the economy until it takes that same dollar out of the economy. that's the paradox bastian spoke of between the seen and the unseen. we can see the job that's created when government puts a dollar into the economy. what we don't see is the job that is lost as government takes that dollar out of the economy. the problem that you've got is there's no way to spin the economy. people know their own experience. that's why you e you're hitting such a disconnect between all of this happy talk about how good times are rolling and the experience that families are having struggling to make ends meet so many years into this e

recession. in fact, it's been pointed out repeatedly that if the recovery under obama tracked with the recovery under reagan there would be millions more working and families would be making thousands of dollars more than they are today. getting back to the question for a moment, how much in tax increases is the administration proposing? >> the americans have been more optistic today than they have since the beginning of the financial crisis. >> you cannot speak for them. i cannot speak for them. they can speak for themselves. >> in a range of polls and others -- >> people have their own experiences. you are not going