i'm delighted and proud to introduce to this committee my friend and great new yorker, jack lew. no matter how many years he stays in washington, jack, who grew up in queens, a neighboring borough from where i live and his wife who grew up in my congressional district, will always have new york in their bones. i'm delighted to endorse his nomination to serve as the next secretary of the treasury. i do so heartily. he is renown for his managerial prowess and his common sense approach to solving tough problems. he is uniquely qualified to take the helm of treasury in these precarious, economic times as you so well outlined, mr. chairman. jack is no stranger to us. i met him there decades ago when

i was a wide eyed congressman and he was a top aide for house speaker, tip o'neill. we became friends. he taught us a whole lot. i know that tip a tremendous influence on jack. it is clear that he shares the same work ethic and sense of duty. he shares another thing -- bipartisanship. speaker o'neill was renown for sitting down with president reagan and trying to work problems out. jack was heavily involved in that and continues to be. he is a bipartisan person who wants to be successful at working with both parties. you mentioned the issue with trust. there is no straighter shooter than jack lew. he is one of the most honorable, honest, and decent men in washington.

when he gives you facts, they are backed up with research. from the time i knew jack when he started in tip o'neill's office, he would always outline both sides of the argument and give each without bias. he would tell you where he came down, but he always let you make your own judgment. that has propelled him to an extremely successful career that has made him qualified to become treasury secretary. he distinguished himself not only as a knowledgeable of the tax code in the federal budget, it also as an agile leader with a knack for operations. he rose to become a chief operating officer. in 1998, he was named director. when he left omb, it was the last time the federal government had a surplus. an unprecedented surplus of 236

billion dollars. it would not have happened without jack lew's leadership, knowledge, and expertise. in 2009, he answered the call to public service. he returned to d.c. to become deputy secretary for managing resources. he helped secretary of state clinton transform the state department and honing his skills in the international arena. skills that i'm confident will prove useful as he works to address the economic challenges he will be facing as treasury secretary. jack spent the last few years serving the administration as director of omb and as white house chief of staff. he brought nonsecurity spending to its lowest level since dwight eisenhower sat in the oval office.

on the fiscal cliff, he kept taxes low on the middle-class. at the same time, decrease the nation's deficit by more than $700 billion. there are many subjects the treasury secretary must cover. not any treasury nominee can have expertise immediately in all of them. the jack has an uncanny ability to dive into a subject, learn, study, and master it in a factual and non-ideological way. i look forward to working with jack and the rest of the economic team as we continue to focus on protecting the middle- class and combating our nation's long-term economic challenges. mr. chairman, i am confident that this nominee has expertise and work ethic necessary to excel as secretary of treasury.

he will not be an ordinary treasury secretary. he will be a great one in the mold of albert gallatin and alexander hamilton, another new yorker, one who i never knew. [laughter] i fully support this nomination and urge that we move as quickly as possible so the senate and confirm this nominee and he can get on with the important task necessary to continue moving this country forward economically. jack, congratulations on your nomination. >> thank you. >> thank you, mr. chairman. likewise, i'm very pleased to be here. most of you know i left the senate because i was told by an eminent doctor -- told i should by an eminent doctor.

but i have outlived that doctor. feels good to feel good enough to come out here and talk to you. it is nice that you leave me enough time to express that. i was sitting up in a little restaurant in santa fe, new mexico with some members of the statehouse. i got a telephone call from somebody i could not understand. there is a lot of noise. if he was not a wonderful guy, he probably would have dumped me overboard. i kept saying, who are you? what are you doing? after three or four times of exerting himself, he got out that he was tried to tell me that he would like me to come here today and introduce him. when it came out, i said, why did we not do this a long time ago? senator hatch, mr. chairman, i happen to be a fan of hamilton.

the next gentleman after him probably did more in the broad sense. it probably had problems, the second when you alluded to, the one that jack will handle. i'm very honored to endorse his nomination to serve as the next secretary at this critical moment in our nation's history. certainly, i'm a senior fellow at the bipartisan policy center that was established a few years ago by former leaders. it is bipartisan -- non-partisan and i'm a proud republican. i'm also former chairman of the senate budget committee, which many of you also served on. i completed my career here as chairman of the senate energy

and natural resources committee. i will say to senator bennett, you may not think you are getting old, but clearly i am. i remember we have a bennett who was chief of staff of the budget committee. i was very young and at the bottom chair. he had the same name you do. it was your father. what a terrific thing to come here and see you today and experience this. they havve over 50% of the federal budget should put the country fiscal path for the future. this committee will play a critical role in achieving that role working with the president

and with the secretary of the treasury. as you confront the fiscal challenges ahead, i cannot think of anyone more qualified or more ready for this job than jack lew. he not only understands the challenges our country faces, but has the experience and judgment to confront them. as many know, jack has been a dedicated servant for many years. a servant of the people. what many do not know is where the dedication that he has originated. i think it originated from his father. he was born in poland and moved to america. his mother's family made the journey from europe to america a few years later. you could say his family were among the fortunate ones. they let europe before it was

too late. there is a deep love for the united states. it was a country synonymous with freedom, hope, and opportunity. a bulk of jack's career has been spent in public service. i first encountered him briefly. anyone who does not think that was a major reform needs to go back and look at the facts. that dedication of which he was hard of was a giant step that was taken to make social security. it was something real and not just to talk about. he has earned the trust of two presidents. he has overseen the budget of the entire executive branch into

administrations. i know this firsthand. during the long and difficult budget negotiations in 1990, we work together to reach an honorable compromise and balance the budget. i can say without equivocation that jack was always willing to listen and work with members of both parties to find a common ground. as alice has said, jack is a very fair person. former secretary of the treasury rubin wrote to me to say, jack has the ability to understand complex matters quickly and well. good judgment to work effectively with administration, colleagues, and members of congress. that was told to me by bob rubin.

qualities that our next treasury of the secretary needs to have it we will pull our country out of the fiscal mess that we are in. we talk about job creation. it is clear that we will get real job creation when we get real deficit reduction. i'm not here for that. i find jack to be a man of integrity. he works hard. he can be tough. as a negotiator, he is awful tough. he believes and plays it straight. we have had differences of opinion over policies, but we have been able to work through them. again, as alice says, the press keeps asking me anecdotes about jack. i have worked with him many years. the truth is, she says, jack is not a funny comment anecdotal guy. he is just a dedicated, straight

shooter. i guess you cannot be both. of the two, he chose the right one. congratulations on being a straight shooter. from my position at the bipartisan policy center, we look for to working with jack ahead and in reining in the healthcare costs and reforming the tax code to make it it a growth oriented taxation. mr. chairman and members of the committee, jack is a decent man, a serious policy maker who has all the right mixes of qualification, knowledge, and vision to serve as the next secretary of the treasury. it is my hope that you will

approve his nomination swiftly. it is a pleasure to be with you all and with him. congratulations. >> thank you. >> thank you. thank you for the glowing statements. we all appreciate them. i'm sure that mr. lew appreciates it. thank you. ok, mr. lew. our usual practice is that statements will be submitted for the record. to summarize -- if you want to speak longer than five minutes, take your time. this is an important decision. >> thank you, mr. chairman and members of the committee, it is a privilege to be considered by this committee as the nominee to be secretary of the treasury. thank you for the kind

introductions. it has been my great fortune to work with them over many years. i'm honored that they were here this morning. i'm thankful to my family and my wife and my daughter who are here today. my son and my grandchildren. my public life demands much from the family. i appreciate the sacrifice and the missed family time. while my parents are only with me in spirit, i sit here because they instilled in me lasting values and the commitment to serve our country. i'm grateful to president obama. it has been honored to serve and his cabinet and as his chief of staff. i'm humbled by his faith in me. thank you to the members of the committee for meeting with me over the last week and sharing your insights. this committee plays a singular role in defining our tax, trade, health care, and social security policies.

with your collaboration, this committee is a clear example that bipartisan can produce real results for all americans. i pledge that if confirmed, i will maintain frequent consultation with you in accordance with that spirit of respect. this is a fundamental thread in my life. i took part in negotiations that led to an agreement with president reagan to save social security. under president clinton, i helped negotiate an agreement to balance the federal budget. i oversaw three budget surpluses in a row. my experience and senior leadership positions in government at new york university, where i have the highest honor the university has, the gallatin award after

albert gallatin, who also founded nyu, it was the largest private university in the united states. working collaboratively is a universal challenge. when i returned to public service in the administration, i worked alongside secretary clinton to promote the national security and economic policies around the globe and reinvigorate american leadership abroad. at the office of management and budget, i worked with democrats and republicans to ask the budget control act. it reduced federal discretion spending to historic levels. as white house chief of staff, i adhere to the principle that we work for the american people. we saw that principle in action. because of my experience, i approach the challenges that lie ahead with a clear understanding of their impacts the and significance. it does give me a profound

respect and secretary geithner and others whose acknowledgments i'd knowledge today. when the president came into office, we have the worst economic crisis since the great depression. we need to reignite growth. our economy is in better shape today. over the past four years, the private sector has created more than 6 million jobs. rules are in place. taxpayers are not responsible for big firm fails again. the housing market is recovering and home values are stabilizing. we have isolated iran from the global financial system and establish the toughest sanction regime in history. we have sent a series of trade agreements to open markets for american goods and level the playing field for american workers and businesses.

our auto companies are growing and innovating and creating jobs. we have made substantial progress reducing our deficit in a balanced way. we are in a better position today, but the work remains unfinished. our top priority is to strengthen the recovery by fostering job creation and economic growth while we make sure that our economy remains resilient to the headwinds beyond our shores. that means making it easier to tell american made goods abroad and expanded infection in the united states. that means working with our partners in the globe to bolster the system and promote economic stability. it means moving forward on reforms so the system is less

vulnerable to crises. and it means reforming the tax system so that american businesses can thrive and compete. at the same time, we need to be on a path of fiscal responsibility. we can do even more to shrink the deficit over the next decade through a balanced mix of spending reductions and tax reform and sensible reforms to medicare that will help. even as a move forward, we need to make certain that there is room for critical investments in education, research, and infrastructure, things that we need to grow and compete. we do not want to derail the economic recovery. that is why we cannot allow the series of harmful automatic spending cuts to go into effect. these things would impose a wounds. -- impose self-inflicted wounds. in closing, i would like to make one final observation. and recent years, some have said that washington is broken and that our government cannot tackle the most serious problems

and that the bipartisanship is a thing of the past. i disagree. i have reached across the aisle and formed honorable compromises my entire professional life. i have been involved in almost every major bipartisan budget agreement over the last three-- 30 years. i could say that the things that divide washington right now are not insurmountable as they might look. we share the same goals. you want an economy that is expanding. we want a vibrant job market that gives anyone who works had the chance to get ahead. a financial system that helps families and innovators and entrepreneurs. a global economy that is prosperous and secure. we want a level playing field for american companies. we want a government that lives within its means. it will take a lot of hard work to achieve these goals. we have plenty of obstacles, but we will find a way through today's challenges. i'm grateful to you for

considering my nomination. i look forward to any questions you might have. thank you. >> thank you. i have several questions. questions we ask all nominees. is there anything you are aware of in your ground that might be found a conflict of interest with the duties of which you have been nominated? >> no. >> do you know of any reason that would prevent you from honoring responsibilities? >> no. >> do you agree to appear at any summons if you're confirm? >> yes. >> do commit to provide a prompt response in writing to any senator of the u.s. committee? >> i do. >> i'd like your thoughts on the tax reform.

as i mentioned, the world has changed since 1986. i believe that this committee will engage in a comprehensive tax reform. it is our duty and obligation and also our opportunity. i like your thoughts on the vision we should focus on and actions we should take. i would like you to tell us how you would work with this committee as we reformed the code. what would you focus on first and second? on tax reform? >> i was involved in the 1986 tax reform. i know how hard it is. i also know how important it is. you do not have to talk to many

people to learn that the american people want tax reform. one is simpler tax code. they wanted to be easier to comply with taxes on an individual basis and know that it is fair and everyone is treated in a similar position. businesses want to go about their business without having to worry about complicated lawyer consultations. it is hard. the ways to do tax reform is to broaden the base and lower the rates. broadening the base means taking on a lot of very entrenched interests and lowering rates benefits everyone, but not concentrated with anyone individually. i think we can do it. it is important. if there is a bipartisan consensus, there is an understanding how hard it is. i will try to get the job done. >> can you speak more about the

base broadening? what areas do you think that we should focus on? you also mentioned that this robins and the lower rates. more details. >> senator, on the individual side, it is a hard thing to do to broaden the base. it is taking a look at things that are very much part of the fabric of how people live right now. as of 1986, that is the way you can go about tax reform. it is a lot harder than 1986. we have not completed the work on the fiscal plan. we need to have more revenue. it will need to be done in an environment where as we broaden the base, we both contribute to deficit reduction and hopefully are able to lower rates. on the business side, we have a

contradiction in our fiscal tax system. our statutory rate is high. our effective rate is not as high. when you look at the united states against other countries, it the statutory rate makes the u.s. look unattractive compared to others. for individual firms, their average tax rate is much lower because of all of the complicated provisions that are part of the code now. it would be a challenge to take on those individual credit. there's no way way to bring the rate down. that is something i think we need to do to maintain competitiveness abroad. >> you still believe that going down the road we need to reduce that to get the rate down? >> i do. when one looks at a table of international tax rates, it

stands up at u.s. statutory rate is high. it is a complicated story to tell that the average rate is lower. it does not affect all businesses equally. we need a simpler tax code. >> could you briefly comment on something that was said in the press? that is your investment in the cayman islands. what was it? how did that happen? why did you choose that investment? what benefits did you receive? >> while i was in a play at citigroup, i had opportunity to make an investment in a private equity fund that was designed to invest in emerging economies around the world. it was an opportunity that look to me at the riskier than other investments i have made in the past. i have a very conservative investment philosophy. i thought it was appropriate risk given the possibility of a higher return.

i invested in the fund as an employee and i divested from the fund when i was confirmed for an office in the government. my benefit was very small. i took a loss when i sold the investment. i reported all income and pay taxes that were due. >> why the investment in the cayman islands? did you know it was ca >> i knew that invested in emerging markets. i do not know at the time but the address of the partnership was. >> when did you divest? >> 2010 when i became omb director. the fund was disclosed in all my prior confirmations. i'm not aware of any tax

benefits i got from participating. >> where did you pay taxes on that investment? >> i reported all income related to the investment on my tax forms. i paid all my taxes. >> you paid taxes? >> i lost money on the investment. in fact, i lost money which i did not have a great deal of income. >> thank you. senator hatch. >> thank you. following the financial crisis, many lessons were learned, including citigroup have taken actions to improve their responsibilities. my question relates to the time you were there. not the current citigroup operations. responsibilities as managing director and chief ynez officer

-- chief operating officer at citi units. you have said to our staff that you were not involved in portfolio management. you may not have selected assets that citi invested in or managed in the portfolio, but citigroup organization chart seems to identify you were tied to investment research and other such activities such as liquid operations. during your time on wall street, there are units that you oversaw. those securities include class b funding. it is a product that citi is represented and sold to collect

fee and then bet against. others might have been sold that you oversold. -- you oversaw. some alleged were misrepresented to be far safer than they were. you have said that you are responsible for operational activities and management with some are little knowledge of the activities of the units that you staffed. i find that somewhat confusing. your position at citi is considered a trophy position. i hope you can provide some clarity to disprove that you -- that view. i have four questions about your citigroup role at the time you were there. perhaps you should get your pencil ready. i will go through all of them and then you can respond. first of all, do you have any discussions or participate in e-

mail exchanges, including having been cc'ed on any stock of funds? second, did you get an understanding of bank risk- taking activities from observing activities in the units you oversaw? or did you not know of any risky activities in your units? third, did you have any oversight role with respect to financial products that work launched and sold in your units? if so, did you do anything to curtail risky activities? or did you not know about the marketing and sales products of the units that you managed? in which case, i wonder what you did. fourth, while managing to provide efficiencies at the units you oversaw, did you use any services of citigroup the services what the website calls

one of the largest providers of business outsourcing services within the banking financial sector? >> let me start with my role. everything falls within that. i was chief financial officer first of the -- that was about two years. the alternative investment business. as the chief operating officer, i was responsible for a number of broad ranging management of the business kind of activities. i had substantial responsibilities in terms of large, national, and

international field organizations. i mentioned to senator baucus one of the trips i had was to montana. i went around to make sure that our business was working on the ground. in new york, i was responsible for the budget of running the business, which is very large and international operation. i was not in the business of making investment decisions. i was certainly aware of things that were going on. i learned a great deal about the financial products. i was not designing them. i take away from that experience a deep understanding that there are risks that we need to be on guard. i would be delighted to discuss those as we go forward. with regard to specific e-mails and phone calls, it has been quite a number of years. i do not recall specific conversations. there were products were widely understood to be troubled. i was aware of funds that were

in trouble. i do not have responsibility for the funds themselves, but i was aware that those difficulties were going on. >> my time is up, mr. chairman. >> next senator on the list is senator schumer. he is not here. senator grassley, you are next. >> already? >> yep. >> mr. lew, on january 16, 2009, citigroup announced losses of $18.7 billion. they also received a federal bailout through the loan guarantee on mortgage assets. one day later you received a bonus from citigroup for over $940,000 for your work as chief operating officer on the

alternative investment units which was responsible for much of the loss. were you aware that citigroup was about to receive a guarantee when you received your bonus? >> senator, i was aware of citi and the tarp program. >> why is it acceptable to take dollars out of a company that was functionally insolvent and about to receive $1 billion of taxpayer support? >> in 2008, i was an employee in the private sector. i was compensated for my work. i will leave that for others to judge. >> president obama said on the campaign i used to talk about the outrage of a building in the

cayman islands that had over 12,000 businesses. either this is the largest building in the world or the largest tax scam in the world. you invested more money there than the average american makes an an entire year. do you believe the president was accurate in the building in which housed your investment as "the largest tax scam in the world"? >> i'm happy to answer questions about tax policy regarding the sheltering of income taxation. i reported all of my income that i earned. i paid all taxes due. i believe we should have tax policies that make it difficult, if not impossible to shelter income from taxation. there is a certain hypocrisy for what the president says about other tax payers.

let me move on. you told finance committee that you are unaware of the association with tax scams. it makes me wonder where you have been the last years, as well as a former budget committee chairman. they have highlighted this house to the nation several times. as i said, president obama preached about it. it is no wonder that maybe you and the president have not proposed legislative solutions to what you would consider what the president considers a tax scam. my question -- how can you be the top tax enforcer if you have not close this offshore loophole? >> senator, i think it is clear that i have reported all incomes that have earned. i pay taxes as appropriate.

i believe strongly that people should pay taxes on their incomes. i have strong views on how the tax code should be constructed to encourage investment in the united states. i'm happy to answer any policy questions you have. >> do you think the house should be shut down? >> senator, i'm not familiar with that cayman islands house. >> a case filed in the new york state supreme court, nyu, new york university is appointed state at the same time you're -- they invested in an aerial on in the cayman islands open ended investment company created to be used for united states tax accepted -- exempted investors. nonprofit sometimes seek to avoid paying taxes on unrelated

is this income through offshore vehicles like funds in the cayman islands. while you are the executive, did nyu of investment in the cayman islands avoid taxes on unrelated business expenses? if so, how many did nyu invested in the caymans? >> when i was at nyu, was not aware of any policy to invest in a manner that you describe. i was involved in discussions about making sure that the endowment should have a good as -- have a good return as possible. we wanted to have a diverse part folio that would help the university get income. >> i will close with this conclusion since you are unaware of it. i take your word for it. it is certainly a poor reflection if you do not know about these investments.

moree paid over $800,000 than the president of nyu to know what was going on and i'm surprised you do not know. thank you, mr. chairman. >> thank you, senator. >> thank you. mr. lew, welcome back. i understand this is your sixth information hearing. you are a glutton for punishment. we thank you for your service. i'm optimistic listening to the concerns about closing offshore loopholes. you might have something that we can do together to offset this. it would be wonderful to work together on something that would close loopholes that clearly we are seeking bipartisan support for. i would love to work on that. i would like to talk to you about one of my favorite

subjects, which is growing the economy with manufacturing. i was very pleased to hear that president's comments last night. with that love to have go faster, manufacturing has been leading the recovery in growth are. when we look at tax reform and what we need to do to be competitive internationally and toon, i'm very interested make sure that we continue to make things in america and that we innovate in america. i wonder if you can speak to how we encourage making things in america, american manufacturing? things like manufacturing deduction, how to make it more effective. what do you see in terms of continuing to innovate and make things in america again? focus on that and tax reform. >> thank you, senator.

i think that one of the real reasons for taking on tax reform -- i would say the major reason for taking on tax reform is to help for the economy and improve the environment for manufacturing in the net is eight. -- in the united states. we have a tax code that has a lot of provisions that benefits manufacturers of one kind or another, they are quite complicated and quite particularistic. we have very high statutory rate for income. i think the approach to business tax reform for the point of view that our goal is to try to simplify it, that will immediately help businesses. right now they have to start spending money on accountants and lawyers just to get started . we can simple fight it and lower the bar. the president outlined and his proposal last year that we

ought to have a preference for manufacturing in the reformed tax code. i think that the challenge will be that we all know that a tax code that has a broader base and a lower rate will be one that makes it more attractive to invest. they are very important to the industry. it will require a bipartisan. it will require working together for the greater good of the economy and the american people, even if that means taking away some of the particular benefits that goes to one or another part of the economy. we should take away the incentives for things like -- oil and gas exploration cannot move offshore. the resources are here. we need to look at what it is that enters into a business

decision when you choose between locating in the united states or overseas and have that tax could be helpful and not hurtful. one of the things that has been encouraging in the last two years is that even with the tax code as it is, more businesses have been deciding that they want to invest in the united states. the quality of our work force makes the united states a very attractive place to invest. it may fix the tax code, there is no limit to how much we can go. >> we have about 17 million people that work because of manufacturing and 60 million because of agriculture. that is the foundation of the economy. -- 16 million because of agricultural. that is the foundation of the economy. what would you like to see done? >> we have worked very hard pursuing multiple paths to help homeowners either refinance or modify their loans.

one of the things that we would very much like to do that the president i just last night in the state of the union is enable homeowners who are paying their bills and are underwater through no fault of their own because of their financial crisis and to be able to refinance their loans. right now homeowners are locked in to mortgages when they should be able to get 3.5% or 4% mortgages. >> thank you very much. >> thank you, senator. >> thank you, mr. chairman. mr. lew, we appreciate having you here today. i want to focus on tax reform as we did in our private discussions. i have chaired with you in my work with the simpson-bowles commission and in other areas trying to put together a comprehensive deficit reduction package and that reduction -- d ebt reduction package, i have

heard you say that tax is a key part of that. not because of the need to raise revenue, but because of the need to generate growth and have a program element in the recovery effort for our -- progrowth element in the recovery effort for our country. the first part of the question i want to ask you, the discussion of tax reform has taken in some cases a concerning turn. i have heard the term tax reform used all too frequently to be a revenue generating device. i understand it can be utilized to generate growth. please tell me why again you believe tax reform is needed in our economy. >> thank you, senator. i think we have discussed in conversations that i consider

it a lost opportunity in january and december that we did not get to a final agreement on the fiscal challenges. i think that there is still more work to be done in terms of the fiscal path. we name our revenue. i think that's separate from that, there is a need for tax reform. in clearing the tax code and broadening the base, there is room to raise the revenue that you need. a few months ago, there was discussion as to whether or not we should raise tax rates or the base. we raise the tax rate and did not broaden the base. i look forward on a bipartisan aces of sound fiscal footing and perhaps more importantly having a tax code that makes sense for individuals and businesses that we have a

thriving investment environment . >> i agree with that. it is more anti-competitive to our business interests. we need to correct that. i look forward to working with you in partnership. i want to get into more detail to look at the corporate side. he had discussed the need to lower the statutory rate. i agree. do you have a target rate in mind? a lot of us have talked about 25%. at least a level 25% that we need to reach. >> the challenge is how far we are willing to go in broadening the base. we do not have the ability to lose it revenue as about the business tax reform. it is challenging to get to 25%. >> do you agree on the corporate side that we should be revenue

neutral? my understanding is that in the past week forecast on the corporate rate? -- in the past we have focused on the corporate rate. >> have the tax code be simplified and consistent with a more robust investment environment, particularly in a competitive environment with other countries. i think it can be done in a revenue neutral way. i do nothing would have the ability to raise the revenue we need to deal with the fiscal problem is with the business tax reform. >> in regards to business taxation, many have made the argument that we need to pay very close attention to the individual toacode regard to its impact on business taxation. do you think we can do corporate reform without also doing individual tax reform? >> i think we could, but i do not think it would be the best way to do it. we should do both individual and business tax reforms.

we do have a combination of different forms of business organizations. the closer we get to a place where the corporate tax system is one that is open for more business, the more competitive we will be. we need to keep both in play. right now the challenge is many, but once we do tax reform, we should do it right and do both. >> i want to get into some. friend issues, but my time is running out here -- i want to get onto some other other issues, but my time is running out. >> i think as we lower the rate, we have to be looking at having a minimum worldwide rate. we are trying to level the playing field. there is a debate as to whether we can go one way or another. we have a hybrid system. it is a question of where we set

the dial. >> thank you. >> thank you, senator. >> congratulations, mr. lew, on your nomination. it is great to see your family. i have a lot of fiscal questions for you. you mentioned in your opening statement about medicare and getting the delivery system right. the president mentioned that in the state of the union address and focusing on quality as opposed to for quincy in tests -- as opposed to frequency in t ests. >> in my time at omb chief of staff, i paid attention to the implementation of the affordable health care act. it is necessary for it to be in place. >> do think that there is a provision of affordable care act that is supposed to be

implemented in 2014, should it be implemented in 2014? >> we have a working hard to get this on schedule and getting these changes set up and having the portable health care in place in 2014. than many departments have been involved in a area -- many departments have been involved in that. it is not always easy. we had to work hard to get the funding and implement on schedule. i feel like we are in a good place. >> the basic health plan is something implemented. i know the president has tried to express an opinion to help push things along. do you think the affordable care act justifies that the basic health plan should be implemented in 2014? is there a bias somewhere in the administration against lower costs managed tier delivery system that the act calls for in exchange for the exchange? is there a biased that the

affordable care act means implementing only those pages related to the exchange and punting everything else even though there were would've been better cost-effective systems? bias. not aware of any there is an enormous amount of work needed to get exchanges set up her. i would be happy to work with you on that specific issue and find out where it is in the queue and follow-up on that. >> i would greatly appreciate that. i think there is a big concern on my part that somehow people might be asking the state to forgo the more cost effective solution for that population just above the medicaid level in exchange and making it more expensive and pushing that population onto the exchange as the holy grail. i can tell you that we think it

should be implemented now. i certainly will take you up on that. i want to turn to financial issues. we can talk for hours. do you believe in the reimplementation of glass- steagall? >> senator, as we discussed when we had this conversation, glass- steagall had been over the years somewhat of an anachronism. much of the activity in the financial world had gotten beyond it. i think the problems we had in the leading up to the financial crisis were evidence that our financial regulatory system was not in peace with the growing complexity of the financial system. i think dodd frank wasn't -- it was an important part in regulatory fashion regulating

oversight. i think as we go forward, we have to ask restaurants as he complete the implementation of dodd frank. are there were actions that are needed? they need to make sense in 2013. going back, i do not think it is a recessive gaining -- resuscitating a 1930 act. >> i will take that as a no. to that point, i do not know how you can -- are you not worried that will provide more systemic risk as well? >> i think that if you look at the issues like margin requirements, it is important that we get on top of regulating things up with us at systemic risk. i think it is a little bit more

complicated. the question of is there a need for any further consideration of financial regulation is one that comes in sequence after implementing dodd frank. i come to the issue open-minded knowing that we cannot let what happened leading up to 2008 happen again. we cannot let a regulatory system become stripped by the complexity of the financial system which our economic life depends on. >> i will look for more discussion on that point. i do not understand the administration's idea of capping the municipal bonds and tax reduction at 28%. if you want to encourage more investment, federal government needs to provide cheap capital. when all of these things are putting monies into derivatives, you cannot convince me that they're interested in the bottom line.

a policy on capping municipal bonds at 20%, i'm curious whether you will continue that policy? on the foreign investments in the real estate ask, whether you think the treasury department will complete that irs notice and take action, that would help jumpstart by the investments. >> administration's proposal would have eliminated the value of the talk -- top tax bracket of the 20%. -- 20%. -- 28%. it is not directed at municipal bonds or specific areas of tax activity. it is meant to be a placeholder that we should have tax reform. we need to make specific policies deciding what is in and what is out and what the property tax rate are. we put in the fall back saying that a taxi from does not

happen, this is something that would help us get to the target that we need. i would happy -- i would be happy to follow up with you on these issues. the general proposition -- the hard decisions and tax reform will in many cases where there are many things that we are sympathetic to, but we have to curtail tax benefits to broaden the base. it is a general rule that there were a lot of -- that if there were easy decisions, tax reform would've happened a long time ago here. >> is that something you will take action on or will we have to act here? >> if confirmed, i would work with you to get them completed. >> thank you, mr. chairman. >> thank you. >> mr. lew, welcome. i want to come back to an area where i think there is room for

republicans and emma christ to talk about -- tax reform. -- democrats to talk about -- taxi from. -- tax reform. i think you are familiar with these documents. contrast that with the paper the white house put out which is 25 pages. it is a corporate tax reform proposal. give ministration is going to have to do a better job of leading on the issue of tax reform if we are going to get something done on this issue. this goes along with the myriad issues we deal with a in the tax code. the president talked about tax reform last night but as i give us any details. he says he supports a lowering

rates for businesses in accra a drop in america. does the president when he says that agreed to -- agree the rates need to be lowered across the board for all taxpayers? a lot of small businesses file on individual tax forms and pay individual tax rates. should tax reform include a lowering of rates on individual taxpayers as well as the corporate rate? >> i think to proceed on tax reform, we will have to work together, the executive and legislative branch on a bipartisan basis. if confirmed, it would be at the top of my priorities to do that. in terms of the best way to engage, i still have the white

folks and blue books. tax reform in 1986 did not follow treasury 1 or 2. it was worked out by two chairman in the kind of regular order process i think we will need to follow again to succeed. when president obama sent a much shorter document to congress, and with the full distance and got act into law. the goal is how the we get something done. the means to that end, i am flexible on. .'m open to suggestions with rates, we will have to work hard to broaden the base to lower the rates and weak revenue targets we have. but i think it is possible.

if we are willing to do the hard work, we can get our hitt this week to get our fiscal house in in order -- we can get our fiscal house in order. >> i understand health care reform legislation and the concern about too much specificity but this is not going to get done unless there is leadership at the white house. it will be very hard. there are a lot of groups attached to the current tax code. i believe we need to do away with everything and do what simpson bowles suggested. then figure out what we want to add back in and adjust rates accordingly. a year the president talking about raising revenues here tax reform -- i haer the present

talking about raising revenues from tax reform. i was suggesting there has to be more leadership than this relative to this when it comes to this issue. one other question. the president wants -- he talks about entitlement reform. we have talked about the need to address what is the long term driver of debt and deficits. that of course is our entitlement programs. but there is not the specificity there. the president has talked about $400 billion. $10 trillion at is the deficit in the next 10 years, $400 billion looks like a drop in the bucket. where is it the specificity when it comes to addressing a

spending problem? almost a full percentage point higher than a 40 yaer historical average. we have a spending problem. there is no proposal that addresses that. the budget a few years ago the not receive a single vote. they are not serious. i hope you will engage on this issue of trying to do something about this very huge problem. >> i could not agree more that we need to deal with our fiscal challenge. i may disagree it is a combination. we have it doesn't it -- we have a deficit problem. that is the kind of thing verbeek and have a discussion and figure out the right balance. -- that is the kind of setting

where we could have a discussion and figure out the right balance. the savings proposals for a mix of different proposals. summer at a burden to those who could afford to pay for -- some were a burden to those who could afford to pay for it. the president and then to negotiations in december offered to increase the force of billion dollars of this savings in medicare. we are prepared to engage in specific ways to do that. the sooner we put the fiscal from together, the better we can move on and create a growing economy and jobs. >> by time has expired. thank you. senator menendez. >> thank you, mr. chairman.

in the previous confirmation hearing as the omb director, there were a series of questions raised about de-regulation and cause of the financial crisis. some of the responses you gave raised some concerns to your commitments of stronger financial regulations. there is a difference between being the omb director and treasury secretary in that regard. he would play a very significant role in regulating our financial sector. i would like to give you an opportunity to put some concerns to rest. do you believe stronger regulation was and is necessary and if you weret o be confirmed, the support of robust a limitation of the oversight rules of the dodd frank law?

>> i very much believe dodd frank was necessary. needed to modernize the regulation of the financial- services industry. the oversight provisions need to be implemented. if confirmed, it would be an extraordinarily high priority of mine. >> one of the other things you will have in your portfolio as the treasury secretary is the instrumentation of sanctions. as the author of the iran sanctions act, i am interested in making sure treasury pursues the law that the congress passed unanimously that the president signed as our last tool to prevent iran from achieving nuclear weapons. if confirmed, will you ensure

the robust enforcement of the sanctions provisions we have given to the president? >> yes, senator. if i might elaborate on that. i think our sanctions are bringing the world community together. they are they largest sanctions regime in history. i have some hope we will be able to resolve the issues we have with iran peacefully and. cinches are doing what they need to do. it is crushing the iranian economy -- sanction are doing what they need to do. they are crossing the iranian economy. we have not seen whether it as changed the mind of a regime so it is ready to give up the pursuit of nuclear weapons. the president has made clear it is unacceptable for iran to have

nuclear weapons. i firmly believe these economic sanctions are preferable to war but we must pursue them. >> with weapons --with reference union state of the address, the president mentioned the growth of the economy. what do you see yourself as the role of the treasurer in being part of creating a growing economy? talks the secretary of treasury is the senior member of the president's economic team. i worked on the team from various perspectives. the treasury secretary should

ask what we can do to help the economy moving and creates the possibility that every family is willing to work hard as a chance to get a decent life. there are many things we can do. i am an optimist by nature but i also believe you have to keep working at it. the president proposed and then to the american jobs axed a number of proposals. last night,, he thanked congress for enacting a few of them and encouraged them to enact the rest. a in the longer term, we have to get our fiscal house and in the order. things like him for structure, education, skills training, we have the most vital economy in

the world. to be there in the future, we need the people and infrastructure in conjunction with its fiscal policy we can afford. >> i hope you will also put in that -- the president mentioned mortgage refinancing. i can understand why we would not let thousands of american families refinance, lower their rates and unlocked the universe of solidified homeowners. >> i could not agree more. >> mr. lew, thank you for your willingness to continue in public service. i thank you and your family. you come to this hearing with an incredible background of public

service. i want to underscore one i think will be helpful. your work in the house under tip o'neill. the white house and congress were under different parties. we n -- i think he will be well suited to bring together democrats and republicans to solve our fiscal issues. i will like to deal with problems brought to our attention about small businesses and access to capital. we have had several initiatives to help small businesses gain easier access to capital to expand job opportunities with the concerns of community banks, we see banks being merged into

larger banks. there is a real challenge for is law company to get access to capital to expand our economy. -- challenge for a small company to get access to capital to expand our economy. >> in the aftermath of the senate to crisis, one of the big challenges has been to get capital flowing again. there are businesses that have a lot of cash on their balance sheet. there are not investing. and financial stocks -- financial institutions have been slow to get back into the lending business. we are seeing progress on opening of the spigots. it will be a balance. we have to make financial institutions are sound. larger financial institutions must mike get back into a situation where they create risk to the entire system or taxpayers are left with a burden.

for community banks, many of the regulations were written to treat them differently. small restitutions do not have the same regulatory burdens and reserve requirements that large institutions do. i look forward to working with you and others on the committee to implement a laws in a way that it the capital flowing. >> i think the laws are well intended. i am not blaming the administration or congress. we need to do a better job to help small businesses get access to capital we intended. i want to turn to a second subject. senator portman and i worked on national savings issues and during the best of economic times, savings rates were very low. it is important for our economy

to have private savings. it is also important for individuals for retirement security, taking pressure off. as we look at tax reform, there are efforts being made to diminish the tax incentives for individuals to save a companies set up retirement plans. that could be counterproductive for many reasons, including talking about the timing of tax revenues and on a long-term basis, we are accelerating tax collections begin our long-term finances not what it could be. you have suggestions as to how we can improve opportunities for individuals to save for retirement? >> i believe is very important we have policies that in courage individuals to save for their retirement. be long viewed our retirement system as being something that depends on a combination of

social security pensions and savings. we are in a new world for pensions are smaller for many people which means savings will have to pick up more of the burden. we have had rules that could and simplified. there are proposals the administration has made for people to opt out as opposed to opt in to retirement savings. that would increase the likelihood the people saving for retirement. i look for to working with you and others to think through these ideas. >> the center talked about -- the senator talk about the health care system. how do we do it in a way we know we can get the savings we need. i look forward to working with you. your experience put you in a unique position where we can try to deliver a more efficient health care system to the american people.

>> mr. lew, good morning. the medicare board of trustees on which the treasury secretary serves must protect whether a general revenue fund and will receive 45% of medical outlays for the current fiscal year or next six fiscal years. these funding warnings have been issued since 2007. president george w. bush submitted a proposal pursuant to the requirement of the statute which says when the funding warning is triggered after two consecutive determinations, the president is required to propose legislation within 15 days of submitting a budget to reduce spending below the 45% threshold. president obama has never submitted a proposal pursuant to

that legal requirement, has he? >> i am familiar with the report and i know that the acting omb director has written to you on it. the view as i understand, when the prescription drug bill was signed, the report was not one that was constitutionally required of the administration. they voluntarily submitted it. and the obama administration came in, the budget have had specific medicare savings proposals. >> so the administration has taken the position it is unconstitutional? >> as i understand, there is -- >> they submitted the report? the obama administration has never submitted a report. >> we do not have specific

medicare proposals which would enact it would resolve the issues. in 2013, we will be out of that zone. >> the record will reflect the administration has never submitted a report pursuant of that statute. i hear you saying they estimate the other proposals you think satisfactory but it does not comply with the statute. congress has passed a note but it, no pay bill which says if congress does not do its job of passed the budget, and as i get paid. i would submit maybe it would be appropriate to say the office of management and budget not get paid unless they comply with the statutory mandate under the medicare trigger. last night, the president talked about energy production. my state has seen job growth grow up -- go up 32% since 1995,

compared to 12% of the nation as a whole. significantly because of energy production. i like to ask you, to the plant revenue proposals the president has in mind include tax increases on american energy producers? what the president has proposed eliminating a number of targeted provisions for the oil and gas industry. the are provisions that i do not -- the administration does not believe are necessary to continue having the industry go to the process of extracting and using those resources. he has butch other incentives to develop new forces of technology -- he has introduced other incentives to develop new sources of technology. >> so they would pay more in

taxes? >> will be part of tax reform. there will be some special provision that have to be eliminated so everyone can get a lower rate. >> i am amazed but let's move on. we talked about the level of federal spending. the 40 year norm, the federal government spends roughly 20% of our gdp. during the clinton years, the average spending level was 19.8%. under the obama administration, it has been 24.4%. revenue has been at 15%. hence the deficit difference between revenues and the amount of the federal government keeps spending.

in might meeting, you did slot -- you declined to consider what you would think as a sure the new normal be what it currently is, 24.4%? >> i do not think the current situation is the new normal. we are at the end of a recovery from a deep recession with extreme reductions in revenue and more spending because of economic conditions. as we look ahead, we have to recognize what is driving costs. 30 million more people will be eligible for medicare and social security because the baby boom is retiring. even if we make simple changes, there is going to be more activity because there is a larger population of people eligible.

to say there is an exact number based on a historical norm mrs. the fact that there is the large cohort of living to the system we will have to make tough choices about. most members and senators do as well. we are at a historically low level of discretionary spending. >> thank you, mr. chairman. to the 24%, the congressional budget office told us last week we are going to 25% and then 30% and then 35%. so clearly not sustainable. you cannot cast of level of spending with new taxes under the income tax code. cretary -- cboctor

tells us revenue has succeeded its historic average. let me back up on a question i would like to ask regarding corporate tax reform and individual tax reform. last night, the president said the lot of things. i hope you were a little uncomfortable with 10 new federal spending programs. i want to ask today how we're going to pay for those. the president said not a dime in the deficit. he said some things that are promising about reform. with regard to tax an entitlement reform. he also said something that he cheated -- to lay this out for the american

people. we do have to reform these vital programs so they're there for future generations. with tax reform, it is a huge opportunity to get the economy a shot in the arm. i would like to dig deeper. this is an area where we can both the strong economic growth and on the consensus between the administration and congress on a non-partisan basis. in 1986 when you were here on the hill and ronald reagan work on tax reform, we lower the corporate rate from 46% to 35%. in the intervening years, everyone of our competitors have

not just lower their rates for reform their corporate tax code, except us. we are sitting on the sidelines while jobs are going overseas. here is a quote i like from teh secretary of the treasury in the uk. the headline remains the most visible sign of how competitive our country it is. this is what is going on. the are all loring rates -- they are all lowering rates, except us. you made the point that is not the effective rate. it is still 8 points higher.

i did not want people to misinterpret what we said earlier. as the of talk about today -- as you have talked about today, this is incredibly complicated. given that the president's council has come out with a report cutting it into a deficit neutral way in the white paper advocated cutting the corporate rate, given that the oecd has concluded a high corporate tax rate is most harmful to growth, would you -- most harmful to

growth. >> do you believe that reducing the corporate rate is good for workers? let me give you background from some studies i've seen. the cpo has said that 70% of corporate tax burden falls on workers and to the form -- in the firm of reduced rate is -- in the form of reduced wages. would you agree corporate tax system we have right now is bad for the american worker? >> i think we formed tax system with a lower rate that encourages investment in the united states and creation of jobs would be good for american workers request thank you.

-- for american workers. >> tghanhank you. >> thank you. one of the most important jobs is fsoc. we know the 6 or so largest largest banks -- we made a study of the differential. it is a subsidy to reduce funding costs based on the market's belief the banks are too big to fail. do you think it is unfair for these make the banks to receive subsidized bonding -- subsidized

funding? >> we think it is the right way to assess responsibility. in terms of access to do from borrowing windows, i would be happy to follow up on the differences. in general, our view is we have to distinguish between a large bank that create risk to the system and smaller institutions that are less likely to. we tried to put less burdens on the smaller banks. i am not familiar with -- and with the specific issue you are raising. >> i've heard this from treasury before. not irresponsibility yet. -- not your this possibility

yet. -- not your responsibility yet. if gao finds these subsidies exist, will you commit to working with us to take further steps to eliminate that government subsidies -- that government support for these mega banks? >> i would be happy to follow up with you and have a system that encourages smaller banks to have the opportunities they should have. said --ave no quite >> i have not read the report yet. >> neither have we. it is not there yet. but all evidence points to the fact that the largest eggs and dead of a country that interest rates low work when they borrow to medium-size and community banks. and you acknowledge that? >> i know the market works the

way you describe, yet. the reason i'm be hesitant is markets, unless they are creating a system of risk or put a burden on taxpayers, are not generally -- we did not intervene in markets on a regular basis. i would want to understand the issue and work with you if there is an issue. >> it is pretty clear federal policy has contributed to this. federal policy subsidizes these make the banks -- these mega banks. >> we think dodd frank dealth with -- dealt with too big to fail. >> let me shift to china

currency. it is clear their current -- their manipulation a company in cleveland is doing everything right but they face a disadvantage on their exports and on fair competition on imports because of currency manipulation. the has been movement in the right direction with the value of the yuan, but it has been too low. especially considering trade deficits generally moved in the right direction. do you agree currency manipulation is an export subsidy? >> we have pushed back hard in

china -- hard on china. we pushed back on unfair trading practices, and engage in bilateral discussions. there has been improvement. it is still undervalued and more progress needs to be made. >> the the id ministration has been good on trade enforcement and commerce -- the administration has been good on trade enforcement and commerce. you support industries filing petitions against countries that manipulate the current state? >> i would put a lot of energy behind developing a relationship where i can push back on practices in china that we think are unfair. >> thank you, mr. chairman. mr. lew, thanks for coming.

i'm very concerned about the implications and the effects of this huge, new series of regulations most of which emulate from dodd frank. when jami dimond -- jamie dimond question bernanke about the effect of these regulations on the availability of questions -- availability of credit and job growth, bernanke acknowledged that we do not really know what the cumulative affect is and do not have a way of understanding and analyzing it. ask treasury secretary, you will be the most powerful financial regulatory person in the world. what are your thoughts about how we should think about the

unintended and adverse consequences of this massive new wave of regulations? i am concerned about small and medium-sized banks which are not at all system all-important but are hiring more compliance officers and loan officers. weuodn't -- shouldn't understand the implications on this? what are your thoughts? >> i think we need to be very attentive to all regulations via put the word, particularly in the the -- in the financial- services area. we saw in 2008 the an enormous loss of economic power and the this country because of the financial crisis. the burden upon taxpayers. as we look at the cost of benefits, we have to look at the

systemic risks and what of the consequences of failure to regulate properly. each of the agencies are working in their areas tried to get their hands around that. it is complicated. it is something, if confirmed, i would urge all the regulatory agencies involved in implementing dodd frank. >> i would hope so. the vast majority of potential institutions in america have no systemic significance. and yet they are often caught up in a lot of regulations that impede their ability to extend credit. >> i will look forward to working with you to ensure the provisions intended to not put those burdens of smaller institutions are being implemented. >> terrific. you may be aware of a huge expansion and new form of tax fought.

we have seen this in pennsylvania were criminals steal a social security number. this submitted tax reform -- return to the treasury seeking a refund and they get it. the unsuspecting victim wonders why they never get their refund because someone else got a card to rent refund. this could be on a scale of billions of dollars a year. they have made some progress. i'm glad they have included pennsylvania but a lot more needs to be done. are you prepared to commit to making sure we get this under control? >> my understanding is the irs has put a good deal of resources behind this and has made a great deal of progress. it is a pernicious kind of crime. the president polk of cyber

security. we have a new level of criminal activity where clever and creative criminals are trying to get a step ahead. if confirmed, i would work with the irs commissioner to make sure they are doing that. >> my answer policy is the realm of the fed. the treasury secretary is responsible for managing our nations that -- our nation's debt. a number of countries seem to be inclined to do with typical problems by devaluing the currency. some may say the behavior of the fed would be consistent with one intended to devalue our currency. will you be a vocal advocate for a strong dollar policy and knowledge a strong dollar the

maintains its value is a necessary precondition to strong growth? >> treasury has had a longstanding position over many years. if confirmed, i would not change that policy. >> thank you very much. >> senator bennett. >> thank you and taking mr. chairman for allowing me to join this committee. i'm very pleased to be here. as we go from manufacturing crisis to manufacturing crisis, people at home are doing the best they can to try to build their businesses and support the communities and educate their children and get ahead. the last 20 years, seeing a decline in median family income.

the cost of health care has skyrocketed. the highest -- the cost of higher education has skyrocketed. it is making harder for people working hard to get ahead. it also agreed massive income inequality we have not seen since 1928. carlotta things we can do to address this education -- there things we can do to address this situation. maybe if we have an infected people could rally behind, it would make our work easy -- if we an an objective people could rally behind, it would make our work easy.

it is not just economic growth for economic growth's sake. it is economic growth building a little lost again in this country. >> i think it is the right objective. in the president's speech, he called us the north star. we need to keep before us. we have made some progress. the tax bill passed in january did go the distance to restoring the taxuities to r burden. the distribution of income has been a real problem. it should be possible for somebody who works 40 hours a week to earn a decent wages. anyone willing to work hard to be able to make it into the middle class.

there is no substitute for growing the economy. that will create jobs. and that creates a better future for people there is no more important undertaking for treasury secretary then to keep in mind every day. >> i do not think there is anything creating greater drag on this economy than our own disfunction. this huge pent up energy -- there are $2 trillion sitting on balance sheet that cannot be invested. we have no idea how to calculate the political risks. you have been here during times when both parties were able to come together and craft long- lasting deals.

deals that endured over time and help bring us back to the brink to get us where we need to be. what are some conditions when need to rally around here so we can see that kind of work again in the united states congress? >> i share your concern that this short-term crisis deadline driven practices be a scene of the last couple of years are undermining the economy. it is the first time in my nearly 30 years that i felt the actions of government were working against the goal of getting the economy moving. i take some heart in the fact there is a solution. we have gotten close to it a couple times. we could get done if we bring on a bipartisan basis parties

together to do that. we have an obligation to the american people to get that done terry >> sign me up for that. i hope we will be able to work on that. part of what you will be is chair of the fsoc. i can't click of anything treating more systemic risk to this economy than this congress. it is time for us to start working together to solve these problems. thank you. >> i join senator bennett and others in expressing gratitude. it is an honor to be on this community and are grateful for this opportunity. riffle to bring -- grateful to bring this together. mr. lew, i am grateful to see

you back, putting yourself forward for another position. i will not read the list the positions you have held the everyone of them were difficult. many required confirmation or lease a total engagement by you and your family. we are grateful your wife and daughter are here to join you today and make their own statement of solidarity with you to serve the public. i will begin with a historical note. what is little known or remembered is that before he achieved acclaim as the treasury secretary, he was a candidate for the united states senate. was elected by the legislature of pennsylvania. tried to be seated but because

he lived here only seven years, he was thrown out of the senate. so it did not have a good experience with the u.s. senate but he became a great treasury secretary. my wish is that you have a better experience with the government and go on to create -- and go on to a great career. i wanted to begin with two areas. one is the basic challenge we face as it relates to the impact of global currency policy. sometimes it does seem far away from humidity in pennsylvania and states like it. the reality is such that when it comes to china's currency

policies, that has a real impact on communities there. we have lost a lot of jobs because china has cheated. and i would argue continues to cheat on the currency policy. in light of the exchange i had with senator brown, i hope you would keep an open mind as treasury secretary not to plead to having a good thing gates met with the chinese and therefore have a better policy. i hope you would seek new ways to have real consequences. to designate misaligned currencies. if you have to walk into a

manufacturing plant in pennsylvania that has been stressed by tough economy, stressed by currency policy, stressed by trade policy as well, what would you say to the head of the manufacturing company? what you're doing to give them a level playing field? >> we have to vigorously consist the law and international agreements be honored. whether or not there'll be consequences. we have done that with traded at a time not over and over again. we have done it on numerous occasions. we worked to the international body. to advance the view that it is

not the united states with the organized nations of the world who insisted on having currency policies with term market determined. we pushed back very hard. i look forward to working with you and members of this committee to assure manufacturers in the united states we're doing everything we can to make united states and attractive place to invest. >> i am the newest member of the committee so i did not have a chance to talk all we will talk about other issues. thank you very much. >> center roberts, your next. -- senator bird, sorry. >> mr. lew, welcome. >> if i may, my wife has a class to teach so she had to run to catch the train. lright. a

>> you said in your testimony that we cannot let sequestration take effect. bob ordered -- bob woodard credits you for originating the plan was sequestration. is he right or wrong of? >> it is more complicated than that. we were in negotiation where failure would have meant that the fault of the united states. >> did you make the suggestion? >> i said we needed to look for an option where we could agree on how to resolve our differences. we went back to the 1984 plan and said that would be a basis for having a consequence

that would be so on acceptable to everyone, we would be able to get action. >> is it not fair for the president to say the blame is on the house republicans? emand for an enforcement mechanism was not something the administration was pushing. our preferred outcome would there have been -- would have been for there to be [indiscernible] the only alternative was sequestration because it is so objectionable. >> i heard your testimony today that it should not take effect. let me quote the president, already some in congress are trying to und-o. my message is simple -- no. i will veto. there will be no easy off ramps on this one.

what's changed. >> he said congress should put in place policies that make sense to get our fiscal house in order. this is not an impossible problem to solve. it would be better for the country if they have an agreement of framework for solving our fiscal problems and not going into sequestration. >> do you regret suggesting sequestration. >> i look back at a time when a lot of people thought we were going to be full. it should not have been the case that the good faith and credit of the united states was an issue but that is what was an issue. i think we have a solution that should -- sequestration is objectionable. we ought to just do our work and saw the problem. >> secretary panetta testified

they had no further contact with the white house after benghazi attack. were you briefing the president? >> i did speak with the president that evening. the national security staff was working on the issue. >> who was briefing the president? when thein teh roohe room president was briefed i did not brief the president. odmi hearings, tehe clapper said it was not him. several others said it was not them. we have eliminated a lot of people who contact within the intelligence community ben knew what was going on in benghazi. who briefed the president, was

happening throughout this seven hour period? >> in the conversations i was in, the national security staff was president. >> would john brennan have been included? >> that is a different question. >> who was a primary point of contact in the intelligence community? >> i worked to the national security staff. >> was there anybody in the intelligence community in that briefing session? >> the intelligence community was in close touch on a near constant basis. >> if the affordable care act as the panacea as some suggest it is, why did the executive branch exclude themselves from coverage under the affordable care act? congress is included, staff, members, but nobody in the

executive branch is included under the affordable care act. >> that is not a provision -- that is a provision. i was not involved in -- the federal system is going to be accessible in a sense the true -- in the sense if there is a federal chains. i have to go back and get back to you. good, why would we not make all branches? >> that is the detail i'm not familiar with. i have to check back and get back with the. -- with you. >> we will get back to you. that is the song i hear from an awful lot people.

it is a tired country-western themes. mr. lew, welcome to the gran cayman rehab and restoration hearings. hopefully the tax reform, we can lower the corporate tax rate and this would not be a problem. you have indicated you did not know this situation with regard to these investments. in regards to the overregulation problem, it is even more of a problem or at least a challenge to us. the president last night said if his agenda is hindered by congress or high water, he will have the ability or will take the issue to more executive

orders, which means more regulations. i have a series of questions on the things you have to achieve in regard to regulations under the president's own executive order. all four, according to staff, we are mike getting any answers. he said we do the best job we can and i understand that. we will get back to you. but that is getting a little older, especially on the view of those on the receiving end. i will submit it for the record. he will have a long time to go over those questions. over the past four years, this administration has repeatedly brought up the issue of business aviation.

and the proposal to change the schedule for just, agriculture aircraft from 5-7 years. estimates i have seen alive and this will raise $300 million a year but does not take into account the loss of jobs that will result from a change.

. . . . .

>> we will sacrifice growth. the best way is to get people back to work with good jobs with good wages and taxes and getting spending under control. when we talk about taxes and tax reform, loopholes are part of tax reform. closing loopholes, which is what we have proposed for years , is necessary to get tax rates down and have a globally competitive tax code, create jobs. if we use loopholes to chase higher spending, we are

foregoing tax reform and missing our opportunity for economic growth. that is what i want to make clear. we will hear rhetoric to the contrary. >> thank you, mr. chairman. a little bit on the math. the chairman pointed out that while we will have $1.5 trillion in cuts over the next 10 years as a result of the spending caps, there were other one-time spending measures, including the payroll tax cut, the biggest single item and that issue. there was agreement that given top economic times it was important to provide a payroll tax. we should have phased that out whether than having gone cold turkey. a big chunk had to do with lost revenue from a payroll tax cut that was supported by a great majority in this body.

i think that our overall objective is to expand the economy, grow jobs, and have a strong middle class. it is true that especially as -recovers,y weakened 0- it may put upward pressure on rates. we have to grapple with the deficit. you can have two categorical ways. you could say you will not do revenue. you will do all cuts. you can do it all on revenue. with no cuts. both of those lead to bad results. you cannot raise revenue enough realistically to cover the cost

s. cutting means undermining important commitments that we have made when it comes to retirement and security for our seniors. the question is how we deal with those deficits. that may get back to the sequester because that is looming. could you tell me in terms of the negative economic impact of the sequester, the .6%, what does that translate into in terms of lost jobs? >> our estimate is the cholesterol long -- the sequester alone will reduce gdp growth by 0.6 percentage points . we think that would reduce the level of employment at the end of the year by about 750,000 jobs. >> 700 50,000 jobs between now

and the end of this calendar year. that as a whole lot of jobs. we should be working overtime to prevent that kind of job lost. s. if you replace deficit reduction with a planerity that accomplishes the same amount of deficit reduction spread over 10 years, you would not have that big hit on jobs. >> that is right. we have heard a lot about the impact as a result of defense cuts. our analysis -- mr. cantor had it right to last september when he said that if we allowed the sequester to take lace, unemployment would soar. it was set back progress on the economy. he cited an estimate that the

sequester would cost 200,000 jobs in the state of virginia alone. we were able to prevent the sequester for the first two months with a balanced approach. that should be the model going forward. that is what we of five to defend the sequester. there has been a lot of attention on jobs lost because of defense cuts. the cut in the nondefense on a dollar for dollar basis, does that result in the same amount of jobs lost? >> the effects of cuts and defense and non-defense spending are quite similar. the precise timing of the effects depend on the timing of which defense spending and nondefense spending occurs. it could be small differences. the government is paying people to build battleships or other sorts of equipment or structures, then those will have

comparable effects on the economy, output, and jobs. >> i never understood the logic as to how cuts to defense somehow cost jobs. cuts to other government spending somehow do not cost jobs. when you invest money to build boats and bridges and other transportation systems, you put people to work doing things that are productive for our economy. if scientists -- grants are being spent to find cures for diseases. it would be counterproductive. the health of our people to have those cuts take place. there are long-term negative impacts. you have the job loss of 700 50,000 jobs between now and the end of the month.

let me say something about tax reform. what is your most recent estimate of tax expenditures? >> and last year's outlook, we had an extended discussion of tax expenditures. there is a new estimate of tax expenditures. tax expenditures are amount of -- large amounts of money. many economists agree they are best viewed as a form of government spending because they are directed at particular people or entities or designed to subsidize particular activities. analogous to the way government spending is directed at particular people or activities.

it is a large component of spending by the federal government even though it is recorded as lost revenue on the revenue side of the budget. >> it is spending through the tax code by saying to certain interests, there is -- that is revenue that will not come into the treasury to help produce the deficit -- reduce the deficit. we passed the $600 billion tax increase, focusing on people on the high end of the income scale. the president's goal was to achieve 1.2 trillion revenue. that is less revenue and debt in that plan that in the bipartisan simpson-bowles plan, which said we should do tax reform but in addition to reducing the rates we should have a significant amount go to deficit reduction.

the bipartisan simpson-bowles report would have a lot more revenue coming in than the president has proposed. i want to make that clear. i would also point out that speaker boehner during those discussions with the president said he did not want to increase rates. he could raise $800 billion by closing these tax loopholes and breaks and getting rid of these tax expenditures. those are all still there. none of the actions we have taken a limited the tax breaks that all of the candidates and the last election talked about. if we agree that those are just different forms of spending in the tax code, it seems we should be willing to help eliminate those tax expenditures. for the purpose of reducing the deficit in a balanced way. just to be clear, what our colleagues today has said it is they are not willing to do that. they are not willing to eliminate tax expenditures for

the purpose of reducing the deficit. we think that is important. it is part of a balanced plan combined with cuts, reforms going forward. if you look at the chairman's charge, there is no doubt that we had to deal this issue. you can pass changes to laws in window that have an impact in the out years. arbitrarily trying to squeeze all of that into the 10-year theow, which is what speaker had to agree to do, is not good economics. that is politics. i would hope that as we go through this process we keep an eye on this. what is the effects on the -- what are the effects on the

economy? what is the impact on metal class? -- middle class? >> let me follow up on that quickly. welcome. we appreciate your insight. is it better to have a balanced budget and not? >> that detents on what your values are. the reason that cbo does not make recommendations about what should policy is because the course that you choose depends not on just our analysis but on your judgment. the level of debt you described -- i would suspect you would agree that a level of 87% is not as wise as a level at 76%. is that right?

>> we agree that the higher that has higher expected costs and risks than lower debt would have. >> i would concur. to touch on the fiscal cliff, do you recall what the spending reductions were in that legislation? >> this is relative to current law. our cost estimate showed that legislation as a large tax cut, not the tax increase you described. there were small changes in spending. there was additional spending on medicare but cutbacks on other healthcare spending, sequester was deferred, that was paid for partly. through other spending reductions. >> this balanced approach is balanced until it is not.

that is what we saw with the fiscal cliff. i want to touch on the issue of revenue. your report sites that revenue has returned to the 02008 levels. >> that may be right. >> their revenue to the federal government has returned to higher than the 10 year average. if we look at the deficit in 2008 at about $450 billion and the deficit and in 2012 at 1.3 trillion dollars with revenue returning essentially two 2008 levels, is it true that the thing that is driving the deficit to a greater degree is not that the revenues are lower than they have been but the spending is higher than it has been peer reflect? >> spending is going up sharply.

the problem that you and your colleague states is that there are benefits they are expecting individually. there are more of them than there were beneficiaries 10 years ago does not appear to them to affect the benefits they are giving. it is multiplied by a lot more people. the aggregate spending goes up. >> it is. we look forward to working through the budgetary process that will strengthen those programs as opposed to moving in the direction of lopping off funding for those problems at the expense of those beneficiaries. i want to touch back on the 76% and 87%. your scenario has been in the past has been more accurate

compared to reality. >> the biggest difference between that and the baseline has been the extension of the expiring tax provisions. congress chose to extend most of those expiring tax provisions. our current baseline looks more like our last scenario. >> it is more likely we will be closer to 87% as opposed to 76%. >> if you and your colleagues ( policy stance, that will be the case. >> when a fiscal crisis occurs, what is the triggering mechanism? what happens that results in that inability to borrow at an affordable rate? >> a loss in confidence in the government's ability to manage its affairs and to pay the

interest on the debt makes potential investors more concerned and make some expect higher risk premiums. >> is that accurate? >> that is right. >> thank you. oakham to a new cycle. -- welcome to a new cycle. these are important debates we are having for our country. thank you for being here and outlining where we are. you pointed to positive news. the fact that we are recovering and seeing positive signs of economic growth in the housing sector. you heard already be disagreement that is making it difficult to find a way to reduce the deficit and a fair and balanced way that does not hurt this economic recovery. we have seen growth.

we have seen the arguments that there is no -- at least talking crash just that we saw a contraction in the economy for the time in three years. the base we have here have an effect. we believe this is not just politics. there are different theories on how we grow the economy and strengthen the middle class and are competitive and how we meet our obligations to our children and those -- futures and seniors. one of the things that we have seen, positive news, you pointed it out that we have seen slower growth in the cost of healthcare in the private sector and in the public sector. it is significant. double-digit growth in cost.

100% increase or more in the private sector. in medicare and medicaid, some of us would contend that we have seen these delivery systems of reforms and the commitment we have made to push the health care system to give us better value for our taxpayer dollars to improve the quality of healthcare for our seniors, to deliver health care in in a much more cost-efficient way. and to say taxpayer dollars and improve the quality of senior health care. 10,000 more seniors per day. it is serious. could you speak to the fact that we have seen good reduction, three percent is

quite something when we saw 10% per year in medicare. can you confirm that? as we move the way we pay positions in this -- physicians in this country under medicare that would require them to take a model that does save money and improve quality and outcomes for our seniors has the potential that all physicians been in that direction. the potential cost savings and the private and public sectors. >> the numbers are quite striking. we think that by 2023 there will be roughly 40% more beneficiaries of social security and medicare than there were last year. that has an affect on the

overall cost of those programs. your point about health care cost growth is right there has been a market slowing in medicare in part a and part b and part d and in medicaid and in the private sector in the rate of health cost growth. part of that is because of the recession and the slow growth of income and loss of wealth. a significant part of it is structural. the crucial question is whether those structural changes will be enduring. that is a topic we are giving thought to and talking with experts. the right way to summarize the consensus is that we do not know. >> if we were to pass legislation this year, which

there have been serious discussions between democrats and republicans, would that give you the tools to say this is a window that will happen? >> there is widespread support for the idea that we should be paying healthcare providers and a different way we are paying them today. there is agreement that a shift in how we do so will keep crossed -- keep cost down and improve the quality of life better. we will work with you on that. thank you. >> thank you. good to see you again. large and persistent deficit like we have had is a bad thing

for economic growth, job creation, and potentially the debt crisis risk. the solution to that, which is some kind of fiscal contraction , can cause a reduction in short-term economic growth and job creation. we are in a pickle. the question is, how do we get out of this thing? in europe, greeks and spanish and talents -- italians waited too long. they had to do an expansion that resulted in extremely high employment and large contraction in their gdp. is that correct? >> yes, we think those sharp fiscal austerity have contracted the economy. >> if we decided to fix this budget deficit and the next two

years where we were forced to do it by a crisis, that would plunge the country into recession. unemployment would go up. we do not want to do that. if we ate nor it or only deal with a little bit and the deficits go on and are worse than the alternative scenario, then we risk never getting to our potential growth and potentially have that debt crisis where a few years from now we would have to make that overnight contraction. >> yes, that is a risk. >> it makes sense to try to solve this thing and not to short a time or not too long a time. two or three years are too short. 30 years is too long. is eight or 12 years if it were

done and and even approach the sort of thing that may be able to balance and get us out of this pickle with as little damage as possible and as much opportunity for growth? >> i do not want to prescribe a time. you are right that the longer -- the risk of waiting longer is that by running with a high level of debt to gdp, the cost buildup and the risk told up. in 2007, debt was 36% of gdp. it will have risen to 40% of gdp. because of the financial crisis and the processions and the actions taken, if we were not at this high level of debt and encounter another crisis, that room to expand the deficit will not be there in the way it has been. >> mr. van hollen talked about

the same -- sequester. if you were to replace sequester with what ever, just a similar amount that matched what the sequester is of other spending cuts and/or tax increases. the composition would have something to do with it. if you do 100 billion dollars of fiscal contraction, there is some negative impact. >> yes. you are right that the timing is critical for the economic effects sm the composition can matter depending on how you and your colleagues do l deal with it. >> one thing on tax expenditures and i know i hate that term.

the vast majority of those, if you look at home mortgage interest, charitable contribution, i.r.a., and other retirement plans and health care, isn't that where -- if you really wanted to make a big impact, would you have to go into those things, wouldn't you not? >> those the largest components. how big an impact, i can't assess. the single largest expenditure relates to health care, exclusion of health insurance from taxable income. second largest involves pensions and third largest involves mortgage interest. >> thank you very much, doctor. >> mr. pascrell. >> thank you, mr. chairman. dr. elmendorf, thank you for coming before us again and opening the pleasant season for the next two years. i want to respond to my brother from georgia what he said before about how we have an increased spending since 2008, beginning january, 2009 when president

obama raised his hand. i think we're all here to roll up our sleeves and find a long- term solution to the debt. but just as we know that increased revenue is not going to solve the entire problem by any stretch, neither, we can't cut our way out of budget difficulties either. so when you look at what's happened in terms of budgets since 2009, january, 2009 and now, when there was an increase in spending, we just can't talk about that out of context, why

was there an increase in spending. are we spending just to spend, or was this the government's response, our response, whether you voted for it or not, to a very serious problem in the united states of america, people out of work, health care costs going through the roof. so how do we do it? no one else is spending. if we don't have private capital invested and that started before the end of 2008, then how do you try to provide an atmosphere so there is investment into the economy? and we want private investment. we know the government can't solve every problem. we understand that very, very well. but when you talk about a balanced budget, of course it's preferable. are we to think because we have this tremendous deficit problem going into 2009 all we needed to do is cut across the board in view of the social and cultural

things going on in this country and much of the world, if we simply cut and slashed everything would be fine? you have created a situation. if there was no recovery and we could point out chapter and verse, what happened in the last quarter of last year, very interesting comparisons. so we had to come out of two wars. we never paid for them. we had to come out of two major tax cuts in 2001 and 2003. we didn't pay for that. we didn't pay for the

prescription drug plan that we passed eight years ago. there's a reason why we had to spend that money. and if anyone is trying to imply here that if we simply stopped spending the money, isn't that wonderful. and it is our money, it's the taxpayers' money, that we would be in better economic shape -- well, the american people didn't buy that. they just simply didn't buy it. because they are a lot smarter than we think they are, both sides of the aisle. instead of trickle-down economics which we had for eight years and go into how many jobs were created then and how many jobs were created over the last four years, instead of trickle- down we went to trickle-up. i prefer that the little guy have a shot at prosperity and not wait for the big guys to drive this economy, because they certainly flopped on their face in 2007 and 2008 when capital was not invested in this country.

director elmendorf, seems to me the most important way to achieve long-term deficit reduction is a balanced approach of revenue and spending cuts. that's what we keep on talking about. in fact, according to your report, the c.b.o. expects the deficit to shrink from 8.7% of g.d.p. because we don't want to quote these things because it doesn't fit into our script, that that will shrink the 5.3%, is that correct? >> yes, congressman. >> can you answer the question? >> he said yes, but if we wait until clock is at zero to ask our question, we aren't going to get to our other members. >> your point is well taken.

>> dr. elmendorf, let's get to some basics here first. in order to pay for spending, we either tax it now or borrow it now or tax it later. >> you either borrow it or you it now or tax it later. are there any other ways of spending, other than monetary policy? >> the amount which you raise taxes depends on the level of >> you either borrow it or you tax it if you are going to spend it. >> yes, congressman. >> government can't inject it all into the economy without it taking it out or borrowing now and promising to repay in the future. >> if the government borrows money, it is not taking a dollar out that would be otherwise invested. it can increase the total demand. >> if the dollar being borrowed by the government, presumably, it is not there then to be borrowed by a consumer seeking to make consumer purchases or a

home buyer seeking to re-enter the housing market or a small business seeking to expand jobs. >> that logic is exactly right where the economy -- that's not the current economic circumstance. >> would you explain the economic impact of debt? >> in a fully employed economy that we project for the second half of the coming decade, higher debt crowds out private investment and reduces incomes relative to what they would be.

in an economy like today, the differences are starkly different. and we think additional borrowing to support higher spending or tax cuts would provide a boost to the economy in the short-term. certainly if that extra borrowing is not paid down later >> but you are borrowing a dollar from the same capital market that would otherwise be funding loans to consumers or to businesses or to home buyers, for example. so it's the same dollar. the only question is whether it is borrowed by the government to spend or borrowed by someone in the productive to spend. >> in current conditions, the demand for private borrowing is very low. there isn't a conflict in the credit markets. that's why the federal government's interest rates are so low right now. under other conditions, there would be more a competition for funds. but these conditions are unusual.

>> i suggest you talk to small business people who are trying to get loans or home buyers trying to get loans and they are telling us they can't get them. >> that sounds roughly right. i don't remember the specifics. you are referring to the report on the fiscal cliff. >> we are told by your office that the sequester reductions in spending would affect about 0.6% of growth, you said about 750,000 jobs because government would not be spending that money on creating government jobs. but as we just established, government doesn't inject a dollar into the economy that is first not taken out of the economy. i'm afraid we are getting to a situation where we are being told the tax increases are bad, too much borrowing is bad for the economy, particularly in the future and spending cuts are bad for the economy and that doesn't leave us with many options. >> the effects of fiscal policy on the economy are different

under different economic circumstances. that is a widely held, not universally held but widely held view by economists.[applause] under current economic circumstances when demands for goods and services, additional demand for spending or the government spurring additional private demand can both increase the overall demand for goods and services and encourage businesses to hire more. under different economic circumstances, and we expect we will have again, five to 10 years from now, this competition you are describing can become acute.

and that's why under those economic circumstances, smaller government deficits are good for the economy. >> mr. mcdermott. >> good to see you, mr. elmendorf. your budget nationalities is very interesting. for years, we had to listen to the republicans lighting their hair on fire on cable tv about the temporary large deficits we have. we were told that simpson-bowles not enacted would be the end of the world. two years later, notice on that chart, the jobs are going up. we have had 35 months of people increasing and the only places you see dips if you check them out are when the republicans began to play games with the budget and created chaos whether we were going to pay our bills

internationally or these big fights we have on the floor, the unemployment goes up because business doesn't have any confidence and not going to hire anybody and it seems to me that what you said is that the long- term problems in this country really are about health care costs, as ms. schwartz pointed out. when i came to congress in 1988, we were talking about the big problem that was going to come in 2011. well, it's here. the baby boomers are now enrolling in medicare and go from 40 million to 60 million and it's been absolutely predictable and nobody wanted to deal with it until it's now. it's nothing new and not that we are having massive spending, except we are honoring our commitments to the people in this country.

it seems to me that the issue really here is whether we are going to tear the safety net out and say to seniors, we aren't going to cover you. you are on your own. find out whatever you want. what's interesting, we have a triumph to talk about and i want to talk about that. medicare spending, as i understand it, is flat, per person, is that correct? >> i don't have those precise numbers but you are right. it has slowed very hardshiply in the past few years than it was before. >> in my reading of your analysis, at least you give some credit, if not a good bit of credit that we enacted the affordable care act, is that correct?

>> we have not attributed the slowdown to any particular factors like the affordable care act. what we said is that part of it is related to the recession, part of it is structural. the structural part could have a number of possible causes. one could be providers thinking about the current and insip yent effects of the affordable care act but also driven by pressures of private insurers and that they aren't providing care in as efficient a way as possible. we tried to think through, but we have not said anything and we don't know about what factors are driving those structural changes. >> if we understood what the factors are driving it, we would understand the prognosis as well. >> if you pass the law, even the threat of passing the law even under the clinton administration, health care costs kind of leveled off. and again, we see it when the congress acts that we that we see the flattening of costs. you can't directly tie it. but you know the whole united

states is watching what the congress is doing and when we don't pay our debts, they stop hiring, that's clear. you could look right at the graph and trace it down to the time when it happened and can see how it happened. the thing that's most amazing about this is, the medical industrial complex is actually responding because they know it's not sustainable. and my question to you is, the effect of throwing people off of medicare or raising -- let's raise the age to 67 or 70, before you can get on, what would that effect -- how would that affect the economy? do you have an idea? >> depends a lot on what else is going on and exactly how that provision would be structured. we wrote a report early last year about the effects of raising the eligibility age for

social security and medicare and talked about the consequences. some people who don't go on medicare would go on other federal health care programs. some people would end up with health insurance, some would work longer. so the exole combination of responses that we think would occur. >> the real issue here is how do we control health care costs. >> mr. garrett. >> greetings. and this will follow up on our private conversation initially and maybe some of the points when i was out of the room with regard to interest rates. and so the -- one number that i heard and let me throw this out to you, you said we are at zero, projection around the 10-year going up around 3 so payment on the debt is going to increase during the period of time. the one number you threw out to us is $1.1 trillion and you basically factor that in to your projections going from zero.

>> the increase in interest rates that we show is underlying projection of our feature of payments. >> one of the uncertainties is the date that the fed has on the securities going out, that this between long and short. do you take that into consideration as well? in other words, wub of the numbers you look at a 3% increase and 3%, $140 billion increase in year one and that would only last for two to three years as the maturation date changes for the securities, you with me on that? >> you are right, there are projections of government interest rates depend on not just the interest level but what

the federal government has issued and when it is rolling over the maturing securities into new securities. >> one of the multiple bottom lines is we are going through the whole sequester issue and trying to save $86 billion of interest rates and that pales in comparison if interest rates go up just 1%? right. -- >> that's right. one percentage point higher level of interest rates would be sizeable change. >> sizeable change, but a historically accurate change. we are in low numbers right now. >> i mean above and beyond the increase, we have built into our projection which is the return of interest rates to slightly above their slightly historical level. percentage point difference the entire decade is a fairly large difference. >> the f.h.a. revealed that cash reserves are down 45% from last year and chances of future losses on the current portfolio

could exceed 50% which would require potentially that the taxpayers would have to bail out the f.h.a. going forward. report shows from the f.h.a. that they are overleveraged right now at 400-1 which makes bear stearns and others pale in comparison. have you examined the f.h.a.'s report and the budgetary implications in your budgetary projections? >> first, as you know, when you refer to a government bailout, there is no explicit action by the congress, but it's the case that people don't pay back their mortgages and f.h.a. is on the hook. >> they have a line of credit due to the treasury and have to come to congress but congress can give them the money. did you take that into consideration? >> i would say, as you know again, but explain to others,

there are a few years of f.h.a. lending that has turned out particularly poorly in terms of the delinquency and default rates and have not done a separate projection of what the draw on what the treasury might be if there is a change -- it would turn up as a credit re- estimate in the budget but don't have a specific projection that i'm aware of -- >> is that something that you could do and take a look at? >> i think we could take a closer look at. we have to talk more specifically and i don't know if that's the data we could get. >> that would be helpful to us. last question is with regard to medicare, as you well know, there is a law that says when costs exceed receive news by 45%, something has to happen, right? president has to issue a report on how to solve the problem, correct?

>> yes. >> and has that ever been triggered? >> that threshold has been exceeded for a number of years. >> was that triggered in 2009? >> i don't know the precise numbers. >> 2009, 2010, 2011, have you ever scored the president's proposal in response to that? >> we never scored specific response to that. >> has the president as required by law provided a report as required in the law? >> i'm not aware. >> he has violated the law? >> i'm not a lawyer. there is a requirement for the proposal to be made. >> you would have scored it if --

i'm not aware of any proposals having been made. i may be unaware -- >> you would have scored it if he had done it? >> we have to score the president's budget. >> ms. lee. >> thank you very much, mr. chairman. it's an honor to serve on this committee and i hope to work with this committee to create a youthful romance with the american people, one that will create jobs, lift people out of poverty and into the middle class and grow our economy for everyone and reduce the deficit and let me think you, mr. director for your testimony and being here. this is not only a road map to fiscal responsibility but also a moral document that shines the light on what the priorities are of our government and who we are as a country. our nation's budget must reflect our values and must raise enough revenue so we can invest in our people and meet our nation's challenges head on. while our economy continues to slowly recover, i believe we must also focus on lifting the millions of americans who are living in poverty up the economic ladder and into the middle class.

and so in addition to looking at policies that strengthen the middle class, i will continue, as a member of this committee to remind this committee that nearly 50 million people live in poverty, 60 -- 16 million are children. unless congress acts by march 1, the sequester will slash thousands of jobs and economic security of the middle class and also push the poor and low- income individuals over the edge. it will aadvice rate any gains our economy has made in recent years. and so there is no question that we need to prevent these cuts from taking place and do so in a way that create investments that continue this economic growth. i think we need to look at the loopholes and tax expenditures in our tax code that allow the wealthiest individuals to not

pay their fair share but look at the ongoing waste, fraud and abuse going on at the pentagon. i can't for the life of me figure out how we can budget when the single largest discretionary item on our budget cannot be audited. we need them to have an audit to know where our tax dollars are going and set priorities. let me ask you about the c.b.o. report on the american recovery and investment act. i would like to ask you, mr. director, can you explain how our government's targeted investment and the american people and in our nation's critical infrastructure, how that created jobs and how it helped to begin to grow the economy. and also if we invested in a program that provided coordinated benefits and social services that listed the long- term economic stability and incomes, say half the families

living in poverty, what impact would that have overall in terms of our economic growth? >> as you know, we have estimated consistently for the past four years that the recovery act taking effect at the time it did with the economic circumstances that the country faced, increased output and jobs relative to what would have happened in the absence of the recovery act and we think it did that by some additional direct government purchases, by giving money to state and local governments that they then used to purchase goods and services or to provide benefits and by cutting taxes to americans that let them spend more money themselves. and additional demand for goods and services filled in part, only part, but part of the great shortfall in demand that has come out in the wake of the bursting of the housing bubble and the financial crisis.

we think the path of output and employment has been higher than it would have been otherwise because of that act. and we think that this year with an economy stronger, but not that strong, that are easing of fiscal policy such as the deferral of sequester would boost output relative to what would occur under current law. you asked about longer term effects of policy. i think those effects are ones that we worry about, but are harder to know for sure. if the government can strengthen the economic -- people's skills, education and training, that should make them more productive over time, but the economic effects will depend on how the government does that and where the money comes from to do it. so spending a dollar in a certain place can be good for the economy but in the longer

run, it does come out of something else and think of the overall economic effects thinking about what is coming out of the economy. >> mr. lankford. >> thank you. i want to be able to continue on that same line of conversation about the long-term impact. is there an economic benefit to balancing our budget? not adding to principal year after year, is there a benefit to our economic development as a nation? >> a smaller deficit all the way down to zero can be better for the economy in the medium and long run than a large deficit, but what the economic effect is how you do that. >> i understand that. is how you get there also matters that has to be done in a way that makes sense for the economy itself. i interact with a lot of families that have a challenge

of understanding this as they walk through the document and want to know how this applies to their individual family. can you help break it down to the individual family, what is the effect of a $16.5 trillion debt on a family and what is the effect of how that grows as you said, $7 trillion over the next 10 years. i know you can't name the family and say this family will lose their job but the overall impact? >> over the next few years with a weak economy, the government borrowing in order to keep taxes lower and spending higher helps the average family by producing more demand for goods in the economy and increasing the chance they will be employed and get paid more. as you go into the second half of the coming decade, then the

government's borrowing is competing with the borrowing that households want to do for their mortgage borrowing, it competes with the borrowing that the businesses they work for and at that point, competition for borrowing makes it harder. that will tend to limit the extra equipment that workers have to work with and because of that, it will lower their wages and family incomeses relative to what would have happened had the government not been borrowing so much in the credit markets. >> sooner the congress acts, the lower level of debt it is to be. sooner the congress acts, greater the contraction would be in the short-term. >> do you like it right now or do you like it five years from now or six years from now? >> yes. >> you're saying that on current path, we can't postponethe paying for five years, but it's coming?

>> i think it is coming. >> let me ask you the question about the size of the interest. we talked about the interest rates and such. you talked about another $7 trillion being added to the debt, what about the actual dollar size based on your projection? we are paying around $300 billion a year in interest payments. what's your best guess on getting out to the 10-year window in a single year? >> our projection for this year, fiscal year 2013, the government would spend $224 billion on interest payments. we project that would grow to $857 billion in 2023. that's an increase in the share of g.d.p. from 1.4% to 3.3% or two% of g.d.p. >> current path, that's with the s.g.r. cut and everything else, current path by the end of the next decade, $857 billion just in interest? >> yes, just in that single year. >> how many things do we have in our budget that are $857 billion? >> not very many congressman. it would be a nice picture in our outlook. this would be one of the largest components of federal spending. you can see that by 2023, the major health care programs as a group and social security as a group will be more than the interest payments. but the debt to interest payments would be higher than defense spending and higher than all nondefense discretionary

spending apart from social>> th. i yield back. >> the gentleman from rhode island, mr. cicilline. >> thank you, mr. chairman. i thank chairman ryan and ranking member and thank you, dr. elmendorf. i have not heard from an economist or read who has not said that we have to approach this serious economic challenge by a balance of reducing spending and generating new receive news and i think there is no question that the president's aparticular can you lation of that model is something we have to do it and do it in a way that is timed and making the investments that are necessary to grow our economy. we have to reduce spending and we have to make choices in what we invest in. i wonder if you would share some thoughts in terms of getting the most bang for our buck, what are the kinds of policies when we are engaged in spending, we are likely to produce the economic growth and

greatest help to our economy because not all spending is the same. in that regard, in particular, i would like to know your thoughts about infrastructure spending, rebuilding the crumbling infrastructure of our country and the old fashioned w.p.a. way which leaves behind an asset which contributes to economic growth and our ability to move goods and services and compete in the global economy and puts people to work immediately, but leaves behind a valuable asset. how does infrastructure particularly relate to economic growth and making choices about how to do spending? and if you would speak to a proposal the president spoke about last night, which is the proposal that would allow millions of americans to refinance their homes at a lower interest rate today, which i suspect not the economist i suspect not the economist would produce, i think they