As Prepared for Delivery
Chairman Camp, Ranking Member Levin, and members of the Committee, thank you for the opportunity to testify today on the President’s Budget.
Our economy today is gradually getting stronger, but we have a lot of tough work still ahead of us.
Over the last two and a half years, despite the financial headwinds from the crisis, despite the severe cutbacks by state and local governments, despite the crisis in Europe, despite the increase in oil prices we saw last spring, despite the tragedy in Japan, despite all those shocks and headwinds, the economy has grown at an average annual rate of 2 ½ percent.
Private employers have added 3.7 million jobs over the past 23 months. Private investment in equipment and software is up by more than 30 percent. Productivity has improved.
Exports across the American economy, from agriculture to manufacturing, are expanding rapidly. Americans are saving more and bringing down debt levels. The financial sector is in much stronger shape, helping to meet the growing demand for credit and capital.
These improvements are signs of the underlying resilience of our economy, the resourcefulness of American workers, and the importance of the swift and forceful actions we took to stabilize the financial system and pull the economy out of the worst economic crisis since the Great Depression.
But we still face very significant economic challenges, particularly for households and families.
Americans are still living with the acute damage caused by the crisis. The unemployment rate is still very high. Millions of Americans are living in poverty, still looking for work, suffering from the fall in the value of their homes, or struggling to save for retirement or pay for college.
For these reasons, the President’s Budget calls for substantial additional support for economic growth and job creation, alongside longer term reforms to improve opportunity and restore fiscal responsibility.
I applaud Congressional leaders for yesterday’s progress towards extension of the payroll tax cut and emergency unemployment insurance. These measures will be crucial to supporting millions of Americans and the broader economy.
But there is more we can do.
We will continue to encourage Republicans in Congress to support additional actions to cut taxes for workers and businesses, preserve the jobs of teachers and first responders, put construction workers back on the job, and help more Americans refinance their mortgages to take advantage of lower interest rates.
Beyond these immediate steps, the President’s Budget outlines a long-term strategy to strengthen economic growth and improve economic opportunity, while reducing our deficits to more sustainable levels.
Now, the conventional wisdom in Washington is that the debate we begin this week on the President's Budget does not matter because Congress is too divided to legislate in this election year.
But this debate is very important. It matters because this is a fundamental debate about economic priorities—how to increase growth and opportunity, how to strengthen health care and retirement security, how to reform our tax system and how to live within our means.
We govern with limited resources, and we have to make choices about how to use those resources more wisely, particularly given the millions of Americans that become eligible for Medicare and Social Security over the next few decades.
Any strategy to address these challenges must answer a few key questions—how much do we have to cut, which programs should be cut, expanded or protected, how to share the burdens of deficit reduction.
The President’s Budget reduces projected deficits by roughly $4 trillion, or roughly $3 trillion on top of the Budget Control Act.
Overall, the President’s plan would lower the deficit from just under 9 percent of GDP in 2011 to around 3 percent of GDP in 2018. That stabilizes the overall level of debt to GDP in the second half of the decade, putting us back on a path of fiscal sustainability, and better positioned to confront the remaining challenges that build in future decades as more Americans retire.
Discretionary spending is projected to fall to its lowest level as a share of the economy since Dwight Eisenhower was President. And the President’s plan would also slow growth of spending in Medicaid and Medicare, through both the Affordable Care Act and additional proposals in the Budget.
But as we reduce spending, we also have to protect investments that are critical to expanding economic growth and opportunity. That’s why the Budget makes targeted investments in education, innovation, manufacturing, and infrastructure.
In order to achieve this balance—significant savings and crucial investments—we are proposing to raise a modest amount of additional revenues through tax reform.
The President’s plan includes 2.5 dollars of spending cuts for every dollar of revenue increases.
Our tax reform proposal only raises taxes by 1 percent of GDP. The revenue increases are focused on the top 2 percent of American taxpayers, not the remaining 98 percent. Focusing our revenue raising proposals on those in the top 2 percent of the income distribution—who have fared the best over the past several decades—is more fair and better for our economy than commensurate cuts to Medicare care benefits, infrastructure, and other programs that help our most vulnerable and support long run growth.
We propose tax reforms that raise revenues because we do not believe it possible to meet our national security needs, to preserve a basic level of health care and retirement security, or to compete effectively in the global economy, without some increase in revenues as part of a balanced plan.
Although we illustrate in our Budget a range of specific tax changes that could be added on to the present tax system to generate the necessary increase in revenue, we think the best approach to get there is through comprehensive tax reform.
We have outlined a broad set of principles for tax reform, to make the system more simple, more fair, and better at encouraging investment here in the United States.
I know that there are members of Congress who are critical of these proposals, and would prefer a different strategy. The President’s plan should be judged against those alternatives.
Some suggest we cut deeper and faster with more severe austerity now. That approach would damage economic growth, reverse the gains we achieved in getting more American’s back to work and healing the damage caused by the crisis, and push more Americans into poverty.
Some have suggested we try to restore fiscal balance without raising any additional revenue from anyone, or even by cutting taxes further. To do so would entail deep cuts in benefits for retirees and low income Americans, cuts in investments in education and innovation that would hurt growth and opportunity, and cuts in defense spending that would damage our national security.
We will not support those alternative strategies.
The President’s plan includes very tough reforms, but with a balanced mix of spending cuts and tax reforms. It preserves room for us to make investments that increase opportunity for all Americans and help make growth stronger in the future. And it protects our basic commitment to retirement security and health care for the elderly and the poor. It provides substantial, immediate help for the average American, alongside reforms to restore fiscal responsibility.
This plan will not solve all the nation’s challenges, but it will put us in a much stronger position to deal with those challenges.