from something where there's a basic package people can count on to something completely, very new when the congressional budget office at the chairman's request analyzed airplane and to come on the same day he announced it and found he as a society would have $5,700 more for medicare recipients in 2020 to. we do a few things. we are involved in serious discussions going on as part of the biden group and we are looking line by line at traditional savings put forward

by the bipartisan groups. we use more leverage in terms of the purchase of drugs and there are still savings we can get and we have committed publicly that we will do medicare and medicaid savings over the next 12 years. the ipad does something we think is important. we may not have it all right but we will set up an independent body and six are chosen by republicans and six by democrats. if medicare spending was growing too much it will never be on automatic pilot again. a group of experts will present options to the congress that they act on or being

implemented. that will be done better but it does not deserve the disparagement, very serious proposal and there is a better way to do it and we are all ears in having that kind of discussion. >> if the current health care law is affected, why are there so many waivers? >> for medicaid or medicare? >> the health care law. >> when you are doing anything, we have this federal system where we try to create -- the try to create assistance for our countries and have options for flexibility and that is part of the laboratory of democracy in our country. people can apply for a 1115 wafers and that gets them the ability to experiment that we make sure when that is happening

that it won't mean less coverage for poor people or things that are destructive. the fact the we have waivers, that kind of flexibility is a positive, not a negative. it shows we are not trying to do one size fits all. in the exchanges we said if the state will come forward with a different system they think is better and covers the same number of people they can do so which again shows this is about whether somebody has a better idea or whether they are deciding it is okay to cover thirty four million americans going forward and continue to have those costs shifted to hospitals, premiums. our status quo on health care is not acceptable and that is why the affordable care act is the right thing to do and our goal

is not just to have every single thing exactly as we designed it the moment that it passed. we would like to have a constructive conversation where people recognize we have put into this virtually every good idea people have had for more efficient care, aligning payment with the right incentives, letting hospitals get away with additions that are completely unnecessary. these are good policies. if we didn't get it exactly right let's have a discussion about it as opposed to repeal the job killing health care act and make that simply a political sound bite or apolitical message where we are supposed to be talking about this important issue. if you think this is separate from medicare it is not. let's be clear about one thing. the main reason medicare costs are going up in our country from

spending is because we have long awaited aging of our population. in 2020 when i left -- in 2000 from president clinton there were two million people on medicare. in 2020 there will be seventy million. that will increase costs. that is why we did the fiscal discipline in the 90s so we were ready for that. the growth is 2.2%. that is lower than the growth in the private sector. if you are not doing the type of things bringing down costs you are likely to be back in the game of shifting costs from one party to the other instead of trying to figure out how we can spend less overall. >> the cost of been so significant that they have received waivers, a significant number but let me move on to social security.

why do you attack social security? attack social security in terms of trying to cut social security services over 10-12 year period. >> it is clear the obama administration is the person in the middle on social security. no question we have some people, groups we support and work with who would like us to take social security completely off the table. we have unfortunately most of the republicans, virtually all so far saying they will only do social security reform if you do the entire reform by cutting benefits. that is not how tip o'neill and ronald reagan did it in 1983 and not how it will ever get done. the president made clear in the state of the union when he laid out his $4 trillion deficit reduction plan that while we do not think social security should

be used as a device to low ready ten year deficit, that we would be better off protecting its core purposes, rock-solid progressive benefits, as opposed to later. what we are really looking for is folks from the other side to be willing to come to the table without this ideological -- talk about how we can do this in a balanced way that doesn't cut current benefits, still protect those with disability, still keeps a rock-solid benefit. we have not taken it off the table but this is an area where we need those who could pass this to be willing to have a balanced conversation. >> chairman ryan also did not attack social security as i

refer to a earlier. >> it is true that prior to the president's recent plan that our defense budget increased the deficit by 180, $190 billion over a ten year window. we have put out a budget target that actually reduces the deficit bigger and reduces spending, reduces the deficit by $290 billion. over $450 billion swing. we made a serious move on defense spending and we are doing so because we recognize you just can't have this kind of comprehensive deficit-reduction effort, sense of shared sacrifice. take any major area of the budget and say it is completely off the table, the president is the commander-in-chief, he has to work this through in a very serious way with his joint chiefs of staff, secretary of defense. we have a serious commitment

recently which is one of the reasons we were able to get to $4 trillion over 12 years. >> such a serious commitment that chairman ryan's team says bob gates has said your spending cut proposals are not viable. have you heard him weigh in on this? >> the president and chief of staff, vice president had many conversations with the secretary of defense. i won't discuss those here. we are on the same team and understand that defense has to be part of the overall effort to get our budget under control. >> let me get some questions from the audience. as father of a child with special needs by family has benefited from social programs. when does our debt reached a level where good intentions today become crushing burdens on

the next generation? >> that is a great question. the spirit of that question is touching in a sense. this is a person with a child with special needs and yet they are suggesting they are willing to be part of the shared sacrifice. but i have to say there are right ways and wrong ways to do things and from a policy perspective, i see this in everybody in this room, there is enormous discussion about the revenue side and the medicare side but from a policy perspective, from a values perspective we should be very deeply troubled by the medicaid cuts in the house republican plan. i wanted to make clear what they are. this is not my numbers. this is theirs. after they complete repeal the affordable care act, take away coverage for thirty-four million americans according to the congressional budget office.

after the repeal that, they do a block grant that will cut medicaid by $770 billion. in 2021 that would cut the program 35%. under their own numbers, by twenty-third it would cut projected spending in medicaid by half. by 49%. of course, i don't think there are any negative intentions or lack of compassion, but there's security of the numbers we have to face and here is the tyranny of the numbers. 64% of medicaid spending goes to older people in nursing homes or families who have someone with serious disabilities. another 22% goes to thirty-five million children. i ask you, how could you possibly cut 35% of that budget

and not hurt hundreds of thousands if not millions of families who are dealing with a parent or grandparent in a nursing home or a child with serious disabilities? how is that possible? if you try to protect them, mathematically we would have to eliminate coverage for all thirty-four million children. i know some people didn't like when the president mentioned this would be negative for families thaw for those brave parents and he may be one of them who has a child with autism, or down's syndrome and the enormously committed and dedicated to doing everything they can to get their child the same thing every other child has. here is the reality. medicaid does help. so many families. we have more middle-class families with at child with autism to get help from

medicaid. we spend down, count in come after you spent down the costs. there is a katie beckett passed by president reagan that says if you have a child in need of institutional care you can get help from medicaid. this is life support for many families. these are the optional programs in medicaid that go to more middle-class families. if you are going to cut 49% of projected medicaid spending by 2030, do you really think these programs will not be seriously hurt? when we say there's tierney of the math, this medicaid program, this medicaid cut will lead to millions of poor children, children with serious disabilities and autism, elderly americans in nursing homes

losing their coverage or having it significantly cuts, we are not criticizing the plan, we are simply explaining their plan. >> one more question from viewers. putting america back to work helps reduce the deficit? >> absolutely. when people talk about the efforts that were done, we inherited -- we inherited a very deep deficit and there is no question we took efforts through the recovery act to add money temporarily to the deficit to get our economy back but we don't think those increased deficit or the debt. they prevent us from going into a prolonged recession or depression. so of course growth is important. we are at a point with nine% unemployment and private-sector job growth strengthening but not

good enough. we have to do it with balance. we need to be able to say that we are giving confidence to investors and creating jobs around the world. the united states is a good place to invest because we get our fiscal house in order and are willing to make significant cuts and select revenue increases to do so but we do so in a way that doesn't hurt our economy. secondly, i want to make an overall point. it is very important, so many people like pete peterson and others who have devoted themselves to us dealing with the baby boom retirement, part of the theory behind this is we didn't want to be a society that spent so much on older americans that we lost our ability to invest in our children and

education for science and research innovation that is important to our productivity. it refers to thinking that led to so many people to -- early on with the aging of the population. what is happening right now is there has become a very unfortunate desire to simply cut discretionary spending across-the-board to unprecedented levels. even though this is the area where the national institutes of health and national science foundation, head start, we need to do fiscal discipline going forward but as the president said you don't unload a plane that is loaded too high, needs to have some weight taken off but you don't take the engine thaw. we need to have a balanced plan that does not take our levels of domestic spending to such low

levels that might sound good but we actually be fine one of the fundamental goals of long-term entitlement by failing to invest in research, medical research, innovation. that is important as we go forward. >> which aspect of chairman ryan's plan with the administration be willing to incorporate? >> there are places better difficult to go to. the hardest when you look at medicaid block grants, those are things better difficult to support. it takes away the basic social contact in those programs that would lead to the type of unfortunate cuts we just discussed. i don't think there was economic

policies. the federal reserve estimates the fact that we put automatic stabilizers, things like food stamps and unemployment insurance and medicaid where we increase spending as we go through recessions or more people go into poverty helps smooth out our business cycle. doing them in block grants not only will be bad for our most hard-pressed americans. it will be unwise macroeconomic policy because it will reduce the automatic stabilizers in our economy. block grants a difficult. we are open to talking about many ideas on medicare but for reasons i discussed the current house republican medicare plan is poorly designed. to make beneficiaries pay $6,000 more so the government can get $600 more in savings, people say

that about my basketball skills, too slow and can't jump. it puts a lot of beneficiaries but doesn't say much for the government. if you want to go into the areas of reform you have to do so carefully and basic guarantees are important to our safety net. we basically agreed to a level of domestic discretionary savings consistent with the bulls simpson plan. we put in a level of medicare and medicaid plan consistent with the bowls simpson plan. the only place we don't go as far as they do it are on defense and they do more revenue than we do. we are the ones that are close to bipartisan fiscal plans. we are seeking nothing off the table. what i hope is that chairman ryan, he is someone i like very

much personally. he has a lot of sincerity. but what has happened is in their desire to live by an ideological view that you can't have a penny of revenue forces you to do things like the medicaid savings that when you look at the details of i don't think many people who voted for that would really support if they understood the full implications. >> what are the administration's top priorities this year and how do you achieve them? >> at the moment the most important fiscal goal, and one place that i agree very much with chairman ryan, we have to get a down payment now. a lot of what people judge brown world is not -- i don't know that they look at what gives

confidence in our economy, 2.2, we have confidence that 2.8. i think they start with the view of enormous consequence in the united states. we are fortunate. people have a positive bias towards the united states. even in an ugly economy we are the prettiest kid in the room. we are the safe haven even when people are oil around the world. we have something very special so we need to protect it. that is what you can't play games. it is a treasured asset we inherited from alexander hamilton. our credit worthiness is something we've reviewed don't even want to get new doings' anything that in any way would lessen that. on the fiscal discipline side what people would like to see is

even with the types of division we have we as a country are capable of coming together and doing something serious. if we got a serious down payment on deficit reduction in the summer of 2011, that would have been above the expectations people would have had in november when they saw we would be in a period of divided government. my guess is as serious down payment won't get you all the way they're, up have to deficit reduction does not happen all at one time. the older president bush started in 1990. president clinton with no debt republicans born in 1993. dealing with medicare, two incredible adversaries, bill

clinton and newt gingrich came together. looking for areas we agree on, they have long-held positions so they jump together. together it is politically viable and important to the country. that would be the most important thing and enormously confidence-building. i will say that i am fortunate to be one of the people at the table in the discussion and if you are in that room you would be struck by the seriousness of the degree people are going line by line. i didn't know eric cantor very well before this and probably disagree and virtually nothing with him but he sat in the room

and had discussions with everyone including congressman eric cantor who was very well prepared. as opposed to giving speeches. i can't tell you that this biden negotiating group is not a commission. is reflected by the leadership. i can't tell you all the way to the finish line but there's a seriousness of purpose in that room. >> thank you very much. >> ladies and gentlemen, please welcome of the wall street journal's david wessel. >> thank you very much. i feel like i should be clapping for you. this is the hard-core budget deficit crowd. i want you to know that pete peterson told me personally that when the deal is done everybody who is in a room at the end of the they will get a $1,000 voucher, your share of the cost

of deficit reduction. i am pleased to have people here who put people together who disagree so that we can have some conversation about what divides us and i have alan viard, joe minarik, michael ettlinger with the center for american progress, john irons of the economic policy institute, stuart butler of the heritage foundation, and the roosevelt network. zach kolodin. [applause] >> i want to warn you there's one guy in the audience who is playing budget been go, and check moral obligations for our

children. somebody yells bingo and you will see who he is. the most interesting thing to me about these fixed plans was how different they were. they give you some idea how different they are. the first one here shows the federal debt level in 2035 under the various plans, and state lines and they come to different places. the next slide shows federal revenue as a percentage of gdp. doesn't look like a big difference but every percentage point is 1 $50 billion so that is a lot of money. on spending you can see the same differences, you can see heritage at one extreme or another is a big difference. one thing i would like to start with is i think paul ryan said

this, it is about a vision of america and the government, small business and government or big government. it is hard to get your arms around what exactly that means. what i have asked each of the 6 panelists to start with is to describe one element, a significant element of his or her plan that is a novel or different from everybody else's. we don't need to talk about how medicare is driving the deficit and the charts show us heritage sees smaller government. could you tell us -- they take this too far. these are in order of alphabetical but in my mind they

grew right to left so they have blown -- each of the people will be briefed and we will take this to half an hour or whatever follows. >> david really has threatened us. we focused on the root causes of the long term deficit. what most distinguishes our plan is we recognize something the cbo doesn't take seriously is future recession or financial sector collapse that we just experienced and we have internalized it. we secure the financial sector by ending too big to fail for tax exemption rather than relying and regulators. we simply say we have $200 billion or more we will get taxed at a rate that we would gather -- rather not be taxed at. it doesn't change our cbo

projection all. we feel we could be much more secure knowing our big banks won't dragons rest of the country down. >> it is basically what we do in the area of social security and medicare together. we have a system that means people at the low end of income levels are bankrupt by medical costs, not big enough social security check. at the same time you have affluent people, we fundamentally transform those programs to make sure they get real security to everybody who need it and reduce benefits for rich people. because they don't need it and that allows us to balance the budget and hit those numbers without increasing taxes so that transformation of entitlement programs into as somebody said

earlier, was done on purpose to actually achieve real economic security and not just benefits to people who don't need it. >> michael? >> try again. >> john. it has been a long day. >> it has been a long day for a lot of us. thank you for staying around. in the investment component i think we started from two positions. one being that this budget exercise does not pick up the budget. it is about doing what you want to do as a nation. we approach from that perspective. this is about expressing priorities. the second thing is we have an ongoing economic crisis. so we create additional investment in a number of areas and on will highlight a couple.

i would say three but it is two. education spending. look at early childhood education. there are enormous returns. you get between $6 for every dollar you spend on childhood education. there are huge returns there. in areas like health care, cost-effectiveness research, you can invest today and reduce costs, that is the essential focus. >> i think the thing about our plan that is unique is we completely balanced budget without socking it to the middle class. we do that and are still able to make the investments we make in the economy along the lines of what john describe all the magnitude is lower. we do it while maintaining

health care for the elderly and without going through levels of taxation on the wealthy that are responsible. we are the only plan described as doing all those things. >> the approach was to get together representatives of both political parties. it attempts to find a middle ground. one of the most important elements of the plan was the proposal for income tax reform. it is different from what i see elsewhere. it follows the model of what was done in 1986. it has the opportunity to bring the two sides together and something they could both accept that increase revenues and reduce rates and improve competitiveness and the attractive to two political parties.

>> the most deceptive feature is on the tax side. we have taken two goals that are incompatible. one is to tax consumption instead of in, and removed tax penalty for economic growth. the second is aggressive taxation and we combine those scrapping individual income tax or state income tax and replacing it with consumption based on the bradford act tax gain -- a way to promote growth. >> let me ask you all to raise your hand. do you think between today and the 2012 election we will have significant agreement on deficit reduction? how many think we have a significant agreement before the 2012 election? it is in the eye of the

beholder. how many people think not? we are talking about an exercise with fiscal sustainability. we made an observation that someone on the left who said it, would be accused of class warfare. in the process of this proposal you had, it wasn't just about reducing the deficit. we all understand that as a means to an end. you describe it should also be done in a way that protects the 4 and takes something from the rich. it ought to be progressive. you think that is the criteria we ought to make? >> there can be agreement that it is important to make sure there is real security for

people who are pour. and catastrophic health problems. we take the view at heritage that once we go above that, start out with what the government could actually do and are don't think the purpose of the federal government is to get large amounts of money to people who don't need it. it is much better to have a government that is the size americans traditionally said they want and not give money from the government to people who don't need it. that is something of the progressives should be supporting. >> does anyone take the other side in that? >> when you look at programs that are really targeted, we focus on indian communities

ramping up benefits, those are programs we feel comfortable cutting. this is the kind of thing, state budgets that smaller, they pushed off the temporary assistance for families. i don't think low-income families can feel that kind of regime. we need to have an honest conversation. we might expect families to not get the benefits. that is our experience. >> do you think the tax system that comes out of your proposal would be more progressive or is that not -- >> probably roughly matches the degree of progress it does today and we have not done a formal balance. you could modify the structure and take away the structure and adjust the rates as you just the dial to reach the desired level of progress. we want to be more progressive,

the rates could be adjusted to do that. still preserving -- >> michael said something provocative. you said your plan protected the move -- the middle class. i want to know we have a huge middle-class in our country. if they are not going to pay taxes, someone at the top or the bottom is going to feel the pain, why should the middle class the part of paying this bill? >> i didn't say they wouldn't increase taxes. if you look at the past 30 years the middle-class hardly benefited with any economic income growth whereas the richest people's income growth has been huge. we're talking about addressing this problem you have to look at where the money is.

people keep talking about distributing the pain terribly. the middle class doesn't really need any more pain. the right place to look to get additional revenue -- >> it changes benefits and spending? >> yes. >> it is all being done in the top tier. >> there are reforms that can be done that don't hurt anybody. we all think that about a lot of what we do in areas like health care and other areas where we have to bring down expenses but we don't necessarily think that means inflicting pain. >> can we reach this sustainability and protect the middle class? >> it is going to be essential. the bipartisan policy center's plan takes 20%, below and it -- end of the income scale with all

our identifiable changes and hold them above the bottom 20%. you have small increase gradual increases in tax burden. unfortunately we have a very big problem and there is -- the most vulnerable in our society should be protected but there is going to be a need to increase revenue, there is going to be a need to cut programs and those effects will be felt. there are some improvements in efficiency but at the bottom line we are talking trillions of dollars of budget savings that are necessary. >> one of the great contributions the pettersson foundation made is we have reinvented we have to put down plants that were comprehensive and had to go through the pain of having been scored by people who know how to score these things.

the foundation made a little chart for me that three of the plans by the bipartisan center and heritage actually leave us with smaller deficits over the next decade than the ryan budget or the simpson bowles budget. the others don't. it does -- to show the different vision and the final compromise if there ever is one, they raise an interesting question and i want to ask stewart and alan, you would cut taxes and you would cut spending a lot to get fiscal sustainability. what if you can't get those spending cuts. which would you prefer? fiscal sustainability or giving ground on your tax returns? >> we have revenues settle down to 19.9% of gdp which is where

you were when you enacted the end tea spread or the bush tax cuts expire for everyone. we are a little above the historical average. the choice you propose is not a choice at all. you have to service that eventually. it is true you cannot get the spending cuts that revenue is the only alternative. it is important to emphasize spending cuts. >> if you say we can't get spending cuts with tax increases that is completely on the spiral we have been on so long. >> you have a very small spending relative to the other plan. if you can't get those spending cuts, would you rather have bigger deficits? >> i would rather a in for the spending cuts because of the

fact is spending cuts are essential because of you don't achieve those you won't get sustainability. the federal government as a whole is a dead weight loss on the economy. the idea you could give up in some way on the spending side particularly on the entitlement area and somehow make it up on the tax side, you will not get sustainability overtime. >> let me ask others of you with a different approach which is in order to protect spending or in some cases increases it you would raise taxes. if that becomes impossible would you rather have bigger deficits or settle for deeper spending cuts? you want to start that? >> the biggest portion of savings comes from health-care. it is a false choice.

spending cuts, it is a spending cut but not really making the health care system work better. people are not being honest when they say there's nothing we can do. i would say we would go back to spending commitments to tax increases. >> you have a lot of spending relative to other families. if you can't get tax increases -- >> a couple points. more spending versus less spending, it is higher under our plan than anyone else's, but we don't increase everything. we allocate dollars, without reallocation it is not about spending worsening less but where you want to spend. the second point to answer your question more directly, in the short run, i would rather not

just my spending in the short run with economic growth. if we have austerity too is and by cutting back levels, it is straight out. in the short run, absolutely, it is imperative we maintain or increase the overall levels of spending back to a sustainable trajectory. over the long run the bridge the we need to look at revenue, the overall budget. we are on an unsustainable path. we have to adjust something. if taxes are completely off the table we have to cut spending. if taxes are off the table spending cuts and medicare, medicaid, paul ryan, spending cuts by 50%, spending on

medicare or have some revenue increases. i would argue revenue increases -- >> you mention correctly that it was an interesting divide and the plan, very gross simplification, some of the plans would use the power of the government and the independent advisory board and bundling of the health-care to make a more efficient system that way and others would remove a system where people are more responsible for cost of the competition among providers. there has been a lot of noise lately about premium support which paul ryan has come close to making a dirty word. but your plan is quite vociferous about this, the best way to get health care costs

down. can you explain why the premium support is getting so much -- >> why is this the way to go? the best way to have control of costs of the health care system is to create what people want to do. there are two ways to approach that. one way is to give people dollars and tell them you have a serious party -- take those dollars, pick your physician and tell him how to treat you and what hospital to take you to. people hired doctors because they need advice. the other way to do is give people dollars when they are well as we do in the federal employees' benefits plan and tell them look among the choice of private health-care plans and see which of those would do the best job of treating you in the

way you want for a price you believe is such that you get value. that is what we would try to do. in the medicare system we would have one additional option. we have differences between the b p c proposal and the ryan plan. there are basically two. one difference, we are talking about medicare here, the proposal would allow individuals to stay in traditional medicare if they want to whereas the ryan plan would eliminate that. the second thing is the ryan plan would tie a very tight news around the growth of health-care at the rate of inflation. we would take at the margin 0.7% out of the system as an inducement to providers -- >> the individual would get more money under your plan than ryan.

your plan doesn't go to the premium support. why do you think that is not the way to go? >> our concern with the plan is especially when coupled with taking away the exclusion for health-insurance, very quickly if you plan to do this cutting out the underpinnings of paying for health care. >> that was the idea. >> fair enough. it is based on this hope, performed very corley in keeping medical costs down will start keeping health care costs down. and out in the market, hoping and praying, the downside risk

of that was a huge burden on people with the quality of care in copayment and we think it is risky. there was a little time before the cost of health care starts kicking in and we prefer an approach that is working within the current system to reform and make it operate more efficiently. >> the alternative was as unproven as the market. there was one or another of thing that would be the magic bullet. >> that is a fair point about being an unproven but we have some time, would greatly enhance the affordable care act and additional things we are proposing. we put in the system, we have 15 years and we will know in a few

years whether it is working or not. >> there is a fundamental divide over power and control. they want to aggressively use the obamacare board which will systematically reduced payment to doctors and hospitals. they want to do that aggressively and expand to the private sector. that is power and control to ratchet down health care. it may well work because it can work by dramatically reducing what we get. the other way of looking at it is to move it to individuals and let people have control over whether they want to fire their health insurer and so on. that is the divide. whether you see power in the system going to families and individuals, that is the basic

fundamental divide. >> there are models of market-based systems that have worked very well. the federal employee system is one vote can be improved significantly. one of the best models is the wisconsin state employees system which has held costs down for wisconsin employees and also cause the creation of some efficient integrated delivery systems in wisconsin. >> you look like you need to say something. >> the description of where the power lies is inaccurate. the power lies with health insurance executive. that is where it would lie if you have a reform that turn even more so. my father is a doctor. if anyone has been sneezing let me know, i will give you a good recommendation. he spends a lot of time dealing with health insurance companies and trying to walk through

myriad hoops and hurdles to try to get the simplest out the shot in your arm. cost him so much more pain and resources wasted on dealing with this. we have arguments that criticism doesn't work in that if we go towards the system of medicare where everyone is thrown into the current system which we know doesn't work, it doesn't work to provide adequate care at reasonable cost the united states has more health care than any country in the world and does not get what we pay for. we double down the current system, fundamentally doesn't work as a solution to health care. we take a different approach and i can speak for catholic. >> the want to weigh in on health care? >> it is similar to the source on this but i want to make a point that the other argument

for premium support is another mechanism for boarding principle. in terms of limiting government. you are saying it will provide limited subsidy of budgeted items in a sense where costs can be controlled and we are scaling back federal government's will providing health care to those people who can afford to provide it for themselves. the movement towards individual responsibility by saying the government cannot provide blank check or medical care for everyone even though it is imperative to maintain a safety net. >> let's turn briefly to taxes in the time we have left. each of you had different ideas on taxes and what would be useful is to talk about why you think your proposed change to the tax code is a right one. i want to start with you because you did something that was overlooked. among many things you allow people to deduct the amount of

money they spend on college tuition. we heard about tax expenditures and spending for the tax code which has become the new nemesis of everyone who believes in fiscal responsibility. >> we want to eliminate -- let me make that clear. one of the corps things about our proposal is we want to encourage people to save and invest in the future. that is why we protect savings from taxes and julius spend the money. a giant eye are a connected to retirement. under the tax system you have a lot of incentives to invest in machinery and equipment that makes you more productive. what you don't have an incentive to invest in human capital, education. that is why we see the deduction for four years college equivalent of state college as

being -- making the play in field more level between equipment and human capital. that is fundamental and consistent with our vision. >> to the sides the tax on the banks that create revenue we might have some benefits. how would you get some money? >> when you have a lot of money by eliminating expenditures we also have a couple excise taxes, carbon and financial transactions. more broadly -- >> any exclusion of employer paid health insurance. >> we eliminate the exclusion -- i will talk about that briefly. we all share a commitment to social mobility, america as an engine of innovation and our health care system is holding us back from accomplishing that goal. everyone has a parent with a

crappy job for health insurance. that is not the kind of america we want to live in so we get rid of employer exclusion and make sure health insurance affordable to people and people can move from job to job. >> how will you get some money? >> michael mentioned this earlier which is the essential point. the top income distribution does exceptionally well. it takes 20% of the nation's and come. over alaskan expansion from 2001 to the beginning of the recession, the top 1% took home 65% of the income generated over that period. the bottom 90% got 13%. our tax plan makes them more aggressive. you raise revenue at the top. the cap and trade regime or carbon tax as well addressing

global warming and other limitations to itemize deductions to limit the value of itemized deductions to 15% and make sure the playing field is much more level across the income scale. overall we recognize distribution has been changing significantly in the last 30 years. we try to realign the tax code recognize the fact. >> there are lots of features of the plan. we make filing much simpler for most people. by getting rid of a lot of things we get rid of the alternative minimum tax with a lot of detail. i will share a number of that kind of struck me. we are trying to figure out the impact distribution amounts on the income tax part of our plan and basically we do raise taxes on the richest 1% but it is the equivalent of a one or two year pay freeze. if the incomes on the wealthy

continue rising that they have been going at and the middle class had a pay freeze for ten years and counting. when you think of it from that perspective it felt like this is a reasonable modest proposal, notwithstanding stuart butler's smoke when he sees it. >> in your tax plan where do you get the money? >> elimination of tax preferences and that raises a lot -- we stayed within the income tax which we know, expenditure taxes like what allen and stewart are talking about our new. it can't be true that it would work. we have income-tax rates that are low enough to stimulate efficiency and capital gains and dividendss which is in our simplification. >> and the 6.5% --

[talking over each other] >> and finally? >> our key staff is to replace the income tax with aggressive consumption taxation. it is a blend of features of the value-added tax and features found in income taxes in a way that combines the strength, we reject the idea of secular replacement of the income tax with a sales tax because there is concern of having two sources of revenue to stimulate from the government. you don't get full efficiency. we also reject completely replacing the income tax with a sales tax because of distribution issues. so let's replace the entire income tax system with a consumption tax. >> with that we are out of time. i want to thank you for the seriousness of purpose and the candor with which you did this which is what paul ryan and