elusive to all but the lifelong practitioner of the military art. i'd venture to say most of you in the audience today probably have heard that term, isr. the acronym itself means intelligence, surveillance and reconnaissance. it's been blended in to that acronym, and fundamentally, it means our ability to detect full-motion videos, signals intelligence remotely in ways that, frankly, ten years ago would -- 15 years ago certainly would have been the stuff of a science fiction novel. but we can do it today. ..

revenues and reform options rates, revenues and reform options economic facts about taxes, rates, revenues and reform options. >> increased about four fold in number but i would venture to say 25 fold in capability. and so these three in particular, but not uniquely those, there are others capabilities that have come as i said, in former times been kind of attitude or niche capabilities are now increasingly becoming integrated into the traditional conventional way of operating and again provide some pretty significant opportunities for the future. so, in the interest of completing my remarks and then getting to your questions, i would simply say to you that we

moved now from writing our new strategy to beginning to challenge ourselves on what it will take to really deliver. and the three things i mentioned here today to you, rebalancing to the pacific, building our partners, and adapting our policies to allow us to build our partners. and then integrating these new capabilities really are the key to that endeavor. so with that, i know that you are eager to ask a few questions. i'm looking forward -- i asked jessica to please be sure to identify those who have the greatest possibility of asking the easy questions. [laughter] there we go. watch out for that guy. go ahead. >> let me ask you a couple of things. introduce yourselves, be brief, and if you would, this is not meant to be a press conference.

so please died behind the headlines of this and ask provocative questions that i'm going to start today in the back right there on the aisle. >> stanley roth. want to go back to the beginning of the remarks we talked about the rebalancing in asia, and ask if you could talk a little bit more about to things associated with it. why is how does that relate to the air-sea battle and the ability to execute on this rebalancing? second, what would sequestration due to our ability to carry that out? >> didn't you hear what jessica just had? [laughter] okay, a couple of things about our rebalancing to the pacific. air-sea battle, there's a battle is a multiservice, not join, it is a to service approach to overcoming and access. so not unique to the pacific incidentally. it's unique to come if anything, increasing capabilities. this goes back to the proliferation of technology to a

wide audience of potential adversaries who can take our particular advantages and cause us to have to stand off because of anti-access technologies, whether it is jammers, whether its long range rescission munitions. it's a whole suite of technological capabilities. air-sea battle is obviously the air force's and the navy's approach to overcoming anti-access. but it sits nested under something that i actually own, if you will, which is the joint operational access concept. so the chairman in collaboration with combatant commanders has a concept to ensure we can overcome anti-access in all domains, anti-access in the land of domain. what might prevent access in the land domain? ied, for example, which have become an adversaries asymmetric way of denying us access, even

when we are far superior to them in terms of numbers and technological ability. so joint operational access is intended to ensure our freedom of movement as a military. air-sea battle is particular multiservice approach to overcoming the specific anti-access strategies in the air and maritime domain. okay, how would sequestration -- by the way, as i said important, it's not just asia pacific. iran has an and access strategy that would my potential have to overcome. what would the effect of sequestration be? let me now talk about sequestration in particular. let me talk about budgetary issues in general. because one of the things that i've tried to articulate, somewhat successfully, somewhat unsuccessfully, you may decide i

have moved it to be here in one direction or the other today. even if we didn't have any budget limitation reductions, constraints, whatever adjective you choose, we would really need to change, based on what we've learned over the last 10 years of war, and where we see security, the security environment going in the future. so we have tried to jump out, i say we, the joint chiefs, and the combatant commanders in collaboration, we tried to jump out to 2020. and decide what that threat environment would look like, then to determine what capabilities we would need to address it. and then look backwards at ourselves sitting in 2012 getting ready to submit a budget that goes from 1317, knowing we would have more opportunities over the next four years to build this force for 2020. against a strategy that we can see back in the fall. and 1317 submission was just

really the first step in what will be four steps, because we will submit the pops, the program in operation and ran for 1317, 1418, 1519, 1620. so if we don't do it the way i just described on we will be doing this on an annual basis with no framework are really no idea where want to be in 2020, and we'll just back ourselves into 2020. i said i'm not going to talk about sequestration, but i have to mention sequestration in the context of the question. so as i stand here today before, we submitted our budget in february. it's in market right now in the congress of the united states. i don't know what is going to come back looking like. it's a pretty eloquently balanced instrument. that is to say, we tried to balance the reductions and build the best possible force we could against the strategy that we had articulated. it will come back. it will be exactly as we submitted. it never is.

and then we will make some adjustments, that to the complexity, that's pretty complex work, that we are not finished yet with fy '13 to budget. sequestration comes to things on the heels of that, and i don't know if your family with the first rule of when walking. i'm not as old as i'm about to sound. i look it but i'm not as old as i'm about to sound like back when walking back in early part of the 20th century, you may recall was sport or carnival so. but the first rule of when walking, walking on the wings of biplanes, the first rule of wingwalking was never let go with both hands at the same time. for pretty obvious reasons. so when people ask me, are you working on sequestration, the answer is no, not yet. i don't have, i have a grip on what i think 13 going to look like, but it's not done yet. and where i can add to this and come up short, i will get thrown off the wing.

so in the spirit of my air force brothers, i'm following the first rule of wing walking, and we haven't done anything with it at this point. >> okay, right here. we will take you right here, okay? oh, my. everybody has got to be very brief because there are 100 questions in the room. >> i'm just a mom. i was wondering, we have a lot of people who would say that the pakistani isi was well aware of some of the presence there and how to address working with them as a partner and also how that would lead into the green of the attacks in afghanistan at all the undercurrent of that? >> there's a lot of threats that come together to form that question. the question of our relationship with pakistan in general is, is

one of complexity. i mean, deep complexity. also, some pretty significant commitment, military to military. a lot of misunderstanding and a lot of mistrust, fundamentally, that, and this is not a new phenomena. it goes back truthfully decades. for example, officers of my generation have a pretty close relationship with each other because we went to each other schools. we have gotten to know each other over time but there's a generation behind that, for reasons that are pretty well-known, didn't come to our schools. we couldn't engage with them, and so we've got these kind of generational gaps in our relationship that frankly great a lot of mistrust and misunderstanding. we are concerned, have been concerned, have been pretty up front within. i try not to the relationship play out in public but rather work in close as i can

privately. but i do remain concerned about the safe havens that runs along the eastern afghan border, the western pakistan border. the green on blue that you describe, and for those of you are not exactly for me with that phraseology, it's the insider threat or the acts of afghan soldiers or policemen turning on the u.s. our coalition partners. it's related but it's not, that's not one that i can see particularly a cause and effect. the green on blue is, if we take 100 instances, even that issue is complex. if we took 100 of them, probably 25 of them would be based on ideological and religious differences, maybe even affiliation with the taliban, maybe even affiliated with the pakistan taliban. i mean, everyone has its own challenges. the other 75 of that 100 would be for other reasons, whether it

is tribal or having been insulted or felt like they weren't respected. or internal problems for that particular afghan soldiers family, much like we sometimes see with the pressures of war on our own families. so it's a huge challenge. and i think you know that what we are working on is, we're working on it from several different directions. one is counterintelligence operations inside of those formations ourselves, biometric, education, tactics and techniques and procedures when we're with in and around them that i wouldn't stay public, but that allow us to always be protected. so it's extraordinarily complex. the relationship with pakistan is my most complex relationship, one to which i'm committed to try to find increasingly common interest, certainly along the border between pakistan and afghanistan.

>> marvin kalb with brookings. general, is there today a doctrine that governs the use of american military power? i have in mind the doctrine being so central to our operation during the persian gulf war. is there something similar? is there a piece of the doctrine that exist today, and oman, as a functioning party? >> that's a great question actually. let me describe where we are today, maybe even a glimpse of where we might need to be. so if you think about the powell doctrine as guiding us in the early days of the '90s, you know, the roughly from desert storm out through the middle, which, of course, was, you, clear objectives, clear in state, overwhelming force. we found that that model didn't, you know, this is about finding models that fit in each sort of

face of the evolution of security challenges. and we found that model didn't fit real well toward the end of the '90s, as you recall, because the challenges that face us, first and foremost they were not existential necessary. so you couldn't galvanize the entire nation behind a particular challenge. secondly, the definition of overwhelming force, for example, a peacekeeping or peace enforcement mission in bosnia was pretty hard to define. and so, you know, but we adopted -- adapted into a peacemaking, after fight against peacekeeping for sometime, we conceded that the military had a role in peacekeeping, and we then began to embrace it. along came 9/11, and as you know famously, we went from sort of the traditional template back to the powell doctrine and then realized what, what confront us in those two theaters was really

a counterinsurgency. and so we dusted off counterinsurgency doctrine. it was updated by the army and marine corps, and we embrace the counterinsurgency doctrine. so what you heard the talk about today now i think is kind of a nascent, we are just beginning to adapt from counterinsurgency as kind of our central organizing principle. and if i had to put a tag line on it today, it would be very premature for me to do it, but i'm going to do it, i would say that where we're headed in something that i might describe as a global network approach to warfare, a global network approach. and it gets back to my point about taking these capabilities we haven't had before, integrating them, really integrating them into our conventional capabilities, partnering differently in a, with a very different goal and

was very different processes to support it. and allowing ourselves to confront these networked decentralized foes with something other than huge formations of soldiers, sailors, airmen or marines. i'm trying, i am not there yet but i admit it up front this is kind of an inchoate idea, but i do think that what we are looking for in the future is to take a counterinsurgency strategy, which is very static, very manpower intensive, and see what we can do with smaller organizations, but that are networked globally and with partners in order to confront these challenges that might range from terrorism, because it's still out there, to piracy, to transnational organized crime. but again, this is a work in progress. but i have thought about it a

lot. >> general, are you can't rule fighting two or three at once? >> then i can pick whichever one i want to answer. why didn't i think of that? >> so many questions. we will start right here. >> my name is mark. i wanted to take on what you just talked about, about partners and networking and how, if you could explain to assure feeling about working with partners in networks that have a problem with rule of law, and institutions. you know, making institutions stronger, and in the traditional relationship between the military and local enforcement and how that all interplays within the partnership strategy. >> yeah. among the lessons of the last 10 years of war, prominent among those lessons is that when we engage in counterinsurgency in particular, not uniquely but in

particular, it's not enough just to address the military power. we talk about this whole of government, which by the way overtime actually began to take some shape. in the beginning of let's say 2003, '04, '05, in iraq outside whole of government was kind of a line on a powerpoint slide. but over time, it actually began to deliver. i'll give you one vignette, personal vignette to highlight this. and to those in three, i became the first command of multinational division baghdad, and there was no security force for reasons that we all know. and we will talk about whether that was a good idea or not, but there was no security force. and so we with the security. it became very clear to us, that is to say, those who wear the uniforms, that we had to find a way to get some local security forces on the street. so i began with my subordinate commanders to build almost a

paramilitary army, but army like force. i can't even remember the acronym we called it. it became sort of the father of the afghan army, but it was local. we trained them for very minimal amount of time but the idea was to get a face, if you will, that was the phrase, get a face on security that was an iraqi face. concurrently, the department of state began to try to build back up the police forces in baghdad. and just issue the depth of the disconnect, so i was trained this group of, let's call them national guardsmen, what they were. that's what we call them now. that's iran, the iraqi national guard i was trained in to offer in a counterinsurgency environment against an enemy that was very well armed, by the way, even by then. i october of '03 the beginning -- the in the began to manifest themselves. they were good. they were armed and equipped and organized. but the police were being

trained and investigations and in traffic tickets, you know, traffic circle but i'm not making that a. and i'm not denigrating it. it was an instinct. we were mere imaging our own instinct and the police were getting clobbered. i mean, their police stations were being run over. they were being killed by the dozens. and so it took us a bit of time to come together, department of state state, department of defense, and decide how we work collaboratively on building up both the army and the police, and we conceded that for a time these police are going to have to have a capability that you would have to have were you sitting here in washington, d.c. over time, this whole of government collaboration began to bear fruit. but to your other point about the complexity of this, you know, issues of rule of law, and i will add corruption, are extraordinarily difficult to overcome because it's very difficult for us to even see it,

and let alone having seen it, address it. and as you know, just two years ago we had a stand of anticorruption task force in afghanistan because we realize that the very nation was being placed at risk because of corruption. so i wouldn't suggest to you that we have turned the corner on fully understanding, first of all, how to address that as a whole of government, secondly what the military's role is. but i will say we have come a long way since '03. and i think that as we go forward, we have to keep living away at it. by the way, the end of this story is we are closer as an interagency, as -- we are a network. we are a network. we are all challenge ourselves now is how much better do we need to be to confront the challenges that are coming. we know how to confront the ones we just passed by, that there are new ones ahead. >> let's go to the back.

go ahead, amber. >> either, but anthony. my name is john glenn. thank you so much for your thoughts must be my question post directly on the. i would love to talk to you more about the experiences we've had over the past 10 years in working in the interagency but ask you about developing. in particular many military voices for the past bunch of years has said there will be a military solution to it will also have to be one built on the ground with economic development. with at not being a military mission, can you talk more about expenses we again, about how to work across the three d's of diplomacy and element and this in? >> i will try company this is one where you know, i actually, i'm going to digress but i'll circle back on new. when i go speak to groups of young colonels were about to become general officers, and often i'm invited, or apples, i'm often invited to speak of

rising groups of senior executive civilians. and i always get the question, what's most important? and the answer might surprise you, it often surprises them, i tell them it's relationships. i say that because to this gentleman's question about how do we make progress on these issues in iraq and afghanistan, we fundamentally make progress as we started to build relationships with each other. and i took a couple of years, by the way. and now, if there was a captain stanton, i think the first person i ever met in the state department, i was probably a lieutenant colonel with 22 years in the service. i'm not making that a. i mean, we had no reason, we had no reason, we have no reason to interact with each other back in those days. really. at least at the lieutenant colonel level. as you got more senior, probably so. today, you can't find a lieutenant that hasn't been partner with somebody from usaid or the department of state or

justice, or any number of other agencies of government. the question i actually asked myself now is come out when the world will we maintain that relationship, and the personal connections, as the conflict is the ellen all go back to our cubicles? because that's going to happen. all of my soldiers are going to go back to fort hood and fort bragg and fort lewis and all the state department folks will go back to soggy bottom and never showed any comment as we do something about it i think as a leader develop an issue i think we owe to ourselves and our nation to do something about that your. >> a question over here. >> i didn't answer the second part but i think that's the start of it. >> yes, sir. [inaudible] when you think about visiting partnership our network, are you including international intelligence sharing?

because sometimes it's very difficult to match -- ibex pick i am actually speaking specifically about how we share intelligence. no, i in. we do decide that, not perfect but we do it pretty well. actually, we actually do it very well. much better than we did come again, back -- whenever intelligence sharing even in our own government compared what would you today it is just phenomenal. sauce actually speaking specifically about the requirement to take a look at our intel sharing parameters with our partners, technology transfer, foreign military sales and processes. all of those right now, i mean, look, i'm not saying anything i've said to those who own the processes. they are really cold war processes that have not yet adapted themselves to what we really need to be doing today. and in order to deliver the strategy that we all agreed was the right strategy of this country, we've got to get after

those processes. >> middle east specials but i think you mentioned i run in passing. and last week your israeli counterpart mentioned that it has been increased preparedness by israel as well with the united states, and other countries. assuming you can confirm that, is this a coordinated effort in case of a confrontation with iran? and that what level is this coordination taking place now? thank you. >> well, i'm not sure, i'm not sure i've ever been accused about talking about iran in passing. but let me confirm for you that united states and israel have, i can't speak to other nations, though i certainly prefer to have him speak for themselves and i know they would rather speak for themselves, that israel and i and the training

have been closely collaborate on any number of fronts, especially, especially in areas of intel sharing. so we can come to a common understanding of the threat and of the likely timelines that we might have to confront. and you know, i have probably met with many more than any other of my counterparts, nearly every other month since i've been the chairman. and that will continue because of course we have common interests in the defense of israel. as well as in shoring that, as you know, we said we're determined to prevent iran from becoming a nuclear weapon state. so taken -- so i can assure you we're collaborate with the israeli military on intel sharing, and on our posture. i wouldn't say it rises national i will say it does not rise to the level of joint military planning and but we are closely

collaborating. >> good afternoon, general. in the past few weeks, you see north korea at him to launch a rocket. we've seen the new leader give long speech, longer than any speech his father gave. and we've seen a rather large military parade. i was wondering with a sudden rush of information coming out of north korea if you have a better understanding of where this new leadership may go? and if you can share anything with us about what you understand? >> i would describe, i would say that what's been interesting is that he is cleared a different person than his father, and that's, that's not just a function of this age. i think he is a different view of his role in the public. not only is it the speech he gave, but he's much more traveled than his father was.

gives traveled i think to 55 or 56 different places around the country. now, i will say a lot of those visits have been to military installations, and you heard in his speech where he said that priorities are not one, too, and three for him or his military. that's distressing, given he is leading a country that is starving to death. but the fact that he is a different leader with a different persona i think is worth exploring, and my role in all this, of course is military preparedness. back to who am i in close contact with, the other chief of defense with whom i spent a great deal of time in person and on the phone is my south korean counterpart, as well as other interested chiefs of defense in the region. so, you know, i think it's probably still premature to make any determination about what later came junk loans will be, although we were all disturbed

by the ballistic missile launch which came on the heels of what we thought was a positive engagement. but we maintain our military preparedness, and i know that there are others working on the deficit -- the diplomatic side of it. >> thank you much. i am with voice of america, chinese branch. thanks so much for your remarks. very informational to with that appreciation i'm going to throw softball. my question is regarding the fourth u.s.-china strategic and economic dialogue, which will be held in beijing later this week. and with a framework a bilateral security dialogue between u.s. and china on the military front has been established, so could you please share with us the issues and specific agenda that will be discussed, and next

question is, you mentioned your second question can't you just mentioned about building partnership. i would like to get your take on the south china sea issue, especially on the stand off between china and philippines, especially after the partnership of the philippines. thank you so much. >> first of all i think it's probably worth mentioning where i see our future with china. we are balancing ourselves act into the pacific. that's not a containment strategy or china. in fact, i don't know how many of you study history but the greek historian described what he called the thucydides trap, because it goes something like this. it was a thing in fear of a rising sparta that made were in metal. i think one of my jobs, as the chairman of joint chiefs as an adviser to her senior leaders, if to help avoid a thucydides trap.

we don't want the fear of an emerging china to make war inevitable. so we are going to avoid the city's traffic i think there's more opportunities than liabilities for us in the pacific. of course, you've heard all of our senior leaders say we embrace a rising china. and i'll take that in terms of partnerships, we have, would've chief of staff of the army, i was able to meet with my counterpart, and those relationships, they are slow and, you know, they are useful. but they are positive. and each service has a different kind of relationship with its particular service. but that's because we are trying to it out. next week or two weeks from now i go to singapore to the shangri-la dialogue i'm hopeful mike chinese counterpart will be different and we'll talk, dinner, very open and transparent about what we're trying to do in the pacific to both build these partners, and

what those partnerships are intended to do. and simply state they are in intended to assure stability, and they're also intended to assure, and they are intended to make it clear that we have some interest in navigation, and commerce and access, to which we intend to live. meaning we need to live up to those responsibility that we have as an asia-pacific part of the icy asia-pacific by the way because there is this other country called india over here that is also modestly sized and probably will be somewhat influential in the future. so yeah, i don't exactly what the agenda will be at that particular confident i can tell you what my agenda is. >> i think we have time for two more. >> thank you for the discussion, and i am from the potomac institute for policy studies. i would like just to know your definition for the word of that victory in afghanistan, what are

the parameters of this victory and why the war has been protracted? why the most superior power on earth is taking that long to defeat the taliban? and what are the reasons for this and how can we deal with that? >> thanks for asking. i am a student, i am a student of vocabulary, and there are synonyms out there, victory, wind, success, you know? to heat. so let me zero in on the one question you ask about about why is it taking so long. that's a fair question. i would suggest to you it's taking so long because we're trying to do it right the and i really mean that. look, could we start at one end of afghanistan and fundamentally overrun it -- >> just a couple of minutes left in this discussion but you can see all of it at our website, c-span.org. live now to the brookings institution this morning for discussion on taxes by a group of economists will look at the

bush era tax cuts which are set to expire at the end of the year, and change to the tax code they say could erase the budget deficit and grow the economy. this is just getting underway. >> brought together a truly distinctive group of policy experts, academics and practitioners. in that context we don't endorse specific ideas. what we do do is organize series discussions around issues that are critical to our economy, and in that respect we have events like we have today with academic and policy experts and practitioners. when we have papers, those papers are subject to rigorous peer review. we believe that the objectives of economic policy should be growth and competitiveness, broad-based expansion of living standards and opportunities, and economic security. we also believe that they can be mutually reinforcing. we support market-based economics, but we believe

equally that it is vital to have a strong government reform those functions that markets by their very nature will not perform. the hardship that many americans have been experiencing and continue to experience requires a serious commitment by policymakers, and in support of the commitment, the hamilton project has had a number of discussions and events around short-term policy challenges. but our primary focus continues to be long-term economic policy. we believe that our country is well-positioned in transform global economy, because of our enormous long-term strengths. but we also believe that in order to realize that potential, when you put our fiscal situation on a sound basis. we need of strong public investment in areas critical to our economy, and we need reform in the areas that are so central to our economic success. including health care,

immigration, and tax reform. and that takes us to today's program. there is widespread agreement that our tax system is badly flawed and badly in need of reform for the future of our economy. beyond that, however, the agreement breaks down. there are many different views as to the purposes of tax reform, and as the changes necessary to accomplish the purposes. our objective today is to better understand these different views, the effects of the various post-tax reforms and the criteria for evaluating the tax reform. in that respect let me make a few brief comments as framing observations with respect to discussions that follow. number one, major changes in our

tax structure and in the level of taxation. for example, increased revenues and increased confidence could promote growth, reduce inequality, contribute substantially to establishing a sound fiscal trajectory. and that was my point before about increased revenues at treating to deficit reduction. with room for public critical investment. number two, having said that there are vigorous debates about what purposes tax reforms should have, what the effects would be of particular changes and with a level of taxation should be. number three, any substantial tax reform will have major winners in major losers. and that creates a very difficult substance with respect to tax reform and very difficult politics. number four, any substantial tax reform will inevitably have

multiple effects on our fiscal position, on inequality, and on growth. and, finally, as we all know, the postelection period of 2012 and the first two months of 2013 will post fiscal issues of enormous importance. whether that leads to constructive action or the political system takes those issues down the road remains to be seen, but it's our view tax reform, at least has the potential, for helping catalyze a constructive response. and could play an important role in that response. with that, let me outline our program and briefly introduce our panel members. as you can tell from looking at the program this is a truly remarkable set of individuals. and remarkable may be an overused word but i think it clearly is applicable to the

group that we have today. i'm not going to go into the resumes because they are in your materials. we will begin with an overview of the hamilton project well received and eliminating paper, it doesn't economic facts about tax policy. the paper will be presented by adam looney, policy director of the hamilton project, senior fellow of the brookings institution, and one of the nation's leading experts on the economics of tax policy. also, if you look at the extraordinary working group, the front page of the paper that helped guide his paper, it will give you a sense of the truly distinctive the strength of the hamilton project being able to bring together such an extraordinary group. then we will turn to our first roundtable titled the economic case for tax reform, and again, this is a remarkable group for this discussion. the discussants will be martin feldstein, professor of economics at harvard university,

president emeritus of the national bureau of economic research, and former chair of the president's council of economic advisers. and lawrence summers, charles w. eliot university professor at harvard university, former president of harvard university, former secretary of the treasury, and former assistant to the president for economic affairs. the moderator will be zanny minton beddoes, economics editor of the economist. i said i wouldn't comment on the resumes and i won't would make a few observations. marty feldstein and larry summers are friends with whom i've had the opportunity to discuss economic issues. in marty's case for many years. and larry's case, for decades. both are excellent listeners, though challenging, to -- they are challenging but they also are excellent listeners, who

process what they hear, are open to changing their minds, and then give you reasoned conclusions with a strong grounding. so in addition to their preeminence, they are exceedingly well-suited to the reason discussion of tax reform needs so badly but so seldom gets. i've also had the privilege with being on panels with zanny, and she is not only a decisive moderator, but she frequently knows more about the subject at hand and the discussants. and when i'm on the panel, she surely knows more than the discussants. our second roundtable, key principles for a successful reform effort, the discussants, the honorable john engler, president of the business roundtable, former governor of the state of michigan, jim put herbert, president of national bureau of economic research, professor of economics at mit,

john podesta, chairman and counselor of the center for american progress, former chief of staff of the white house, and alice rivlin, senior fellow at brookings institution, former deputy director of omb, former vice chairman of the federal reserve board. the moderator is michael greenstone, director of the hamilton project, senior fellow at the brookings institution, and 3m professor in environmental economics at mit and a former chief economist of the cea. as i said at the beginning this is a remarkable group of people. again, i'm not going to go into their resumes but again up like to make a couple of personal observation. john engler was a committed republican but he also work effectively across the aisle with both parties. that is the spirit that we're going to need both to accomplish tax reform and more generally move forward on the issues of her country. i was in the clinton administration with john podesta, and arguably the chief of staff is the most difficult job of the government, other

than of course being the prison. john was announced in chief of staff as well as a friend am india since been a major source of serious policy by county for the center for american progress and also advising those of congress and the administration. i also the opportunity to serve with alice rivlin. she was always an effective and thoughtful colleague, and has long been a major voice, what arguably is our country's most fundamental economic problem, or economic policy challenge i should say, and that his reception sound fiscal conditions. jim poterba has what is thought by many to be the most important job in american economic profession, and he has accomplished the enormous challenge of successfully seceding a giant in the profession, marty feldstein, and succeed in a giant is never an easy task. by the way, by terms of the

president, said of the national beer of economic research being the most important job in american profession, marty was an marty if that was true, and he said yes. [laughter] finally, michael greenstone do provides outstanding leadership at the hamilton project, and has also provided frequent tutoring for me and so many members of our project, has done a remarkable job as you can tell from this morning's program. today's program will give all of us the opportunity to listen to and engage with preeminent thought leaders on the economic issues of our country. for developing the intellectual construct and for bringing this program together, i'd like to thank in particular michael greenstone, karen anderson, the deputy director of hamilton project, and adam looney. i'd also like to recognize less saying is, and former assistant

secretary for tax policy the department treasure he. and key as always to the work of hamilton project, i think the enormously talented, committed and hard-working staff of the hamilton project, without which nothing that we do what happen. with that, adam, i turned them over to you. thank you very much. [applause] >> thank you for that warm introduction. since the last major tax reform in 1986, tax code has become more concentrated, less efficient, and increase and it is viewed as less there. advocates for tax reform would tell us that by broadening the tax base we can have a simpler system with lower rates. but increasingly that's not all they tell us.

some tax reform is an opportunity to reinvigorate economic growth, to unleash economic activity, to create jobs, a way to boost revenues without raising rates, and help solve our deficit problems. we are increasing the way to do all those things at the same time. and so today we wanted to provide the foundation for discussion of what tax reform should accomplish, but also to put guardrails on the conversation, to keep it grounded in the evidence of what tax reform realistically can accomplish. so drunk on the expertise of the many distinguished tax experts, among its advisory council, the hamilton project has put together a dozen economic, about tax reform to facilitate discussion that i hope you've all picked a copy is to pick up a copy on your way in to our starting point is the observation that the economic context today is far more challenging than in earlier tax reform areas but it's not just a

statement about today's unemployment rates, clinical situation or the tough fiscal choices we must make by the end of this year. but it's also about the fact that we face at least three important long-term economic issues. that relate closely to tax policy go to rising budget deficit, concerns about growth and competitiveness, and rising inequality. tax reform will be judged in part about how it impacts those three issues. so the first issue -- if i can get to it -- is the daunting outlook for the federal budget. the basic purpose of the tax system is to raise revenues to pay for government services, and in that regard the u.s. system comes up short. for instance, in 2015 the federal government is projected to spend about $12,400 per american, and receive only about $9700 per person in tax revenue.

we are projected to collect less reverence and shove economy over the next several years, then we are spending each year of the past four decades. that comparison understates the challenge as an aging population and continued rising health care costs would increase federal spending well above historical levels. this is difficult to envision a scenario in which revenues are not part of the solution. it to death and passionate to examine the role of revenues and the broader fiscal debates come a document provides evidence about how tax revenues in the united states compared to those of other countries examines outburst taxes for options affect revenues and contrast the scale of popular budget options, the magnitude of our future deficit. a second long-term economic issue is the increasing international competition for business activity, the ricin were educated and capable workforce is around the world, and other economic changes have

contributed to reduce economic opportunities for many americans and challenges at many businesses. one side of the impact of these trends is stagnation in earnings. for many american workers over the past several decades. concerns about competitors have encouraged greater scrutiny about how rules, regulations and tax -- npr affected activity. it has been touted as an opportunity to boost economic growth, in the document we summarize economic evidence regarding how the current tax system restores or impedes economic activities and which we can expect tax changes to improve our economic prospects. finally, there is the issue of growing income inequality and its relationship to tax code. boom pretax income has risen by more than 250% since 1979 for

households in the top 1% of income to should vision. at the same time household in the middle and bottom have experienced much weaker growth. changing the tax system for the past 30 years have tended to exacerbate these inequities. the very people who have received the biggest income gains have also seen the largest tax cuts. it's already quite clear issues where to inequality will be paramount and discussions about the tax system and to inform the debate, we provide evidence on how alternative reform options affect the tax schedule. the document expand in these three areas and provides facts on a dozen indigent aspects of tax policy. just to pique your interest i will highlight just too. facts nine individual it affects employment and workers.

a key consideration of tax reform is how much tax rates hold back the u.s. economy, how much lower rate would spur economic gains, and whether those increases in income can help offset losses from lower rates. the figure in your text illustrates how a 10% cut in marginal rates would affect the employment and labor decision of a typical american family drawn on the evidence of 23 published studies. the average estimate across all these studies suggest that his family would increase their pretax earnings by roughly $450 on the basis of about $70,000, that is an increase of the 0.7%. yet the same 10% tax cut is predicted to reduce federal income tax paid by 8.6%. in short, the evidence suggests that that type of tax cut has large effect on revenue mobility of a modest effects on labor

supply. fact six examines the limits to what they base broadening tax reform can accomplish in terms of lowering tax rates. we often hear of tax plans highlighting their low top rates. 28%, 20%, 50%, even 9-9-9. [laughter] but those plans are sometimes light on details and how they affect revenues or how they change the tax burdens that fall on different groups. and so we put together a cheat sheet that starts with constraint of maintaining both current tax revenues and the current progressive tax structure, and from that starting point then ask how low tax rates can go under alternative base broadening proposals. under current law, the top row at the table, rise up to level of about 40%. it's only through dramatic attacks reforms eliminate all

tax expenditures, for health insurance, retirement savings, owner occupied housing, preferential rates on capital gains and dividends, that one can lower rates even to 27%. that analysis illustrates a broader particularly of the documents which is just how difficult it is to achieve those efficiency enhancing lower rates before revenues fall and tax cut becomes less progressive for popular tax preferences are dramatically scaled back. so i encourage you to look over the dozen facts and we hope it's useful to you in your future conversations. thank you, and i look forward to a very distinguished first panel. [applause]

>> [inaudible conversations] just sorting out a few technical issues. now, i ask that you should sit on the left. it seems to be an appropriate place to be. marty, here. i pointed to the wrong seat. welcome to this first panel. and it's something of tax reform has been on the agenda in washington pretty much says, as long as i've been following u.s. economic policy in which i hate to say is now getting on two decades. the complexity of the u.s. tax code is distortion have again and again brought call to reform. up in debates over the past decade a flat tax to the whole

code, wholesale reform, nostalgia for the 1986 tax reform, but even as the seven attacks the got more complicated as it added more pages two and more deductions to but it seems to me that the debate today is to get late and a a whole new context. it's in the context of large deficit, a weak economy, widening inequality, and there's an immediate call to action with the expiration of the george bush tax cut at in addition. so not only is taxable back on again, i think back and wait that may result in action that hasn't been the case in the past. so this conversation about what kind of taxi from we should be doing has an important and an urgency that really can't be exaggerated, which is why this discussion is very important. we have two extraordinarily well placed individuals of different perspectives to discuss what sort of tax reform we should be doing, to debate what sort of taxi from we should be doing. you all know them. marty feldstein, professor of economics at harvard university,

president emeritus, former chair of the presence council of economic advisers. there some of them also -- former chairman of the national economic council, former student and former boss of marty feldstein. [laughter] so i think marty, let's start with you. i want to start this conversation by actually working out what, what should be the priority for tax afforded a? tax reform has all sorts of good parties. people talk about what is good for growth and completeness, simplifying the code, raising revenue. but many of these are somewhat at odds with each other. and certainly depend on what your priorities are, you would put forward different kinds of reform. so can you just lay out what you think, given what is economy is right now, what should be the priority? rank them. >> let me begin by simply and i come at it from different perspectives, and is probably not quite right. lead and i come at from

different political party affiliations, but larry and i have been talking about taxes for 30 years of and so it's not too surprising that there's a lot of agreement. i hope that that comes out as we talk about specific issues. i think about tax reform in terms of the long-term impact. we have a serious cyclical problem now, but i think the tax code that we put in place, i hope that congress puts in place next year, we have to think about for the long-term. what are the things it has to accomplish? you are right that there's conflict among them, but there's always trade-offs, and so it's a question of picking things that do better at these different goals. so what are the goals? i think there are four basic goals. one of them is to raise revenue. and adam looney passionate adam

looney's chart showed we need to raise some revenue to how much we need to raise depends on how well congress does at limiting the growth of entitlement. that's not today's agenda. and raising revenue can be done in ways which have good side effects, or ways that have bad side effects. and that brings us back to the discussion about tax expenditures. to the second goal, in addition to raising revenue, is reducing wage. what economists would call inefficiencies or dead weight losses. the tax system hurts productivity in a variety of ways by hurting savings and investment. and by hurting labor supply broadly defined. picture that adam showed us about how it affects ours, just a small part of that. it also affects forms in which people take their conversation. so we are induced by the fact that all kinds of fringe

benefits are excluded am taxable income to taking compensation in ways that are less valuable to us, but on a net tax bases are more attracted. and it also affects the kind of spending than americans do, because some kind of spending our tax favorite. a third thing is simplicity. you mentioned that people are just overwhelmed with the complexity of the tax law. it makes compliance more difficult, and it makes people feel that probably everybody else is getting a better deal than they are, that everybody else has figured out some deductions today, some credits today, some ways of changing their behavior that lowers their taxes. ..

>> i think people rightly feel that that's unfair. so i think there are a lot of things about the way in which income is defined for taxable purposes which add to the unfairness of the system. but that's my -- >> that's your -- in that order? >> i don't think of it as any order. i'm not going to say we get revenue and it doesn't matter what kind of fairness we get, or we get fairness, and it doesn't matter what it does to revenue. i think you have to think about any given change in terms of what does it do for each of these four things. >> and can i just press you on one of them, do you think that

in the light of the fact that pretax inequalities have widened so much, the goal of narrowing them, creating a more progressive tax code, should be a part of tax reform? >> not particularly. i noticed in the background material one of the things that was suggested was combating inequality. and my feeling has been for a long time there are problems in the income distribution area, poverty. and we should be concerned about combating poverty, not about combating inequality. if somebody, if a couple makes $250,000 which is probably not hard to do in the hamilton project or harvard university, that's not something, to me, that needs to be combated. >> larry, do you have the similar set of priorities, or would you have a different set? >> overlapping.

um, i would just begin by saying that while it's not our subject today, whether we get this expansion to a sustained, reasonable growth rate that is consistent with a return to full employment is the single most important economic issue facing the united states, and we will not achieve any other objective whether it is sustained fiscal health, the ability to combat poverty, the ability to be strong in the world if we do not achieve that. and, therefore, maintaining the momentum and expanding the momentum of demand has to figure centrally in any economic policy discussion going forward and has to have a very large effect on any thinking about timing and phasing in any set of reforms with respect to the tax system or with respect to entitlements. but that's not our primary subject today.

to take your core objectives, zanny, you only can't rank them, but you can give some indications of their importance. and i would agree with marty on the central importance of revenue raising. doug elmendorf, the director of the cbo, gave a very effective presentation at harvard a month or two ago on the nation's long-term fiscal situation in which after going through a lot of stuff he reduced it to the following statement: that in order to get to a stable debt to gdp ratio -- not a balanced budget, but the relatively modest goal of a stable debt to gdp ratio -- after making what he regarded as being at the edge of credible, optimistic

assumptions about the capacity to cut defense his conclusion was that you needed either to reduce all entitlement spending by a quarter or raise all revenue collection by a sixth. if you wanted to get to the goal. or you needed some combination of those two things. for a variety of reasons, i think his assumptions are a little optimist you optimistic,i think it's a little worse than that. i don't think it's on this planet that we are in a decade going to reduce entitlement spending by anything like a quarter. and, therefore, relative to the baseline, and therefore, i think it is a near certainty that we are going to need a significant increase in revenues. and it seems to me that any discussion of tax policy needs to start there. and it seems to me that to suggest that from current

baselines it is possible to cut taxes substantially and pay for it with as yet unidentified spending cuts is close to inconceivable. and do not represent claims that should be taken seriously in the public discourse. there's room for debate about what the balance is between the quarter on spending and the sixth on tax increasing, but the idea that we can be cutting taxes which implies cutting entitlements by more than a quarter, i think, is, frankly, laughable. so revenues are at the center, number one. second, and here's where marty and i would have a difference in or yenation -- orientation, i

think we do need to address the questions of progressivity, and we do need to address the questions of fairness in a central way. there has been a major change in the pretax income distribution that has been generated over the last 25 years. roughly speaking, a generation ago the top 1% got 10% of the income. today the top 1% gets 20% of the income, and if anything, that trend is accelerating. now, it seems to me you can, reasonable people can argue about whether in the face of a change of that kind the tax system should operate to offset it or not offset it. but the view that it should

operate to reinforce it, cutting taxes by more at the high end than in the rest of the distribution, seems to me very hard to justify on any way of thinking about it. i share marty's concern for the poor, but that, it seems to me, is not the only valid concern. it seems to me that something about the health of a society has something to do with the ratio of what those who are most fortunate are earning relative to those in the middle class. what is sometimes reduced in the public debate to the ratio of ceo wages to average worker wages. in conservative thought in this area actually surprises me a bit. i would have thought that the right pro-market view to take

was that you should let the market grind out whatever income distribution it does, not interfere with the workings of the market. and then the tax system as it collects revenue should be based on ability to pay in a way that raises the burdens on those who are getting most fortunate given what's happening in the income distribution. and so the idea that you should be reducing the taxes on those who are fortunate seems to me to be a quite surprising one. when marty talked about simplicity, he referred to issues of legitimacy. i think the legitimacy of the tax system and the legitimacy of the government on which it depends depends much more on a perception of fairness, depends much more on the idea that those who are in the position to take advantage of the double dutch irish sandwich, or maybe it's the double irish dutch sandwich are paying their fair share of

taxes than it does questions of simplicity versus complexity. so i would come next to fairness. i would come, third, to questions of economic efficiency and neutrality. but here i think i would put less emphasis on these questions right now in the united states than i would have over most of the last 25 or 30 years for a couple of reasons. for the next few years, our economy is going to be demand constrained rather than supply constrained. if the economy is demand constrained, increasing the willingness to work -- if not everybody who wants a job can get one -- isn't actually going to increase the total level of employment. moreover, whatever has been true in the past in the current world of 2% interest rates it slightly

slains credulity to believe that excessive capital costs represent a major inhibition to investment in the way that i suspect was true to an important degree, um, at various points in the past. so, yes, we should level the playing field, yes, we should reduce various kinds of tax biases that are present, and it would be desirable. but i would put less emphasis on that in our current demand-constrained, low-capital-cost context. finally, simplicity. how can you be against simplicity? but i would just caution that much of what is said about base broadening and simplicity is itself an oversimplification. people always think of base broadening as being about reducing tax expenditures, and

then if you don't have the tax expenditure, you have a simpler form, and the whole thing works better. in fact, much of tax -- much of base broadening is about eliminating exclusions from income that incleese complexity. -- increase complexity. so, for example, the vast majority of base-broadening proposals include the repeal of the provision that says that if you sell your owner-occupied house, you don't have to pay capital gains taxes as long as you have a capital gain of less than $500,000. that may be a good provision, or it may be a bad provision. i promise if you repeal it and everyone who sells a house has to go back and look at what they paid for it, calculate all the improvements they put into it and do the calculation, you are significantly increasing the complexity of the tax code. that is not an isolated example. i am in favor of various things that assure that all taxation

is, that all income is compensated; club memberships, three-martini lunches and all of that. i think we ought to go after more of that. but we shouldn't kid ourselves that we will have a simpler tax code if we do. l i am sympathetic to ideas that are widely part of tax reform proposals to convert deductions into credits so that they can be claimed at the same rate -- mortgage interest, for example. it's 5% for some -- 15% for some and not 30% for others. but the result will be that more americans will be able to take advantage of the credit, they'll use that instead of the standard deduction, and they will find the calculation of their taxes more complicated. and i could proliferate these examples. it is just wrong to assert that base-broadening and simplification are objectives

that go in tandem. more likely, comprehensive base-broadening is a complexifier. my sense of the reality is that almost everyone who has any complexity associated with their tax return either does it themselves with software or does it, or has somebody -- or pays somebody to do it with software. and in that context things that once would have been substantial complicaters, the existence of many different rates, for example, add essentially no complexity. put the information into the software, the software puts the number out. so i don't believe that many of these traditional concepts of simplicity are exactly right. i don't believe that much of what is advocated in the name of simplicity is actually simplification. and i think that we would be better off recognizing simplification for an issue in the way that marty framed it which was as about creating a

system that has more perceived fairness, and i think a system that has more perceived fairness, i don't want find it plausible that simply increasing payments to the poor will entirely satisfy the objective of achieving fairness as long as there is a justified perception that those who are most fortunate often are most successful in escaping taxation as well. >> well, you've given us plenty to talk about. we've got the next three hours here. it's not clear you agreed on that much, but i do want to start where you both agreed, revenue raising. i think it stands you both agree that needs to be a top goal, which leads me to a question. why are we, why is the debate then as narrow as it is in the u.s.? for someone with my accent, one could say a crude caricature of

the u.s. statement is it basically taxes a narrow base of income. it relies much less on environmental taxes. why aren't we -- if revenue raising is so high on the agenda, shouldn't the tax reform debate be a much more ambitious debate than the one that is actually going on in washington now? marty? >> well, i think by consumption you mean a value-added tax or something like it, and the reason that i don't like the idea of a value-added tax is i think that if you had a value-added tax, it would simply make it so much easier for congress not to deal with controls on spending. i think there's a consensus now that we have to in addition to raising revenue, have to slow the growth of various entitlements, look for other savings in the discretionary part of the budget. if you could pick up four or five or six percent of gdp with

a value-added tax, everybody could relax, and i think that would be a mistake. >> larry, what's your view on value-added taxes? >> i've had kind of the same view for about 25 years. which is that we haven't had it because conservatives like marty think it's a money machine for government, and progresses think it's not that progressive, and we'll only get it the day that progressives decide that it's a money machine for government, and they want more government. [laughter] and conservatives like marty decide that it's the least distortionary tax. [laughter] and i don't think that day has quite yet come. and so i don't expect it to figure prominently in the next couple of, in the next debate. look, i think whether we get a value-added tax in the united states or not over the next 10 or 15 years is going to hinge on a question which i don't think

anyone really should believe that they completely know the answer to. which is this, what is the structural increase in the health care costs going to be and how successful are we going to be in controlling it. the truth is, it's not going to be possible to control public health care costs vastly more severely than private health care costs because if you do, then the public programs won't work, and it won't work when half the doctors opt out of medicare. so the success in controlling public health care costs is ultimately going to be hostage to the success in if -- in controlling overall health care costs. and given the interplay of technology, given that an increasingly affluent society probably is right to want to devote more resources to health care, given the kinds of

relative price changes that take place between health care and other things i don't know how rapidly health care costs will grow over the next 10-15 years. if they continue to grow at the kind of rates that we've had and we continue to treat health care as a, to an important extent, a public obligation, i suspect the pressures for more revenue are going to be such that there's not going to be a viable alternative to consumption and value-added taxation. if efforts to contain health care costs are successful in keeping health care costs at rates only growing at rates only slightly greater than gdp even with an aging society, then i suspect the debate will play out in these terms because there won't be a taste for consumption taxes to pay for broad, new government initiatives. and i am uncertain as to what

our success will be in containing health care costs. >> larry's right, no way to be certain about it, but i think the issue comes down to how much will middle and upper-middle income people continually rising, after fluent middle class -- affluent middle class pay for their own health care, and how much of it will be financed by the government. so even if health care costs grow more rapidly than gdp which seems likely, that doesn't mean that government-financed health care costs have to rise that much more rapidly. and the bowles-simpson proposal struck me as a good one of limiting the growth of government-financed health care costs to grow at gdp plus 1%. that means that i will have to pay more out of pocket either for my insurance or for my health care or both. but those are separate issues

from what our focus, i think -- >> absolutely. i mean, we could have a long discussion about health care reform, but let's not. but i take your point, larry, that if health care costs carry on growing, then maybe the political environment for a value-added tax changes. but let's go back to the here and now where the debate is to simplify about two issues. one is tax expenditures, and the other is the taxation of capital, both the corporate tax and what should happen to capital gains taxes and taxation at the personal level. there's also the question of the reduction in marginal rates, but -- >> can i just say one more thing on the value-added tax? >> very briefly. >> i don't think it's contentious. it doesn't make any sense to have a value-added tax that raises less than 2 or 3% of gdp. once you're going to set up all the apparatus of it, it just doesn't make any sense unless you're going to have 3% or gdp, 2, 3% of gdp, and so we won't do

it until and unless there's a political consensus for needing that much revenue, and there isn't any political consensus for raising that much revenue now. and that's why i'm saying the value-added tax isn't an important part of the -- >> there's not even any consensus about raising any revenue right now. >> right. [laughter] >> let's go to the current debate, and particularly the taxation of capital. and, marty, i want to start with you because there's -- and i'm going to oversimplify, but a traditional view amongst many economists is, you know, low, preferably zero taxation of capital is more efficient, more pro-growth, and yet we have a corporate tax here which is if you saw the article in the, what was it, sunday's new york times? clearly, full of loopholes. and then there's the question of taxation at the personal level. start with the corporate tax. how much of a problem is the u.s. corporate tax, and what needs to be done with it? >> well, the common opposition correctly about the u.s. corporate tax is that at the

margin the corporate tax rate is higher than any other country, any other industrial country at 35%. there are a lot of special features that make the effective corporate tax rate lower than that. the thing that strikes me about the corporate tax rate is that we economists don't have a clue about who ultimately pays the corporate tax, how much of that is born by shareholders, how much of it is born by capital more generally. what we understand is that in a world where capital can easily leave the corporate sector to go into other things -- housing, unincorporated businesses, the rest of the world -- then the corporate tax is not borne by shareholders or may not even be borne by capital at all and,

ultimately then, is borne by workers rather than by capital owners. so we don't really understand that. but the perception of the corporate tax that it's borne by corporations or by their owners makes it a very hard tax to give up. so every country in the world has a corporate tax. what distinguishes our corporate tax from others is that we tax in a very inefficient way, we tax worldwide income of american corporations but allow those corporations to pay their u.s. tax only if and when they bring those funds back to the u.s. which they don't. so -- [laughter] so the net of it all is that we now see that more and more multi-national u.s. corporations earn profits, do their producing in the rest of the world, um,

but don't bring the profits back to the united states because of this extra tax that they would have to pay. and that's why one of the key reforms that i think would be a good one would be for the to join what every other oecd country does, and be that -- ant is to have what's called a territorial tax system which says you can bring back 3 or 4% as long as you've paid your tax wherever you have earned it in the rest of the world. and that's what all other countries are doing, and it would eliminate a lot of the game playing of that story in "the new york times," and that goes on more generally. >> what about you, larry? would that be your priority, the corporate tax? >> i'm a little more enthusiastic about corporate taxation than marty is. i guess i'd make three points.

first, yes, the incidence of a corporate tax is complicated, but corporate executives seem in very little doubt about it. nobody ever comes and argues for a major cut in the payroll tax, but there are literally thousands of people employed in this city by corporations with the objective of reducing the tax rate on corporations. which suggests at least some fairly strong view on their part that that burdens corporations and their shareholders. and i think over the reasonable run that is a good approximation, that there are substantial effects of that sort. second, i think it's important to understand that on marginal investments it's not clear that the corporate tax system is very burdensome at all. if i consider advertising which will build my brand, which will pay off over time, if i spend a

dollar advertising, i deduct the dollar, and so it only costs me 65 cents, 5% of the cost -- 35% of the cost is shared with the government, 35% of the profits that i earn as a consequence of the advertising are shared with the government. whatever maximizes my profits, if there is no tax, will also maximize my 65% of my profits. same argument works with respect to research and development. what about with respect to putting in place a new factory or a new building? over the last couple of years, with respect to the new factory we've let you write that investment off in the first year. we don't do that going forward. we require you to depreciate i. so there is a sense in which the government is sharing more of your profits than it's sharing of your costs, and that was a really big deal in the old days when the interest rate is high. but in the current world where

the rate is 2% -- the interest rate is 2%, the fact that you have to defer your tax, your depreciation tax for five years really doesn't reduce very much its value at all. so it's far from clear that the corporate tax is operating as a major deterrent to investment right now. the vexing issues do involve, as marty said, the questions of international location, offshore income, all of that. and there you have to decide on what your philosophical approach is. we probably are caught in a bad middle right now. and there, basically, are two approaches that the world can take. one is you can, basically, give up, and right now you say that with a lot of trouble and

effort -- the irish dutch sandwich and stuff -- you can do investments abroad and not pay much taxes on them, and it's really not worth it to have people go to all that effort, so we ought to just make it official that you don't have to pay any taxes on your foreign income. and that's what the territorial system does, and that's a reasonable argument. the alternative view that we ought to attempt to crack down in serious ways on the allocation of income, we ought to raids questions about -- raise questions about deferral, we ought to cooperate with other countries. and so we don't head towards a world where multi-national income is taxed at a very low rate because of their ability to pit one jurisdiction against another given the distribution of that income. and so it seems to me that right now the u.s. tax system it's like a library, running a

library. the single dumbest thing you can do is announce that you're going to have -- is have everybody think that there's going to be an amnesty on overdue books, but then not actually ever have the amnesty. because then you assure that no books are ever going to come back -- [laughter] and they're always not bringing back the book waiting for the amnesty which never comes, so you never get the money. and that's what the u.s. debate is right now. no one in their right mind would bring in money right now with people thinking who knows what's going to happen after the election, there'll be some kind of repatriation. even if you thought you ultimately had to bring the money home, you'd surely be waiting right now. so this is a debate that my hope would be that the clarity comes more in the direction of internationally-collaborative efforts to tax this income rather than the avoidance of this income. but clarity in a different direction would be better than

the current place which assures that the money will not be brought back and doesn't tax it and generates all the extra complexity. >> we would have to persuade every other industrial country to give up the territorial system and to crack down on their companies. it seems very unlikely to happen. can i say one other thing about -- larry was very careful to say something about short run versus long run in terms of the corporate executive. yes. the profits of a corporation in 2012 are not going the depend on the corporate tax rate, the pretax profits, and that's probably true in 2013 ask and, therefore -- and, therefore, it's not surprising that if i'm the ceo of a corporation, i would like to see those profits taxed at a lower rate. the real issue is what happens over the longer run, and i think that's where as economists we

don't really know where that tax burden is going to fall and, therefore, relying on the corporate tax is, to me, a very strange way of raising revenue since we don't know who's ultimately paying. >> there's an issue -- >> we're going to need to move on, so briefly. >> the recent issue you have to think about which is i don't know what the percentage is, my guess is it's on the order of 40%, of u.s. corporate shares are owned by pension funds or endowments or foreigners in ways where there's no u.s. individual income tax paid. and so it's one thing to say you should eliminate the corporate tax, but the income's going to be taxed anyway by dividends and capital gains. it's another thing to say that when the income is going to be held by the nebraska pension fund or the harvard endowment and there's going to be no taxation ever on that income,

you can say, well, there's going to be so much more capital accumulation that, actually, while it feels like the corporation isn't paying taxes, ultimately because there's so much more capital accumulation, profitability is going to be less in the economy, and wages are going to be higher in the economy and so, ultimately, cutting that tax is going to benefit workers. but that's a argument with a lot of steps. >> let's move to because there's clearly a division here, you know? move to a territorial system crackdown, if i could just summarize it, move to the personal taxation of capital. so capital gains and dividends where one argument might be that as in 1986 they were equalized. there's now a pretty big gap. is that -- what direction, marty let's start with you, should the taxation of capital gains and dividends at the personal level go? >> so i think the fundamental question is do you want to tax not just capital gains and dividends, but interest as well. do you want to tax the returns

to savings. and we have a kind of mixed system. we say if you put your into an ira, you get a deduction. so we give you a deduction for saving. you put your money in a roth ira, you don't get a deduction, but we don't tax the income from those savings. so for a lot of people we have a system that, in my judgment, correctly doesn't tax the return, the savings or doesn't tax savings itself. and i think there are two advantages to that. one is a kind of pure fairness advantage. um, i might like vanilla ice cream, and larry might like chocolate ice cream, but we would think it very unfair if we had a higher tax rate on vanilla ice cream over chocolate, at least i'd think it's unfair since i'm the guy who likes the vanilla ice cream.

but that's similar whether i get my income i want to consume it today or set it aside and consume it in the future. so the tax law currently, unless you're in an ira situation or a 401(k), taxes people who want to consume their income later, who want to save now and consume it later, taxes them at a higher rate than the fella who wants to consume his income now. so i think from a pure neutrality, pure fairness point of view -- >> couldn't you say that the fella that gets all his income in dividends pays a lower tax rate than the fella who gets his income in wage income? >> but i want to start with the wage income to begin with and say, well, if i divide that income, save some of it, consume some of it now, the interest, the dividends, the capital gains that i get by postponing it is just a question of timing of the

spending of that income just like the division of my income between vanilla and chocolate, the tax law ought to be neutral with respect to that. >> larry? >> it depends on what examples you choose. and marty's point about the double taxation of savings is a fair one, but it's not the only kind of example you can imagine. imagine, um, zanny, that you start the next facebook. in your garage you've got some idea, you get your friends to loan you some money, make some investment, and you own a third of this thing that's in your garage. at the moment you get the third, there's no income because the thing's not really worth anything. and your thing ends up being worth $100 billion, and you end up being worth $33 billion. many of us would feel that you

should pay some taxes. but under the law -- [laughter] you pay no taxes. now, you might think that at some point you will want to diversify, you will want to sell your facebook stock -- your zannybook stock. but, actually, if you're half competently advised, you will find ways to borrow money, you will be able to spend 31 of your $33 billion without ever incurring any tax liability. now, you might ask what will happen if 60 years from now you die and give the money to your children? will -- and then your children, you know, they don't care about zannybook, they sell the stock. will they pay capital gains tax? answer, no, they will not pay capital gains tax. so i think you have an issue around great fortunes. and at a moment when the top 1 or 2% of the people own half the wealth in the country, large

fortunes is a kind of significant issue, and you have to factor that into the discussion of capital income taxation. so i do not favor the idea that we should not have capital income taxation for reasons that i think go crucially to fairness. we can't a as a country figure out that a guy who runs a private equity company is earning income by working. we let him call his income capital gains. and so in a country where we can't figure out how to do that, if we escape, if we cut the capital income tax rates to zero, there will just be massive erosion of fairness and progressivity. so i have not bought into that agenda at all. >> so -- >> conversely -- on your side for a second. i think you'll agree with. conversely, i think that you do have to be realistic about these things with capital gains. in our current world where we

tax them only when they're realized and where we allow them to entirely escape taxation if they're passed on through estates, the estimate thes of the joint tax -- estimates of the joint tax committee and the estimates of the treasury are that the revenue-maximizing tax rate is about 30%. raising the rate from 30 to 40%, you actually lose revenue. if revenue-maximizing rate is 30%, it sort of follows that raising the rate from 25 to 30%, you're going to impose a very large burden on people per dollar of revenue that you're going to generate for the government. so i think a thoughtful approach to capital gains taxation does realize these elasticities of realization behavior and does lead you to lower capital gains

rates than, certainly, the rates we now impose. certainly, the top rates that we now impose. i'm less seized with the case for reductions in dividend taxes because you don't have an issue like that realization issue and because we do need to raise, we do need to find ways of raising revenue. i do think that this whole area of escape, erosion, avoidance, all of that does require more attention, and i am told by those who advise people much wealthier than i that with good advice the capacity to very substantially avoid estate

taxation is quite substantial. and reforms that address that issue would, it seems to me, be constructed without requiring higher marginal rates. >> i want to come back to the savings point -- >> very briefly. >> very briefly. i talked about the fairness, but there's also the inefficiency of distorting people's decisions about whether to consume now or consume in the future, and that affect not just capital gains, but dividends and interest. so i think it's worth distinguishing between the person who in the back garage starts a new business and then has a capital gain and people whose capital gains, dividends and interest come from savings out of income. and we do that with iras and 401(k)s and roth iras, and the question is should they be opened up, should they have the kind of ceiling that they have now, or should individuals who want to postpone the taxation of income be a able to put it into an ira or pay the tax and then

not be taxed on the dividends, capital gains and interest by putting it in a roth ira, and i think there's a very strong case -- both a fairness case and efficiency case -- for allowing that. then there's the separate issue of whether you should be incented to take time off from your current work to work on the zannybook technology by giving you the chance to get very rich from that innovation, and that's certainly what the current law is designed to do. >> i'm going to open for questions, but before i do that, briefly, one last topic we haven't covered which is tax expenditures. from your initial remarks, larry, it seemed you didn't assign an enormous priority to limiting tax expenditures and the whole debate about should you cap them, should you get rid of them, should you convert them to credit. very briefly, how high a priority should that be, and what tax expenditures ought to

be capped or got rid of? >> no, i -- if you heard me that way, i misspoke. >> or i misunderstood. >> i suggested that i did not believe that substantial base broadening done in the likely ways would produce a substantially simpler tax code. i do believe it would produce a substantially better tax code because it would be fairer and would avoid a variety of kinds of distortions that we have, and this is a place where marty and i would be in agreement. marty has put forward a variety of proposals, the obama administration has put forward ones that are somewhat less ambitious than marty's that are directed at limiting the full use of all the existing deductions, and i think the premise of both efforts is a

political strategy that you're better off attacking deductions and exclusions as a group than you are trying to choose which ones to go after. and i think that's a good thing to do. i think with respect to most of them but not all of them, there's an oddity that if an affluent individual gives a dollar to charity, they get a 35 cent deduction, and if a middle income individual gives money to charity, they get a 15 cent deduction. so i would, for the most part, favor the deductions into credits. how best to do that, you could debate the technical means, but i would be very much in support of base broadening. >> so when i talked about raising revenue, i said there are good ways and bad ways. raising marginal tax rates is a

bad way because whatever distortions there are in the tax law, it exacerbates. and whatever disincentives there are it makes worse as well. so what i would think should be done is to cut back on these tax expenditures, what bowles-simpson correctly called spending through the tax code. and since it is spending, since it is the government saying, well, we would like to encourage you to have a bigger house, a bigger mortgage, a bigger health insurance policy, we don't write you a check for that, we let you exclude it or deduct it. somehow it seems to me republicans and democrats ought to be able to come together around that. democrats saying we want to raise revenue, republicans saying we want to cut spending and marty saying to his republican friends, that is spending. it just happens to go through the tax code rather than the outlay side of the budget.

and, therefore, what we ought to do is get the extra revenue that we need by cutting back on that spending. so there shouldn't be a division, political division between those who want to cut spending and those who want to raise revenue if way we get that revenue is by cutting tax expenditures. and the specific way that i think we should do it is to say you can keep all of the current tax expenditures that you have, all of the deductions, the exclusion of health insurance, but you just can't be too greedy about it. you can't take too much of a tax saving from it. so you add up what the tax savings would be from all of the scheduled deductions, one line on a tax return, and be -- and your health insurance exclusion and if that exceeds some percentage of your adjusted gross income, that excess is not allowed. so everybody gets to keep all of

the current tax expenditure benefits but only up to a certain amount. and i've done the calculations on that, putting a cap of 2%, and that produces roughly the same percentage extra tax at every broad, adjusted gross income class. so it doesn't change the progressivity of the system, but it produces an enormous amount of revenue. you could start with a less binding cap, you could phase it up over time. i wouldn't put it in next year for the reasons that larry said because of the concerns about cyclical situations in the united states. >> but it also then avoids the fight between which kinds of tax expenditures -- >> that's right. >> let's go to questions. i know we have very little time left, for which apologies, but are there any questions? yes, gentleman there in the

fourth row on this side. if you could just wait for the microphone and be brief. >> being a retired individual, i'm very concerned about inflation as far as what it does to my net worth, and in my corner of what i think is unfair about the tax code is the fact that long-term capital gains whether it's houses, stocks or farms are not indexed to inflation, and i'd be curious to hear some comments about that. >> well, i did say that in my opening remarks, that i thought that one aspect of the unfairness of this we don't take into account inflation in the definition of capital gains. that wouldn't be hard to do if we continue to have the capital gains tax. >> i think you're right in principle on capital gains. i've noticed over time that there's rather more enthusiasm for recognizing the inflation component of capital gains than there tends to be for recognizing the inflation component of interest deductions. and, of course, on the same

principle that one does it for capital gains, one should do it for interest deductions, and i think there's a reasonable case for doing it. it'd be surprising to me if a country having thought about doing this and decided not to do it at a moment when we had 5, 6, 8% inflation in the '70s and '80s will now gravitate to this issue at a moment when inflation is very, very low. in principle, you're right. >> it's cheaper now. >> it's cheaper to do it. [laughter] next question. gentleman there, five rows back. yeah. >> heard a lot of talk about base broadening, i just wanted to know if you'd both favor taxing harvard and harvard endowment as part of our base-broadening efforts. [laughter] nice tax expenditure there. >> i wouldn't call that a tax expenditure. >> why not? [laughter] >> because we've decided it is not a taxable entity.

so it's not a question of the measurement of their taxable income, but whether or not their income should be taxed. so there is a broader question which is how we should treat nonprofits in this country, should we allow contributions to harvard, to museums, to simple tonies and all that -- symphonies and all that. we can do it the way we do it in this country, or we can do what the europeans do and make those government-financed organizations; the universities, the museums, the symphonies and so on. and i think the diversity and the way we do it in this country is preferable. >> gentleman here. [inaudible] >> thanks. question, professor feldstein, a great many republican legislators have signed up to pledges not to increase taxes, and as i understand it those who promote the pledge include

filling in loopholes and anything other than a revenue-neutral way. given what you said today, a, does that worry you; b, do you see a way of finessing it? >> some republicans that i've talked to think that even though they signed up for that kind of an agreement if there's a tax reform which is pro-growth, which is tax rate-lowering, then even though it raises revenue they could go along with it. so i hope that once we get past the election and people move from their hardened positions both with respect to entitlements on the democratic side and with respect to tax revenue on the republican side we will see an operational way of dealing with this problem. >> i'm afraid we're out of time, and i think that that's, actually, an appropriate place to end. it seems to me that we've had an

extraordinarily interesting discuss, but one that shows that from two different perspectives there is, actually, quite a lot of agreement. there's a lot of difference in emphasis, but a lot of agreement. and, hopefully, the next panel will put some more concrete flesh on that in terms of what we actually get to in the next few months in terms of a concrete tax reform plan. so thank you both very much, indeed. [applause] [inaudible conversations] >> thank you, everyone. we're just going to take a quick ten-minute break. [inaudible conversations] >> so a short break in this discussion on taxes in the nation's economy. we'll continue our live coverage in just a couple of weeks with a

look at the keys to a successful economic reform effort. former federal reserve vice chair alice rivlin and former white house chief of staff john podesta will take part in about ten minutes now here at the brookings institution on c-span2. right now, though, remarks from former treasury secretary richard reuben who offered -- richard ruben who offered opening remarks. >> i'm bob rubin, and let me welcome you this morning to our program which, as you know, will be a discussion entitled "economic facts about taxes, rates, revenues and reform options." the housing project began about six years ago, and it brought together a truly distinctive group of policy experts, academics and practitioners. in that context we don't endorse specific ideas, what we do do is

we organize serious discussions around issues that are critical to our economy. and in that respect we have events like we have today with academic and policy experts and practitioners. when we have papers, those papers are subject to rigorous peer review. we believe that the objectives of economic policy should be growth and competitiveness, broad-based expansion of living standards and opportunities and economic security. and we also believe that they can be mutually-reinforcing. we support market-based economics, but we believe equally that it is vital to have a strong government to perform those functions that markets by their very nature will not perform. the hardship that many americans have been experiencing and continue to experience requires a serious commitment by policymakers. and in support of that commitment, the hamilton project

has had a number of discussions and events around short-term policy challenges. but our primary focus continues to be long-term economic policy. we believe that our country is well positioned in a transforming global economy because of our enormous long-term strengths, but we also believe that in order to realize that potential we need to put our fiscal situation on a sound basis, we need to have strong public investment in areas critical to our economy, and we need reform in the areas that are so central to our economic success including health care, immigration and tax reform. and that takes us to today's program. there is widespread agreement that our tax system is badly flawed and badly in need of reform for the future of our economy. beyond that, however, the agreement breaks down.

there are many different views as to the purposes of tax reform and as the changes that are necessary to accomplish these purposes. our objective today is to better understand these different views, the effects of various proposed tax reforms and the criteria for evaluating tax reform. in that respect, let me make a few brief comments as framing observations with respect to discussions to follow. number one, major changes in the our tax structure and in the level of taxation, for example, increased revenues that increase confidence could promote growth, reduce inequality and contribute substantially to establishing a sound fiscal trajectory. and that was my point before about increased revenues contributing to deficit reduction.

with room for critical public investment. number two, having said that, there are vigorous debates about what purposes tax reforms should have, what the effects would be of particular changes and what the level of taxation should be. number three, any substantial tax reform will have major winners and major losers, and that creates a very difficult substance with respect to tax reform and very difficult politics. number four, any substantial tax reform will inevitably have multiple effect bees on our fiscal -- effects on our fiscal position, on inequality and on growth. and finally, as we all know the postelection period of 2012 and the first few months of 2013 will pose fiscal issues of enormous importance. whether that leads to

constructive action or the political system kicks those issues down the road remains to be seen. but it is our view that tax reform at least has the potential for helping catalyze a constructive response and could play an important role in that response. >> marty, let's -- >> former treasury secretary robert rubin earlier today here at the brookings institution. we'll have more live in just a moment with a look at the keys to a successful economic reform effort. that'll start in just a couple of minutes here on c-span2. while we wait for that to get underway, from earlier a panel on the economics case for tax reform from the same conference. [inaudible conversations] >> start with you. i want to start this conversation by actually working out what should be the priorities for tax reform today? because tax reform has all kinds of good priorities.

i mean, people talk about wanting to boost growth, similar mifying the code, improving progressivity, raising revenues. but many of these are somewhat at odds with each other, and certainly depending on what your priorities are, you would put forward different kinds of reforms. so can you just lay out what you think given where the u.s. economy is right now, what should be the priorities? rank them somewhat. >> well, you began by saying larry and i come at it from different perspectives, and that's probably not quite right. larry and i come at it from different political party affiliation, but larry and i have been talking about taxes for 30 years. and so it's not too surprising that there's a lot of agreement. i hope that that comes out as we talk about the specific issues. i think about tax reforms in terms of its long-term impact. we've got a serious cyclical problem now, but i think the tax code that we put in place, i hope that congress puts in place

next year, we have to think about for the long term. what are the things it has to accomplish? you're right that there is, in a sense, conflict among them, but there are always trade-offs. and so it's a question of picking things that do better at these different, different goals. what are the goals? i think there are four basic goals. ..

in a variety of ways by hurting savings and investment and by hurting labor supply broadly defined, but picture that adam showed us about how it affected hours as part of that it also affects the forum which people take their compensation, so we are induced by the fact that all kinds of fringe benefits are excluded from taxable income to taking compensation in ways that are less valuable to us, but on a net of tax bases are more attractive, and it also affects the kind of spending that americans do because sometimes spending is tax favored. third thing is simplicity. you mentioned that, and people

are just overwhelmed at the complexity of the tax law. it makes compliance more difficult, and it makes people feel probably everybody else is getting a better deal than they are, and everybody else has figured out some deductions to take, some critics to take, some way of changing their behavior that lowers their taxes. so we need a simpler tax code. and finally, there's the important issue with fairness. fairness is more than just just a question of productivity or tax rates. it's also the tax base. fortunately inflation is low, but even with today's low inflation, individuals pay capital gains taxes on nominal gains, even when they are real non-gains or losses i think people rightly feels that that is unfair. so i think there are a lot of

things about the way income is defined for taxable purposes, which ads to the unfairness of the system. >> in that order? >> i don't think of it as any order. i'm not going to say we get revenue and it doesn't matter what kind of fairness we get to read we get fairness and it doesn't matter what it does to revenue. i think you have to think about any given change in terms of what does it do for each of these four things. >> on the question of fairness, do you think in the life of the fact that pretext income inequality so much the goal of marrying them creates a more progressive tax showed should be taxable? >> not particularly. i noticed in the background material, one of the things that was suggested was combating inequality. my feeling has been for a long time that our problem in the income distribution area is poverty and we should be

concerned about, putting them. poverty, not about combating inequality. if a couple makes $250,000, which is probably not hard to do at the hamilton project or harvard university -- that's not something to me that needs to be combat. >> larry, do you have a similar set of priorities or do you have a different set? >> overlapping. i would just begin by saying that while it's not our subject today, whether we get this expansion to a sustained -- >> we go back live now to brookings for a panel discussion on economic reform. former federal reserve fice chair alice rivlin, former michigan governor john engler and former white house chief of staff john podesta have taken part.

>> fortunately we have a cast here. i will begin by introducing alice rivlin to my left. alice may well have the best budget resume in washington, d.c.. she's been the director of the omb. she's the founding director of the cbo. she served on the president's commission on fiscal responsibility. she was the co-chair of the domenici rivlin task force on debt reduction, and in addition to all that, she was vice chair of the fed for several years. also to my left, we have john engler who served three terms as the winner of michigan. after that, he was the president of the national association of manufacturers and is currently the president of the business roundtable, and when i was looking at his background last night on the web, i was struck by the following statistics, the companies that belong to this roundtable have sales of not

6 million common of 6 billion but $6 trillion. so john i think speaks authoritatively for this community. to my right, we have john podesta, who sat in almost an impossible number of influential positions in washington, d.c.. in the clinton white house he had several key positions and was ultimately the chief of staff. after that time there, he founded the center for american progress and is now the chair and counselor at the center for american progress. and i should add john has been an incredible friend at the hamilton project. we've collaborated on events and he's spoken had previous events come and part of the reason we are so slight that john is here today is when there is a mass of facts and confusion about the policy and economics and their intersection, john has a unique ability to somehow shed light and clarity on an otherwise very

complicated situation. and then we also have to my right my colleague at mit and in addition the president of the national bureau of economic research and a fellow at the american academy of arts and sciences among many other honors. one of the most influential public finance economists in the world. and one could go on and on about jam's accomplishments but unfortunate to have him as a friend who is willing to expense advice, professional and friendship, and even advice on how to manage our three young children. [laughter] >> so i thought i would begin with alice. can you give us a sense of the economics they get the time. how big every reform should we be looking for and in the context of the current economic conditions?

>> yes. we should be looking for a very big reform for some of the reasons that were talked about in the earlier panel. every once in awhile, we get an opportunity to solve a problem like reforming our tax system that should have been solved a long time ago, because something else has to be solved. and the something else that has to be solved is the fact that our debt is growing faster than our gdp, because we have this enormous number of retiring baby boomers who need health care and our expenditures of the federal government will go up rapidly over time to meet that obligation and our revenues won't. so here's the opportunity to do you really big tax reform that will give us a better tax system. i think it can be fairer.

fairness, as larry stressed, is really important. right now our tax code is riddled with things that not only me get more complicated, but much more important, may -- make it less progressive. things like the home mortgage deduction, which benefits people up the income scale more than people in the middle or the bottom. and we just built an enormously large number of very large houses for very high income people. we really don't need to encourage that. so we could convert back to a credit. what we need to do is look at our whole tax system and see what these deductions and exclusions that have accumulated over the years could either be eliminated or reduced to a more

progressive form in a way that will allow us to have a fairer tax system and one that raises more revenue, because we are going to need more revenue. we can't get to a stable debt unless we have more revenue. we also have to reduce the rate of growth of entitlements, but it's not realistic to think that we could accommodate this many older people who have come a need medical care and we have a high standard of medical care, without more revenue. >> thank you. i will turn next to governor engler. governor engler, there's something approaching a consensus i think about corporate tax that the rate is too high end of that there are too many. it appears to provide the broad outlines of the deal. what is the business community

looking for in this kind of tax reform? and then i think more broadly, what could this offer to the american economy, to the typical american household? >> sure, it's a great question, and i think the business community, generally speaking, is looking for certainty and predictability to derisk what are so many areas of uncertainty, and i do want to spend a little time on that, because the tax debate and the fiscal debate are very much part of the risk and the uncertainty that confronts somebody deciding about investments today. suggesting there are not risks and uncertainty in the world, but we have moved from a country that could make big decisions and move on to chart a path that doesn't seem to be making very many decisions, and it's not just taxes and spending, its energy policy, where are we

headed with health care, was the housing policy, the regulatory policy coming and you sort of get the point. and i think there is, on the sort of discreet question of the corporate tax reform, a recognition that today the u.s. has the highest corporate tax rate in the world. that is a competitive factor among the nations, and one thing that as a former governor i was very much in the nineties involved in the conversations about the competition among the states, and i think people get eight that states will not knock themselves out. to see this from time to time i'm looking to put a plant somewhere in america, and every governor is on the phone. the economic development officials and the governors themselves are on the plane and flying to the headquarters. choose us and here are the reasons why and what it will do for the work force and build the roads and deutsch to the tax guy is. what's not understood among the

policy makers is just how big of a risk that competition is among the nations. and virtually everybody at the milken institute that for two days in los angeles this week haven't to walk by the canadian post, the best in canada, and it's the canadian argument as to why canada makes sense, and of course one of the things i mentioned is they are very low corporate tax rates among other things. now, as a michigan governor, i paid a lot of attention to canada in the 90's. in fact, one of the little secrets of success that we enjoyed when we had five years of unemployment rate below the national average is that canada was in the last decade. unemployment in canada was 9.7% average for a decade, just out of control. well they changed a number of things, and some of those are on our agenda. one of those was corporate tax reform. i believe it is possible to do, and we worked hard with the committee of 12 to have a proposal in front of them that

would have given the corporate tax reform that would have been -- it wouldn't have leveled the world but you would get us back to an average with today we do leave the will -- although i found out by emi has a higher corporate tax rate in the u.s. but none of the other industrial nations. >> and i want to elaborate on that a little bit. we have a more competitive corporate tax structure would that mean for the average american family? >> the inflation has to be how we get the american growth rate back up? if we are going to languish around 2%, that's not adequate. and you really need to see the kind of robust job creation that will get that unemployment rate below 8%, get the work force participation back of of what is almost at the historical low in the recent years and decades even. you need that gdp to get back to three, 3.5%. i think that the 1% increase in gdp also has a trillion dollar contribution, so revenue.

>> would offer more growth. >> it's part of the growth agenda. so i would say by itself is an important contribution. a competitive tax system also fixes your territorial problem. a lot said more about $2 trillion on corporate balance sheets. much of that is offshore. let's bring those dollars home. let's not have a tax code where you go anywhere else in the world without paying additional tax and spend them and the only place you'll spend additional tax if you are on lies and bring them back home. that can't be the right tax policy for america. >> thank you. so, jim come in addition to your many academic accomplishments, you also served on president bush's advisory panel on tax reform in 2005. i wonder if you could talk a little bit we've heard from alice about the challenges we face with the budget and the debt command from governor engler of the corporate tax reform. i wonder if you could, based on

your experiences and 2005, if you could get a sense of how we can pull everything together to reduce that coherent tax system that includes income taxes, corporate taxes, i guess in the previous panel there's a discussion about the environmental taxes. [laughter] >> the second time here. i should start by saying acknowledging the folks from treasury and others who were helpful in doing the work on the 2005 panel. you know, the recommendations on that panel didn't exactly create a lot of weight in washington. so i think there's a big -- any information that we give, but i do think that there are two lessons that i would point to in this. one is it is important to think about tax reform as a holistic activities, something that is going to affect many components of the tax system and to avoid the risk of getting a cherry picking. you put together a plan that is

great except for this provision which i think has to be sold out because the tax reform is that they are likely to be winners and losers particularly if we are doing tax reform for a revenue raising environment they're likely to be many losers in that situation. but we may be able to get the system which is more efficient better for growth and which makes the burden of the tax system on the tax paying public smaller. but it does put a great deal of pressure on a sweeping everything together so you can say we have done a whole collection of reform here which don't leave you too much worse off or leave you a bit better off but when you start to say we can take components out to that things start to unravel so that is an important lesson. the second thing i would point to is the importance of putting a corporate and individual tax on the table together, and there are two reasons for that. one, as the earlier panel certainly suggested thinking

about the taxable income generally is likely to be very important in the coming discussions around the tax reform. you can't really talk with a capital come taxation without having a corporate tax as part of the discussion because you need to think about the project's which began in the corporate sector in many cases and collect all of the taxes that are on them before they ultimately get to their investors and you heard earlier the many different combinations on the corporate investors and the tax treatments that go into that and the tax-exempt investor in the corporation you can have a corporation during a project tax that the household level and a taxable individual investor investing in a corporation and collect taxes of the two levels. so you need to think about what you are doing to the playing field of all of those different ways on the taxing investment projects. not only does the corporate revenue feature in this it's also important for the distributional analysis because

when you get to the top 1%, the congressional budget office for example looks of the distribution table a significant component of the tax liability although very households come from the implementation of the corporate tax liability to those households, so if you want to get an accurate measure, you need to feature the corporate tax as well. the other piece of this we did things in '86 that change the relative tax burden on the corporation and a lot of the data that we looked at on the rising inequality is a number that relies on the numbers of a report on tax reform and they change the income on the corporate sector versus the household sector and it shows up in different places in the system. that could have a substantial lead to the measures of inequality. if you look to the number though, there was a discreet but in the concentration of income among taxpayers, individual taxpayers right after the '86 act which could be attributed to a shifting of where those numbers were.

>> we have a lot of work to do and that is why we have john podesta batt in the clean up here and i thought i would try to make the task is difficult as possible. and to review what is coming down the pike i guess we are going to hit the debt ceiling before the year ends. the bush tax cuts are set to expire at year end. there's the expiration of the payroll tax cut from stimulus, there's an increase in amc, there's a sequester cut and defense domestic spending. i would say that on the policy side. on the political side i hear that there is no election in november. i looked on in trade to find out according to trade the president will be reelected with a 6% to discuss the 660% chance and the

senate will go republican plus we have a lame-duck session. what's going to happen? [laughter] >> i think it takes someone who has been burned so many times through their career to think of this as an opportunity. i do this under the circumstance you can actually find your way to tax reform so i view this as a time this debate can come together now because the economic argument alice agreed with but because of the political destruction that could likely result in a deadlock in the lame-duck session but while people with a strong degree of

interest in reforming the code because one of the things you mentioned in particular on january 1st use snap back to a code that actually we look under the clinton administration goes back to more or less the circumstance on which president clinton governed the country and the economy hit exceedingly well. so that becomes a new baseline and the new context in which we look at the ideas that have been already discussed this morning in the panel and have come forward. i will say that most importantly what that produces is a revenue level that is substantially higher than current policy. so current law if nothing happens, the gridlock prevails

which is something in washington, a pretty good fact is a level that goes back to about 20, 20% of gdp once the economy has fully recovered. the earlier panel already described the problems with that in the short term what happens in 2013. >> if the economy is still operating with high unemployment but eventually it gets back to 20% of gdp. substantially higher than what we have been operating under, under obama's first three years we have been at 60.8% of gdp which is where we were under the truman administration. so, i think that you begin to have the circumstances in which revenue is at a higher level, and the choices that you need to make their for are the

trade-offs between the base broadening and lowering rates operate in the context different than one that we've operated in the last couple of years and under the last decade under the bush tax cut. so that would be with my first thought about this. a couple things. first, i'd think there is general agreement about broadening the base and lower their rates, and i think again, that context gets out the possibility to take a look at that, but if you think about the rate that they currently exist, we have the lowest top rate since world war ii in existence now, and we have the lowest capital gains rate since hoover was president so there's only a certain amount of learning that one can do even as you are broadening the base. the base broadening exercise has to deal with a huge revenue

shortfall that facing the u.s.. i could go on but i just want to make one last point. on that topic which is that governor engler raised the issue of canada and looked to hold up -- >> economy which is doing reasonably well these days, but if the united states actually has revenue equivalent to the level of canada at the state, local and federal level, which is below the average in of the oecd we balance the federal budget, so it's good enough for the canadiens i would say probably it's good enough for the americans to try to get to the revenue level the we had in 1999, 2000 where we balance the budget, created a surplus and had a strong economic growth, strong job growth, people were

doing well across the income spectrum, and most importantly, people in the middle were doing better, and the question particularly if the wage inequality was just not a topic on the table because the wages were going out and the income was going out. >> thanks. i thought i would oppose the next question to the whole panel. there's a lot of different ways to suggest tax reforms. one theory is the case that we put out the documented the three important factors are the are in fact on growth, and then the impact on revenue of. i want to pose to everyone here supposedly as you do something about that but something changes in the reversed, what is the probability that we are going to end up with a tax system that's worse than the one we currently have? >> it's not a zero.

[laughter] we've done that -- >> we have a wonderful set of problems everyone has kind of agree on them we end up with a worse situation. >> well, in two ways. one is that we could do a good tax reform which would be positive of things you mentioned, it would be pro-growth but either way i agree with john. it would be more progressive or at least as progressive but i would hope more progressive, and it would be -- was the other question? yes, of course. it would raise more revenue. we could do that. we have that opportunity and the models exist. and they came out anbar

simpson-bowles and domenici-rivlin. we might even do it. but then, unless we put some kind of a safeguard in place the pretense the congress from doing what they usually do and did quite quickly after the 1986 reform, we've risked having things added back in and of course we want to have this worthy program and we don't want to spend money for it we want to put money in the tax code and the tax code rose again, so that is a serious danger and we should do when sure would please governor engler and his friend. put some impediment to the continual change. we need a tax code that we have really fixed and is in place for a while. >> we did end up with a better tax code than would slowly become worse. >> yes.

yes i do. >> go ahead, john. >> go ahead. >> i was going to say the risk is probably far from zero because he could meet all these changes and make him temperate refer to years. that's the worst thing. we have 60 provisions of the tax code that expired december 31st last year. 31 more expire this year. we don't have a tax code, that's the real secret. we've got this and automation of all these expiring provisions at various times, nobody can plan on anything. as a, permanency is a fundamental reform coming and then alice alice said he would leave it alone. where we were coming you know, a quarter-century ago was pretty good but if there's a lot of work to undermine and change it and policing it, and i think that a broad affair gets us where we want in the direction we want to go. jim made a point that's really important.

we fought with the committee of 12 when they were trying to get an agreement on the $1.4 trillion of budget reduction there was actually an opportunity to do corporate tax reform that may be standing alone but now that we are caught up in the 01 and the 03 expiration, you are really talking at a minimum all love the business which gets at this. that's why we talk of individual rates they come right into that. he made another point, which it's hard to tease out, but a lot of the income inequality is accounted there's so much business and come in at higher top end of the tax code today because of the past partnerships and all that read that there's got to be some kind of equilibrium across the way, and we've got this rather confused tromping the substance, so there's a lot of things you can do the could be problematic. the other thing you could do is

there's a piece of what the administration talks about there was sort of good and bad in the framework and the lower corporate tax rate 20% come good direction, good compensation, but some of the treatment internationally. i don't think we want to be the only nation in the world that is requiring immediate recognition of their earnings and subjecting the tax rate. that frankly is a big disincentive and the consequences that happen you could end up with -- you see and some companies it's hard to do, but the headquarters and here. you can see in others we love budweiser and no one ever thought they would be owned by brazilians that if you look at just the tax consequences of that transaction, it made perfect sense when they put that together everyone thought that's going to be. the tax law it's going to be a

french company, and i like headquartered companies in the u.s.. i don't want to have a policy that says over the next decade it makes more sense to export somewhere else in the world. >> i think the biggest risk is you walk in a low level of revenue. that all of the discussion about broadening the base and lowering the rates and lowering the rate without a broadening the base. and i think that we will really ended because you build a huge structural deficit in that after 2013 will be even more difficult to get rid of viking -- rid of, i think, and the possibility possibly that he began with a fury that we will figure it out as we go along will set the rate at the front end and then set it out how to get there and that i think would have negative consequences on the middle class

because if you begin by dropping the top rate on the first part of the equation and then build that out by essentially building in come back targeted at working people in the middle class, i think that you could end up with a situation that's even worse than we have today. >> that's a danger coming out of the campaign because candidates are all saying, at least the republican candidates say we are going to lower their rates and they aren't telling you how they are going to make up the revenue. >> to .5% rate without any way to pay. >> there will be an expectation. >> a little bit more pessimistic for the other panel. i think if your scenario of the tax reform by december 31st will appear is a good chance we will get something the would make things worse off because i think the true tax reform is really it requires the process, requires the winter of a consensus hearing about the key issues that are going to be embraced in

the key principles that are not going to guide the new tax system. that's the way we got the 86 reform, treasury one which came out in 84. that didn't get the full consensus. u.s. treasury ii that did better. we nearly didn't get that to work and then finally the rest senate finance committee and we had bipartisan support in 86 that led to that agreement but there were treetops and compromises about treasury one and treasury to, for example both preserved favorable treatment of capital gains on the grounds that there was inflation and the entrepreneur should issue and we ended up with a single top rate 20% applied to the capitol gains and ordinary income but that took a lot of trading to basically get there. almost anything that cannot quickly i think it could happen quickly but might be improved in some of the kind of limitations on the tax expenditures that are mentioned earlier that are going to have a cap and have the effect of broadening the base in a very simple way. and generating additional revenue all the way. that would be an example of

something which probably would move us in a good direction so there will be simple sweeps at the end of the calendar year to move us in the wrong direction and the would also give up the very important option of having a serious debate about where we want to go and could lead to a fundamental reform. >> three briefly the transition will if you are going to go from a lower corporate rate but say business rate and you are going to use tax expenditures and deductions and credits there is a phase out in the transition to requires you could do a lot of short-term debt -- and damaged. >> one of the reasons we wrote this is to even evangelize everyone in this room so when you hear the future 28% tax rate or whatever that thing is, you can turn right to the fact and say what is it in deneen to productivity and revenue.

there is a topic that i think is tightly related to all of this, and i think as with many issues come it's not in washington about it but there are different viewpoints about it and another thing to cover the 12th fact i wonder, jim, if i could start you off with this, which is an economic research, there's kind of a growing body of research, which i'm not sure that one agrees with, but really at the high end of income distribution you would not reduce by much. if you had marginal tax rates as high as 60%, and i know not everyone agrees with that, but -- i wonder if you take -- [inaudible] >> more generally i think the question as to what degree do the tax rates affect both work effort and gdp? because it is a central part of

the narrative. >> let me take a stab, michael. it's a very hard question. i think the first thing to recognize is that there is only so much that economic research can deliver in answering a question like that. that the essence of studying the history of tax rates is relatively few changes and that we unlike the national scientists can't hold constant all the other things were going on in the world. when we keep tax rates moreover it's like the experiment in the lab and the different petrie dishes. the tax rates themselves have a response to receive circumstances and economy. the classics and was you to look at whether we need to invest in the tax credit available there was more or less investment because any time it is turned on precisely if it is low you discover the correlation doesn't quite do what he might otherwise think. that is the first problem so we don't have that much evidence to look at to be doing the

comparisons in the top rate is a remarkably low power away. second, at the top end of the distribution now you are doing something like hours of work and it's probably not what we are after. if you thought about the top executives are the entrepreneurs or others that are in the part of the distribution aside from lawyers where we have careful billing records on how many hours they work it's hard to pin down something like what is labor supply for those groups. what's much harder to think about is what we, an engineer at a company like h-p could decide they are going to leave the security and do something with three other friends from college in the gracia and see it that pays off. so we can describe the ingredients of the process are and we can talk about how tax rates on different parts of that may create incentives to do one thing or another but to then say

can you plan to assemble data you can look up in a book and relate to the tax rate we don't have anything that is as easy as that. so there are two things i would take away. one, and absolutely sure incentives to matter even at top of the distribution with the folks who are trying to decide whether to lead an easier life or take more risks be more competitive and sensitive to what the tax returns are but i'm not exactly sure what that elasticity is. second, we do have evidence that taxable income response to the marginal tax rates are the when you lower the rates the capitol gains in the earlier penalty lewd to is the best example of this regular rates using to generate more realization of necessarily more revenue but more realization. even for other parts of the taxable income that seems to be true, deductions seem to be sensitive to rates, even income generation seems to be more

sensitive. what's really hardest to get to the bottom of your question which is how does that happen to the undermining economic activity, which ultimately leads back to the growth of that we care about. i think it's dangerous to dismiss the notion of behavioral response to taxes completely. at the same time, i think the existing body of evidence doesn't leave us in a place that we can point systematically that it's an enormous. >> it won't be shocking to hear me say this but i think that we had a expert met here with us. the higher marginal rates, higher capital gains rates from 1992 to 2000 and then from 2,000 to the recession will do we get? job growth, twice the gdp growth, twice the business investment growth medium wage is ten, medium wage income growing up versus down i do think that

now are the people who keep arguing for cutting particularly capital rates and cutting taxes overall to show why that won't result in will result in the first decade. >> i agree with all that that >> i agree with all that that jim said but i think it should make as weary of political claims that, for example this would kill a lot of jobs and the public would say is that true because these assertions are being made all the time and people who make them sound as if they really knew that, but they don't. [laughter] >> what the approach this

differently because i'm not sure that's the question i worry very much about. i look at today's economy of 3 million jobs that aren't filled because people don't have the skills to fill them. that worries me. if a child was born in the district of columbia where we are today, i think under current spending let's say 25, $30,000 per year spending we are prepared us taxpayers three ander $25,000 to help that child be a productive person by the time they are a high school graduates what's happening with a $325,000 we are getting a job offer it of unexpectedly high we are getting a rate that's unacceptably low, so we've got a lot of other factors i think that come and and whether or not somebody works one year longer or not or workable but harbert for or wants to attend those

problems versus the one i'm talking lieber interest rates so low because there are enough jobs and we have to pay on the unemployment rate we have to say where is the growth going that is where the focus ought to be triet on there are a lot of these fiscal and tax questions the are important, but i also think the question of uncertainty and a lot of other areas there is a big, broader political set of questions about let's send the citizens through entitlement reform the clear message on what the rules are going to be and when you will be able to retire the security and when your going to be obligated to do in terms of your health care after we do the medicare reform or what are we going to do for people that can't pay for care and are going to rely on medicaid. all of those of our economic signals that are going to impact people's decisions about how much work and how hard i work,

how prepared i'm going to be or understand i need to be when you have military leadership saying more than the majority of young people aren't eligible to be conducted in the military service. we have a national challenge that all of that comes in and factors back in. i don't want to make this so overwhelming, but the tax rules are how we play the game that we have a bunch of other rules that impact how we play the game. they are also just as unclear and just as uncertain, and so i don't get worried about the question being posed about where those incentives lie. i think we get to the point that is all we have to worry about than we have something to say about it. >> let me pick up on the trend that you mentioned there. there is no question the recession come the great recession moved in everyone's living room several years ago, and i think collectively still in the nation's living room one way or another.

we also, having all of these talks events happening in the year, how should we be trying to balance the weakness in the economy with this kind of a looming tax threat, and fact that it's managed several scenarios? >> my view is in the previous panel you have to think about this in terms of how you face whiteaker changes you are trying to make. and i think that there's fear that you have that snapback plus i think you mentioned you have the moving target of the sequester the was built into the provisions forecast last summer when the debt limit was last raised. so that is another $1.2 trillion out of the federal spending would come over the decade,

significant amounts out of defense whether the political system would tower that or not i'm uncertain about, but that way there is a contraction built into the current law, and i think that that again is an argument why the spring of 2013 is actually an important moment, and optimistic moment the you can find a thing because neither party really wants that outcome and you could find me -- may be the common ground and don't have to include transition and a phase in to otherwise. >> i think, michael, we are in a somewhat fortunate position for the u.s. that the troubles in the rest of the global economy give us a little bit of breathing room in addressing some of these longer-term fiscal challenges. the capitol markets to take a long view, and we could in fact make substantial progress in

restoring the sustainable fiscal trajectory without doing things that have to immediately burden of the level of siskel support for the economy. so i think that if in 2013 we could put on the table in plan that did bring us a genuine approach towards stabilization to face things in, governor engler's duals can be very important promise of figuring out what we are going to do and the next planning the capitol tax where you are today to where you are headed that is a project can take a couple of years but there's a value for giving the participants a head up on where you are going and because the u.s. is still able to borrow at relatively low interest rates because of concerns elsewhere in the world, we have the opportunity to weaken try to take those things on. that window may at some point close and we may not always have the discretion of taking our time to think about these for a

while before we have to respond. we have seen some of our european counterparts have to do things very quickly when the capitol markets don't give them enough breathing room. >> i think we need to do two things at once, go beyond the slow phase in. clearly, we don't want a big increase in taxes right now, any increase in tax rates right now in the weak economy coming and we don't want to cut in expenditures, especially mindless ones as the sequester would be. indeed, i would argue that we need to invest more in the short run, fix some of the problems governor engler was worrying about which are not only the skill gap with the infrastructure isn't very modern. but we need to do that at the same time that we face in a predictable way the stabilization of the debt on both sides of the spending side

and the tax side and here's the opportunity to do that right. >> alice makes an important and and all three of those in response to this question but if you set a certain policy direction and you are phasing in overtime, you still set the direction, and that's really important. that is a big thing and what we've done is created such uncertainty on the payroll taxes the medicare funding is coming out and i think that's in january as well depending on what happens in the supreme court decision itself a niche as a country have our political leadership willing to lead on the position and say this is the direction we are going to go and one of the things that i observed around the country is

parties and some you've got governor christie in new jersey and he's got a republican governor in missouri democrats in new jersey but alexis all over the country they are working through things because under a lot of the constitution they have no choice. they've got to balance the budget and present the budget. here we have a sort of perpetual non-budget, and we need to start making some longer-term decisions come in and reforming some of our problems we do a little bit now this is what we are going to do under a long period of time it's amazing how these numbers respond. the social security agreement which was bipartisan when it was done away back when has actually been quite durable. it's lasted a long time and

social security in terms of the easiest things to deal with it because we don't fix it like we don't fix the immigration system. all of this comes together and i think what the country is ronald up about is can't anybody here play this game anymore, can't you do something, and we are seeing today is you have a range in some areas i think that we saw in the previous panel they are not all that far apart. pick a direction and go that way. if we got it wrong, we can change it but what we can't cope with is no direction, no decisions, uncertainty. >> one thing about the social security reform where the reform might ago, one of the ways which that reform was achieved is the democrats coming into that wanted to make sure that at

least 50% of the closing came in the form of tax increases and the republicans wanted to make sure of least 50% was a form of the benefit cuts and one of the features of the 83 reform was to include social security payments in the federal income tax to a greater degree than we have heretofore in the keys and the democrats rolled out to count that as a tax increase and the republicans rolled to count that as a benefit cut and therefore when you put the two sides together they were able to declare victory and go home and we got the reform, so when you're the earlier panel dhaka of particularly how we might think about tax expenditures in the context of tax reform that certainly sounds to me like we have used once before in this and maybe there's something to be done. >> but it requires my kids and republicans negotiating with each other, and that's what's not happening right now. >> we could reach agreement in a lot of unelected panels. alice and pete domenici did that once.

>> yes, very easy but we were not running for public office. >> and you couldn't just put it in effect. so there's a lot of demand for the questions on the floor, just going to impose a 92nd rule for the whole panel with one more question. there's a lot of people that say if we are in a moment we need more revenue, we could raise income taxes one way or another and alternatively we could broaden the scope of things that could be taxed. consumption tax, want to raise one of the different taxes which would be an environmental tax principle, the carbon tax has the benefit of reducing something the we don't like very much. why is that not a part of the discussion? >> it should be. i'm for carbon tax. if it gives you revenue and raises the size of the fossil fuel overtime, which we need to do. but it is such a polarizing issue, worse than the things that we are talking about on

this panel that i don't think we should put that up front. i think there is a bigger chance of getting the kind of income tax reform that we have been talking about and we better go for it. >> i think it runs a competitive risk in the trading system in europe is largely failed, and i think that a new tax on production or the carbon tax at the time that we seem to be developing because of the proliferation of shale gas now with dow chemical's construction down the chemistry plants coming back exports now rising used to be a contributor we ought to be taking advantage of the energy advantages as a nation to really help move the manufacturing on shore. highly productive as a result of the recession and why we put a

carbon tax up there as a way of reducing the competitive? i don't think business takes the view to pay taxes for we don't pay, we collect them as individuals aren't going to pay taxes but we have to run the government. that's the rule. >> i'm not optimistic even though i would support it i'm not optimistic we would get one. given what governor engler just said, there are other ways of dealing with energy taxes that could have a positive effect. for example, getting rid of the fossil fuel tax preference provisions in the tax code faugh and the other way to think about this is the resources to the domestic resources by taxing oil which would have the effect on moving to the transportation

sector, and that's what the defense to have an impact on our balance, but half of our trade deficit still comes from importing oil. so i think that there are different mechanisms by which you could impose energy taxes that would have positive effect on the u.s. domestic growth. >> two things. michael, one, that discussion really needs to be part of a broad energy policy that goes beyond just the tax system from and i think that what one needs to cue that up but there is a bandwidth issue and that's the second point in terms of how much we can take on at one time for berkhout mcwherter quote with we have the individual income taxes as the fiscal reform challenge and we might as well just devote our attention to that in the near term while we've got this coming up at the end of this year to provide the focus of doing that. and then come back at a later date, maybe not too far down the road to think about the broader policy issues.

>> as someone who knows and has been a lot on the issues with an optimistic view of a rational policy you have the floor for a couple questions. i think there's someone coming over to the microphone. >> having both sides come to the mill is crucial. what we see is the asymmetry here. a high proportion of of the republican side of the ogle has signed an agreement with grover norquist not to raise any taxes. when you take two-thirds or even two quarters i think the latest count is coming out of the bargaining region, how do you get to a center point? >> well, you know, i have years ago i have some credentials on that party. be an agnostic around the table. effective let me just say this caruthers also asymmetry in the

work that's being done by the house's and it seems to me is if you're going to have in the traditional legislative debate format you do what they are doing on transportation. the senate would pass its version of the house would pass its version and then you have the whole mechanism called the conference committee to work out all the differences but if only one house is passing the legislation, the other house is not, hard to go to conference. and the answer i get from some as well, it's really hard. [laughter] >> i think that marty feldstein said it well today he recognized that we are spending through the tax code then we have corporal's coming together here. >> i would say that no one has a lower expectation of the congressional republicans will do in this room than me. but coming back to the fact of

an january 1st, 2013, we are going to have a seismic event in the tax code that's going to restore the clinton era tax code. that is a circumstance if obama is reelected, in which i think that he is negotiating leverage on how to force the republicans to the table and to the center. >> yes. >> the 1986 tax code that i was part of under president ronald reagan, and what would be the implication and with the republicans support it? >> good question. >> i think if you gave me the choice of that where we are today we have had a number of things that were holistic in the way about tax structure putting as the governor has said, the tax system has to be responsive to the econoen