start. there is direct u.s. investment. higher than the total. such a big community of companies, a company which is american registered usually is partly owned by european stakeholders. so because of the critical dependencies between our u.s. companies, the policy corporation has done well in many fields. and the current eu working group covers only a fraction. so therefore this strategy obviously is designated to allow us to work on the more comprehensive approach is. dependencies will grow.

part of the landscape is the netting states have very strong calculations. more harm than the very important dimension of our landscape. we work together. serve the same objectives. in the policy aspect of cyber security, the department of state to include its strategy and diplomatic cyber securities including working groups. originally they're referred to a direct contact with global and foreign policy issues. not specifically with cyber. but now we have a strategy dialogue which has been proposed . and the u.s. security policy, those working relations with the department of state cyber policy of this. this is also a field which is developing quickly. so what could be the agenda?

if we should have, what could be the agenda? first, you in u.s., strategic partners, full democratic values and the rule of law which said. we need for that behavior in cyberspace. norms of behavior. existing laws and rules which have to be implemented fully. this is a very technical challenge. we are for cyber crime. explain to you. conflict in cyberspace we have also cyber convention, but also some that we had also in new york, part of it is that we have international law in countries. our application in the cyberspace. confidence-building measures are

important. we think couldst stabilize cyberspace. the principles of human rights laws. to have a common vision is essential if we want to shape the engine. secondly, on cyber crime and cyber security we have obviously a very practical corporation. at think this will always remain at the center of all work. this has been described by you. up would not come back to it. private sector, the compact between our business is well defined a certain dynamic. it is crucial to define how to protect the most critical thoughts of our independent infrastructure, the transatlantic format. there are many exercises. and remember in 2005, already under protection. this error projection, the

dimension of all that. leila environment, provides security, also very important and should be encased in bats. we have also to stimulate the contact between cyber security community's. so this is basically the main element of the agenda. what could be the main priority, more in-depth. the application of law. but i would mention briefly, to strengthening the global response on cyber security. many cyber threats have been by the commissioner. there is weak. cyber investigations.

the criminal misusers of computers. if i may remind, at the time when i was spokesman, one day i was in charge of the internet department. one day while opening my computer going on my website i see that they had been replaced by very little. it was in 2004. and then i said okay. we should be able to to at least know. only to congratulate him for his sense of humor, but we should be able. then we went. and we were able to see that this was coming from a tiny country, a tiny -- is blonde

country in africa. i will not name it. a very small pantry. no agreement with this country. so a longstanding challenge that i hope to see one day. and i think there is unleash to really. [inaudible] , we can develop security in countries in cyberspace without sacrificing freedom. we have to put some money on that. at the time we have to coordinate how we do that. we have the same. that is an important part. as you know, very interested by. november last year. but we are also -- some aspects

in strengthening that we should take into account. cyber crime, but also the developing countries to completely establish, to put it in a very famous speech, a new rule on the internet to, that formula. no. you know, what we want to avoid, some countries establish new rules on the internet. and an example, you know, the eu has began when discussing sanctions for countries like syria, for example, to make sure that when we establish arms embargo we extend the arms embargo, cyber tools.

we can be useful, repressing the population and preventing it from establishing. this kind of reflects automatic reaction that we have to develop automatically. finally, i would say -- i would come back to the claim of the united nation. we have an important discussion in the united nations, and the major initiative by china and russia to increase the proposal to frame the discussion, classical arms control mechanism to favor more government control , the free flow of deprivation. this is also an issue on which we have to talk because we see having the u.n. we need to be sure. at the same time we would like to be able to focus or refocus

the main purpose of that to replace cedras security in preserving freedom of information. that is why we really need to act together to get the debate. i should stop here. far too long. i think you. i hope the commissioner will not cut my head. absolutely not like that. thank you for your attention. [applause] >> and thank-you to csis for sponsoring this. for sponsoring this event and inviting as to participate. i will start by saying, i and largely echo of the comments that have been made, particularly in terms of the very strong working relationship

between the u.s. and the eu on cyber security matters. if you set aside the data privacy issues, then i think you find that we are almost in complete lockstep on most of the key issues. also, as prince of very well teed up for you at the end of his comments, we both look ahead and see a number of very significant coming debates basically that have already begun that are going to be very active in the year ahead at the u.n. on things such as the group of governmental experts looking at norms for state behavior in cyberspace that the u.s. and international telecommunication union world conference on information, technology that will take place in dubai this december looking at revising its treaty document and how cyber issues can or should play in that document.

i think it is very encouraging steadily from the u.s. government policy perspective to know that we have in the eu such a strong partner on these very high level policy debates and challenges that we face ahead. what i would like to do is spend a few minutes talking to you about a couple of i think fairly concrete or may be nearly focus areas in which we are currently engaged with the you and that, perhaps, offer some examples for continued successful engagement and cooperation and collaboration. so i will first put on my hat as a senior policy person for the office of the coordinator for cyber issues at the state department which is an office that was created in february of 2011 when a secretary -- secretary clinton appointed my boss to serve as her first coordinator for cyber issues. this was something that was done

in conjunction with the finalization of the u.s. international strategy for cyberspace that came out in may of last year. the basic idea was looking at the state department which is largely organized along their regional bases and then a functional basis, trying to figure out a way to ensure that within a large organization like that in the same way that the united states government has created a set record net position on the national security staff, a way to ensure policy decisions can be made that take into account and reflect the different equities that we face in our foreign policy engagements. and so the office has been up and running now for about 14 months, and among the key things that are going on now that i think are worth noting for this group are as francois mentioned, increasingly engaging with the european union in addition to a

key eu member states on a wide range of cyber security issues. we have a steady flow of the u.s. and ec officials as well as senior officials from all wide range of countries, but particularly european countries coming through the state department, coming through our offices. it is almost an exponential growth in the interest of talking about cyber. it is -- it is very encouraging. sometimes it is almost overwhelming to try to just hit the key opportunities in an n like the csi as conference where we can talk about these issues. certainly we are seeing a real interest across the board in engaging on cyber security. another thing that has been very encouraging is to see that increasingly other countries have either come up with the same idea or followed the u.s. lead and are appointing senior officials to manage their cyber

policy work, particularly in their foreign ministries. france, the u.k., germany, japan, russia, the netherlands have all within the last year appointed a very senior officials to make sure that their governments have a clear point person who can manage and develop their cyber policy, their international engagement on server security and several policy issues. we are also seeing more and more countries issued national strategies that define how they view the key policy issues, how they have decided to organize their government, how they have decided to engage with the private sector. and that is another very encouraging trend that we try to encourage countries to really think seriously about these issues. again, keeping in mind that particularly as we move through the next few years there are going to be some incredibly

important policy debates and international decisions that are going to be hashed out in places like the u.n. would be 0sce or other key regional organizations like the eu and the council in your. apec and the organization for american states. name any multilateral organization and they're is a very robust high-level cyber work stream that is going on. but helping countries think ahead and start really forming their positions on a lot of these key policy issues that relate to internet governance that relate to norms, that relate to how we deal with cyber crime, and that is where the u.s. and the you can really work effectively together to help other countries understand the issues, understand the implications, particularly of things like the russian and chinese cut of conduct and help

them see that the high level view that the u.s. and the eu promote are really the most consistent with notions of international law, human rights, ensuring that we have a safe and secure, open and interoperable internet. so some of the other -- a couple of the other key things that i will just highlights, our office is increasingly working with eu institutions or european commission institutions like the external action service to find ways that we can better integrate our capacity building efforts. the u.s. conducts a very robust international training program focused particularly on the cyber crime and cyber security, also countering terrorist use of the internet that is funded by the state department out above our counter-terrorism and our international narcotics and law enforcement bureau.

and one thing that has been missing, the same level of engagement by institutions like the eu, by individual eu member states, but we are starting to see much more interest, particularly by key countries, key partners like france and germany and the u.k. and making a much more robust investment in their capacity building efforts in places like africa and asia. we are working on a number of upcoming programs that the state department will be leading where we are going to be doing a joint programs that will include eu, ec, and a number of other key partners, including other g8 countries such as japan and our capacity building efforts. we think that is a great way to go forward. let me shift now to talking for a minute about cyber crime. most of my background is as a career cyber crime prosecutor for the department of justice.

currently working on a temporary detail. and i also share the gh high-tech crime subgroup. a little bit of experience. and i think if we look at the successes we have had in addressing cyber crime, they are instructed and provide a good model for how we can tackle other challenges like helping ensure countries have a secure and resilience that work. we have been dealing with cyber crime, collectively the u.s., europe, for almost 45 years now. we have been in have focused wait building our capacity and capabilities to combat cyber crime. a couple of the key things that we use as the pillars for trying to create a world where there are no safe havens for cyber criminals to operate and all countries can effectively deal with cyber crime challenges are the promotion of the budapest convention which currently has a little over 30 parties to it.

the u.s. was one of the countries that helped negotiate the convention. we signed it when it first was open for signature in november 2001, ratified it, and it went into force in the next year or two. spring completed its ratification. japan is 99 percent of the wake. we are also seeing good movement in other countries like canada, australia that have been working for years to become parties to the convention. synagogue asks to be a part. the republic and a number of other countries, mexico that are in the process of becoming parties. the philippine is in the process. i know of at least five or six other countries that will in the coming months be announced as becoming -- as working toward becoming parties to the convention on cyber crime. that is encouraging because what the blood test to mention, laws that allow you to a in next. you have to have the right

powers so that law enforcement can get stored communications and data can get to intercept. actually serves as a treaty, the convention encourages law-enforcement counterparts. so one of the things, it created a 24 / seven network which has grown to 60 countries. we are adding a new country every few months now which includes a really wide range of countries from all over the world. and it -- and things like that can serve as a very effective models for how we can, you know, worked to build capacity by bringing countries along at different stages, getting them involved in informal networks that can then lead the institutional capabilities to then become better able to really deal with cyber crime on their own, to do things like joined the budapest convention. we do a lot of international average and training.

we hope countries set up laws, to help them build the investigative capacity to establish forensic labs. that is the type of work that particularly in the cyber crime area that the eu and the u.s., if we really put our minds to it can find some pretty opportunities to collaborate and really help build the international community, raise the baseline so that there are no longer these instances like were mentioned where you have countries that are essentially safe havens for criminal actors or other see what to do bad things in the internet. there will be that problem. i think we're making a lot of great progress toward that. >> thank you for including s in the presentation. if you have any questions, either here or later on offline to please feel free to us reach out. i'm happy to talk to you about cyber crime or foreign policy issues.

>> thank you. a very full presentation. we have of a few minutes for questions if people have any. i have a couple. maybe all start by asking all three panelists. if you were going to think of where the strength of trans-atlantic cooperation might be, with the operational areas, not the policy of negotiation, but the operational areas where they're is a benefit or possibilities for cooperation. would this be more than crime? crime is easy. everyone thinks -- almost everyone thinks it is bad. are there other areas tonight particularly when you think about intimation sharing, how much do you create? thomas t. bass the same kind of risk or problems you would face on information sharing for passenger data when you think of affirmation sharing? so i don't know.

how would an operational trench work? >> a great question. i think there are probably many areas, operational collaboration some of the ones that are ongoing today, those are the ones we have identified. late last year we held a u.s. eu cyber atlantic tabletop exercise which took place a year earlier than it was originally scheduled we are agile there. we looked at two different cyber attacks in areas and how the responsibilities work. there was an after action report for that, set a series of annual incident management conversations between us. and particularly involving the european network and information, security agency. so that is working well. obviously it connects also with

the bilateral cooperation that we have with individual countries. that continues. on testing and incident management approach that is a big piece of it. all come back to the information sharing because that is critical to that corporation. let me mention a couple of other areas. we are working together on awareness raising. in the context of empower individuals, we are going to be doing some work. we have our stop, think, connect campaign which i mentioned. the conversation with the europeans. the european way to attack that. a question, and we will also be doing some work together on best practices for job protection online schedule to coincide with the u.s. national cyber security and awareness month this october. that is exciting. and in the third area, just working in the public-private partnership.

as was stipulated earlier, governments can do this. there are some particular words that we will do together in an industrial control system area. next week we are having conferences. there will be an international partner stage as part of that, and there is also worked together on botnets. a lot of areas of cooperation and collaboration. on the information sharing front , the approach that we have found successful in the united states and also found successful on bilateral arrangements is to really just whenever you share information, you know, state what the agreement is about how we can be handled. you can use the red, yellow, green approach that is just for that conversation. it can be shared with the trusted group or it can be more broadly disseminated. at this point we are in a place where we have to kind of deal with it on the case by case basis and get some experience

before we come up with a overall framework. but i think that can work quite well as long as you are explicit upfront about how it would be shared. >> thank you. >> information sharing. it is a difficult area because it involves usually a lot of information sharing on business solutions and practices. let me go back to another field which as a member we feel at your level it is useful to think about which is the value of protection. when you think about the convention, by a weapons, biological weapons, we see that when you want to share information about buy weapons practices you face the same

problem because in a way you have to have the software to know how to defend yourself. usually this involves a very high sensitive intellectual property problems. and if you think -- if you forget for one second about computers and you think about bio it is exactly the same problem. you need to have the biological agent which is usually refined with increased performance which usually as part of the intellectual property highly sensitive information. and on this basis you can find. so in both cases the situation is a bit similar. what do we do in the biofuels? we tried to promote a minimum

level of protection. first, we have. we still have to work out in the cyber field. we need good practices and regular meetings between experts on practices. first of all to be prepared. western framework. the most advanced. but on the other hand, to be responding because as you pointed out, the defense is the weakest point of the defense a chain. you have to drive a global ambitions if you really want to get something. and then in this context establishing the proper context, then you identified the most.

usually you will see that in the proper context you discover that you can share much more initially without having to set up the proper context. so that would be. >> just very briefly. obviously information sharing is one of the hottest current issues facing us in terms of dealing with server security. you only have to look at the proper of bills currently. most are focused extensively, if not often exclusively on how the help the government's better share in permission internally and with the private sector, but in terms of existing, i think, successful operational affirmation sharing, things that we can look to, what is going back to the criminal law enforcement example. ..

huge organizations that the secret service carried out. you're increasingly seeing, you know, larger and larger groups of countries working together to tackle cyber crime or transnational cyber crime organization that have members in many different countries. and successfully being able to

keep those investigations secret until the appropriate time, arrest people, execute search warrants and do that effectively. i think that provides some lessons. the other thing i want to mention briefly, is another area where there's great opportunity and fantastic work being done right now by dhs in expanding cooperation. there's an international watch and warning network made up with a smaller group of countries. one of the things i hear constantly, i travel around to different countries and international conferences is a real desire for international partners to find better, faster, more comprehensive ways we share information about threats, signatures for malware. as an area of focus on an operational area. that's one thing that yield huge dividends for us and again, that is particularly, i think, appropriate for discussions

within the context of the u.s. and the relations of the cybersecurity. >> okay. we have one question over there. that might have to be the last one. >> could you grue intro deuce yourself? >> i'm allen from the fans substitute. the law enforcement sharing is amazing. the effects are impressive, but i think the largest lever we have to where there cube cooperation where i think there is known of the buying power of the governments. secretary lewd mentioned one the big needs is to get the vendors to deliver technology with security banked in to get the isp to deliver safer networking. is there anything gone on between the united states and europe in sharing the buying power so you can use the leverage of procurement to essentially make systems that buying defensive instead of

indefensible? >>. >> you have a right to point it. the answer is we are not fully yet there. we're precisely one of the issues with strategy is intenting to answer. if we could make a wish at the end of the conference '00 when they go to buy a computer, i ask -- i have asked is it possible to find a computer on the market which would allow me to disconnect the we if i so i could be 100% sure that nobody could make -- strangely, it's not impossible to find that on the market. but go to best buy, go to whatever i've been answered no. there's no computer with a physical disconnect. so all of the computers you have, they could be misused

while you're online. things of that kind, this kind precisely we want to reflect upon. because it is a key format we need a strategy. let me add, that we also have been war in the context of sep a tool which is very european the insurgency which is trying to make the relationship with between nate tow and the situation that we are all talking about the same things. they are also beckoning to some kind of ideas we could be injects in how it was, you know, -- thinking about how to. these we are have it in mind. we are not yet there. >> no, i guess not.

with that, could you join in thanking our panel. pllsz we have a coffee break and we'll reassemble for the panel on law enforcement. thank you. [inaudible conversations]

recess prime time first up tonight former black panther on his book panther baby. a life of rebellion and reinvention. and at 9:15 state sei on the founder of the girl scouts. and at 10:50 michael sean winterers on his biography of

jerry hold well tighted god's right hand. you're watching c-span with politics and puck lie fair but key public policy then and every weekend the latest nonfiction authors and books on book tv. you can see pass programs and get your schedule at our website. you can join in the conversation on social media sites. the libertarian party hold the 2012 convention this weekend in las vegas to pick the nominee. c-span coverage begins tonight at 9:00 eastern among candidates with the libertarian presidential nomination. then at noon eastern on saturday, delegates hear speeches from the candidates and vote on the nominee. all of that live also on c-span. more white house coverage from this weekend. president obama holds a campaign rally with michelle obama in

richmond, virginia. that gets underway a4:35 p.m. eastern tomorrow. with live coverage on the radio, and on c-span and on c-span.org. former treasury secretary larry summers and martinfield sign spoke about tax reform yesterday at the brookings institution. they were introduced by another former treasury secretary. [inaudible conversations] good morning. i'm bob on behalf of the colleagues at the hamilton project let me welcome you this morning to our program which will be discussion, titled, "economic faxes about taxes,

rates, revenues and reform options." the project began about six years ago, and it put together a truly distinctive group of policy experts, academics, and practitioners, in that context, we don't endorse specific ideas we do do is we organize serious decisions 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 objective of economic policy should be growth and competitiveness, broad based expanse of living opportunities, and economic security. we also believe they can muteically 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 the very nature will not perform. the hard shoip that many americans have been experiences and continue to experience requires a serious commitment by policy makers in the supportive of that commit hamilton project 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 transforming global economy because of our enormous long-term strengths. 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 political investment. 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 wide spread 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 po to the purposes of tax reform and to the changes necessary to accomplish the purposes. our objective today is better understand these different views, the effects of various opposed tax reforms, and the criteria for evaluating tax reforms. in that respect, let me make a few brief comments as framing observations with respect to discussions to follow. number one, major change in our

track structure and the level of tax taxation increased revenue that increased confidence could promote growth, reduce inequality, and contributes substantially to establishing a sound fiscal trajectory. that was my point before about increased revenues contributing to debt reduction. number two, having said that, there are vigorous gaits about what purposes tax reforms should what the effects would be of particular changes and what the level of taxation would be. number three, any substantial tax reform will have major winners and major losers. and that creates a very difficult substance with respect 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, post election period of 2012 and the first few months of 2013 will pose fiscal issues of enormous importance. whether that leads to constructive action or, or political system kicks those issues down the road remains to be seen but are, but as our view, tax reform at least has the potential for helping the response and could play an important role in that response. with that, let me jute line our program and briefly introduce our panel members. as you can tell, it is a remarkable set of individuals. remarkable may be an overused work, ties applicable to the

group we have today. i'm not going to go into their resumes. they're in your materials. begin with the hamilton -- facts about tax policy. the paper will be presented by adam loon any policy director of the brookings institution and one of the nation's leading exerts on the economics of tax policy. also, if you look at the extraordinary working group on the front page of the paper that helped guide this paper, it'll give you a sense of the truly distinctive strength of the ham l tom project being able to bring together such an extraordinary group. then we'll turn to the first round table titled the economic case for tax reform. and again, this is a remarkable group for this discussion. the discussions will be martin

felled sign professor of economics at harvard university. president of the national bureau of economic research, and former chair of the president's counsel of economic advisers. and lauren summers, charles wmplet elliot, former president of harvard university, former secretary of the treasury, and former assistant to the president for economic affairs. the moderator will be the economics editor of the economist. i said i wouldn't comment on the participate's resumes. i won't. i like to make a few personal observations. marty felled -- in marty's case for many years and in larry's case for decades. both are excellent listeners, though challenging, they are changing, but they are also excellent listensers who process

what they hear. are open to changing their minds, and then give you reason to conclusions with strong grounding. so in addition to the pre-imminence, they are exceedly well suited to the recent discussion of tax reform needs so badly but so seldom get pches i also had the privilege of being on panels panels with zani. she frequently knows more about the subject at hand than the discussions. when i'm on the panel she surely knows more. our second round table is key principals for a successful reform effort. the discussions are honorable john i think lar. president of the business round table. former governor of the state of michigan. jim president and chief executive bureau economic research. professor of economics at mit.

john chairman and counselor of the senator for american progress, former chief of staff of the white house, and alice rid lane. brookings substitute former deputy director, former vice chairman of the federal reserve board. the mod moderator is michael greene stone. the professor environmental economics at mit and the former chief economist of the cia. i said beginning it is a remarkable group of people. again, i'd like to make a couple of personal on vases. john was a committed republican but he also worked effectively across the aisle with both parties. and that is the spirit that we're going to need tboat accomplish tax reform and more generally to move forward on the issues of our country. i was in the clinton administration with a john. arguingly the chief of staff is the most difficult job in the

government other than being the president. job was an outstanding chief of staff as well as a friend. he's been a major force of policy for founding the center of american progress and advising members of congress and the administration. i also had the opportunity to serve with alice. she was always an effective and thoughtful colleague, and has long been a major voice in what arguably is the country's most fundamental problem or policy challenge, and that is reestablishing sound fiscal conditions. jim has what is thought by many to be the most important job in the american economic. he established a enormous challenge of successfully seeding a giant in the profession marty. succeeding a giant is never an easy task. by the way, in terms of the president, the head of the

national bureau of economic research being the -- marty was that. i asked if that was true, he said yes. [laughter] finally, michael greene san antonio provide outstanding leadership the the hamilton project, and also provided frequent tour or iting for many and so many members of the or projects. as you can tell from the morn's program. today's program will give all of us the opportunity to listen to and engage with preimminent thought leaders on the economic issues of our country. for developing the intijt construct and bringing the program together. i'd like to thank in particular, michael, karen anderson the deputy director, and adam luny. and former assistant secretary

for tax policy with the department of treasury. and key as always to the work of the hamilton project, i thank the enormously talented committed and hard working staff of the hamilton project without which nothing that we do would happen. where that, adam. i turn the podium to you. thankthank you very much. [applause] >> moderator: thank you for that warm introduction. since the last major tax reform in 1964 the tax code has been complicated, less efficients and increase belie -- ad have candidates for tax reform would tell us by broadening the tax base we can have a simpler system with lower are rates. that's not all they tell us.

to some, tax reform is an opportunity to reinvigorate economic growth, unleash economic activity, create jobs, boost revenues and help solve or deficit problems. to do all of the things at the same time. so today we wanted to provide the foundation for a discussion of what tax reform should accomplish but also to put up guardrails on the conversation to keep it grounded in the evidence of what tax reform relistically can accomplish. on drawing the expertise on the tax excerpts among the advisory counsel. the hamilton project put together half dozen questions. i hypo you picked up a copy on the way. the starting point is the observation that the economic context today is for a more challenging than in earlier tax reform areas.

it's not statement about today's unemployment rate, the political situation, we're in the tough fiscal choices we must make by the end of the year. it's also about the fact that we face at least three important long-term economic issues that relate closely tax pomtion. rising inequality. any tax reform is likely to be judged at least in part in how impacts those three issues. the first issue the daunting outlook for the federal budget. the basic purpose for the tax system is to pay for government services in that regard the u.s. system comes up short for instance 2062016 the federal government is expected to spend $4 12 per american but receive

$4 97. we need to collect more revenues as a share of the economy over the next several years than we spent each year. that dpairson understates the change as the aging population and continuing to rise in health care cost increase federal spending well above historical levels. it's difficult to envision a scenario in which there is not a solution. and end and exam the role of revenues in the broader fiscal debate. documents provide evidence about how tax refer us in in the united states compared to those in the other countries various tax reform options effect revenues and contrast the scale of popular budget options for the magnitude of future deficit. a second long-term economic issues is increasing international business activity. the rise more educate eve and capable work forces around the world. and other economic changes have

reduced to economic opportunities for american and challenges many businesses. one sign of the impact of the trends is the stagnation in earnings. for many american workers over the past several decades, concerns about competitiveness have encouraged greater striewt any impede economic activity. and tax reform has widely been counted as an opportunity to boost economic growth and the document we summarize economic evidence regarding current tax system distorts economic activities and how much we can expect tax changes to griewf the economic process. finally, there is the issue of growing inequality and the issue of the tax code. pretax incomes have risen by more than 250% for house hold in

the top 1%. at the same time hose hold in the middle and bottom experience weaker growth. changing the tax system tend to exacerbate the inequities. the very people who received the biggest income gains have seen the largest tax cutses. it's already clear that issues related inequality will be paramount in discussions about the tax system. and to inform that debate, we provide evidence how alternative reform options effect the tax schedule. the document expands in the three areas and provides facts on dozen -- just to piquè your interest i'll highlight two. fact nine exams how individual tax rates effect the employment and earnings of workers.

a key consideration is how much tax rates hold back the u.s. economy. how much lower rates would spur economic gains, and we have increases in income can help justify set losses from lower rates. the figure in your text illustrates how a 10% cut in rates would effect the employment and labor on typical american family drawing on the evidence of 23 published studies. the average estimate suggests that the family would increase the pretax earnings by ruchly 450*d off the basis of $70 ,000. that'sen increase of -- the same tax cut is predicted to reduce the federal income taxes paid by 8.6% the evidence suggests that type of tax cut has large effects on revenues but relatively mod rate effects

on labor supply. tax six congressman exams the limits can accomplish lowering tax rates. we often hear of tax plans highlighting the top rates. 28% -- 20%, 15 minuter, even 999. but those plans are sometimes light on details on how they effect revenues or change the tax burdens that fall on different groups. we put together a cheat sheets that startings with the con trant on maintaining current tax revenues and tax structure. from the the starting point then ask how low tax rates can go under alternative based broadening proposals. so under current law, as you can see in the top row of the table, tax rates are scheduled to rise to a level of 40%. skip to the punchline, it's only through dramatic tax reforms

eliminating all tax expenditures including those for horns, retirement savings, presenter rates on capital gains and dividends. can lower rates to 27%. that analysis illustrates a broader take away of the document which is how difficult it is to achieve the efficiency lower enhancing rates before revenues fall and tax codes being less progressive or popular taxes are scaled back. i encourage you to look over the facts. i hope it's useful to you in your future conversations. thank you, and i look forward to the panel. [applause]

i ask that you sit on the left here. the audience use the appropriate place to be. >> i'm in the wrong seat. it's okay. >> welcome to the first panel. and something to tax reform has been in washington pretty much for as long as i've been following u.s. economy policy which is getting on for two decades. the flex complexity of the tax code is distoesed again and again from the reform there are been gaits over the past decades of flat tax, wholesale reform,

the 1986 tax reform. even that happened. the tax code got more complicated and politicians added more pages. it seems to me the debate today is taking place of the large deficit, a weak economy, wide,ing inequality. this is an immediate call to ox. so not only is tax reform back on the agenda, i think it's back on the agenda in the way that may result in action that indicates in the past. this conversation about what kind of tax reform we should be doing, has an importants and the urgency that can't be exaggerated. this is why the discussion is important. we have two extraordinary well-placed individuals of different perspectives to discuss what sort of tax reform we should be doing. the debate. what sort of tax reform we should be doing. you all now them professor of

economics harvard university. president at -- former chair of the president counsel of economic advisers. larry summers. former chairman of the national economic counsel. former student of and former professor of -- [laughter] so i think marty, let's start with you. i want to start the conversation by actually working out what should be the priorities of the tax reform today? because tax reform has all kinds of good priorities. people taunt -- the simplifying the code. raising revenue. but many of these are somewhat center depending what your priorities are. put forward different kinds of reform. can you lay out what you think given where the u.s. economy is right now. what should be the priorities? >> guest: larry and i come out of different political parties

and afill indication. larry and i were talking about taxes for thirty years. it's not too surprising that there's a lot of agreement. i hope that comes out as we talk about the specific issues. i think about tax reform in terms of the long-term impact. we've got a serious 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. one of the things it has to accomplish, the right there is an conflict among them, but there are all the trade-offs. there's the question of picking things that do better than these different goals. one of the goals i think there are four basic goals. one of them is to raise revenue.

adam's chart showed we need to raise some revenue. how much we need to raise, will depend on how well congress does at limiting the growth of entitlements. 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. that brings us back to the discussion about tax expenditures. the second goal in addition to raising revenue is reducing way. economist call ine fish is or deadweight. the tax system hurts productivity in a variety of ways by hurting savings and investment and hurting labor supply broadly defined. picture that adam showed us how it effects ours is a small part of that. it also effects people who take the compensation so we're induced by fact that all kinds

of fringe benefits are excluded with taxable income to taking compensations in ways that are less valuable to us, but on a net of tax basis are more attractive. it also effects the kind of spending that americans do because some times the spending are tax favored. third thing that is simple policety. you mentioned that people are just overwhelmed with the complexity of the tax law. it makes come plients more difficult. it makes people feel that probably everybody else is getting a better deal than they are. everybody else has figured out some deductions to take. some credits to take. some ways of changing their behavior that lowers their taxes. we need a simpler tax code. finally, there's the fairness. fairness is more than just a

question of productivity, or tax rates, it's also the tax base. fortunately, inflation is low now. even at today's low inflation. individuals pay capital gains taxes on nonnal gains even when there are nongains or real losses, i think people rightly feel that's unfair. so i think there a lot of things which income is defined for tax code purposes which add to the fairness of the system. that's my -- >> moderator: in that order? >> guest: i don't think of it as an order. i'm not going say what kind of fairness we get. or we get fairness, 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 inspect >> moderator: do

you think in the light of the fact that pretax income and equality the goal of narrowing them creating a more progressive tax code should be in the tax reform? >> guest: not particular. i noticed in the background material, one of the things that was suggested was combating inequality. my feelings for a long time. there are problem in the income distribution area is provety. we should be concerned about combating poverty. not about combating inequality. and somebody -- for a couple makes $250,000, which probably not hard to do with the hamilton project, or the university. that's not something to me that needs to be combated. >> moderator: larry, do you have a similar set of priorities or do so you a different set? >> guest: overlapping.

i would just begin by saying it's not a subject today, whether we get the expansion to a sustain reasonable growth rate that is consistent with the return to full employment. it's the single most important issue facing the united states. we will not achieve any other object whether it is sustained fiscal help, the ability to combat poverty, the ability to be strong in the world, if we do not achieve that. and therefore maintain the momentum and expanding the has to figure centrally in any economic policy discussion going forward and has to have a large effect on any thinking about timing and fazing 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 on you obviously can't rank them, you can give some indications of their importance. and i would agree with marty on the central importance of revenue raising. the director of the cbo gave a very effective presentation at hazard a month or two ago on the nation's long-term fiscal situation which after going through a lot of stuff, he would 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, after making what he regarded as being at the edge of creditable optimistic assumptions about discretionary spending cutting,

and making the odd optimistic assumptions about the cacht to cut defense, his conclusion was that you needed either to reduce all entitlement spending bay 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 reason website i think his assumptions are a little 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 bying in like a quarter. and therefore, relative to the baseline, 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 politician needs to start there. and it seems to me that 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 cannot 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

orientation. i think we do need to address the questions of -- 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 ifing anything that trend is accelerating. 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 seems to me, is not the only valid concern. it seems to me, that something about the help of the 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 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 promark view to take was

that you should let the market grind out whatever income distribution it does. not interfere with theings of the market. and then the tax system as it collects revenue should be based on a ability to pay in a way that raises the burden on those who are getting most fortunate given what's happen anything the income distribution. and so the idea that you should be reducing the taxes on those who are most fortunate seems to me to be a quite surprising one. when marty talked about some policety. he referred to issues of legacy. i think the legislate mat sei of the government in which it depends depends much more on a perception of fairness, depends much more on the idea of those who are in the options to take advantage of the double differing irish shorthand witch, or the other way around, are

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

slightly strains credibility to believe that excessive capital costs represent a major -- in a way i suspect was true to an important degree at various points in the past. so yes, we should level the playing field. yes, we should reduce various kind of tax buys. that our present and it would be desirable but i would putless emphasis on that on the current demand constrained local capital con tex. simplicity. how can you be against that? i would just caution that much of what is said about base broadening and simplicity is itself oversimply indication. people think of base broadening

being about producing tax expenditure, if you don't have that you have a simpler form. in fact, much of base broadening is about eliminating exclogses from income that increase complexity. for example, that's majority of these breedenning proposals including the repeal the provision that says that if you sell your occupied house, you don't have to pay capital gains taxes, as long as you have gain tal -- capital gain of $500 ,000. i promise if you repeal, it and everyone who sells a house has to go back what they paid for it calculate the improvements they put into it, and do the calculation. you are significantly increasing the coming flexty of the tax code. that is not an isolated example. i am in favor of various things

that are sure are all taxation that all income is compensated, club memberships, all of that. we often go after more of that. but we shouldn't kid ourselves that we will have a simpler tax code if we do. 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 15% for everybody not 35% for some people and 15% for others. but the result would be that more americans would be able to take advantage of the credit, they'll use that instead of the standard deduction, they will find the calculation of their taxes more complicated. i can proliferate these examples. it is just wrong to assert that base broadening is simplification are objectives to

go in tandem. more likely, expensive base broadening is a complex fier. my reality, my sense of the reality is that almost everyone who has any complexity associated with their tax return does it themselves with software or or has somebody or pays somebody to do it with software. in this a context, things that could have been substantial complicaters within the existence of different rates add no complexity. put the information into the software within the software puts the number out. so i don't believe that many of these traditional concepts of some policety are exactly right. i don't believe what ised a vote candidated in the name of simple is actually simplification. i think that we would be better off recognizing simplification in a way in an issue that marty

framed it creating a system that has more perceived fairness, and i think, a system that has more perceived fairness, i don't find plausible that simply increasing payments to the poor will entirely satisfy the objective of achieving fairness so long as there is a justified perception that those who are most fortunate often are most successful in a escaping taxation as well. >> we have the next three hours here. can't agree on that much. i do want to start where you agreed. you both took revenue raising. i think it both agree that needs to be a top goal. why are we -- is debate as it is now in the u.s. a crude character of the system

is basically taxes a narrow base of income. it relies on the consumption tax and centralized taxes muchless on environmental taxes. if revenue raises is so high on the agenda shouldn't the tax reform debate be much more ambitious than the one that is going on in washington now? >> i think by consumption you mean evalwaited tax or something like that. and the reason i don't like the idea of evaluated tax, i think if you had evaluated tax, it would simply make it so much easier for congress not deal with controls on spending. i think there is a consensus now that we have to in addition to raising revenue, we have to slow the growth, the various entitlements and look for over savings in the discretionary part of the budget. if you could pick up four our fife or six% of gdp with the

value-added tax. everybody could relax. i think that would be a mystic. >> larry what's your view? >> i have kind of the same view for twenty five years, which is we haven't had it because conservatives like marty think it's a money machine for government, and progressives think it's not that progressed. and we'll only get it the day that progressives decide it's a money machine for government and they want the government and conservatives like marty decide it's the least distoes their tax. i don't think that day has quite yet come. i don't expect it to figure prominently in the next couple of -- the next debate. look, i think whether we get a value-added tax in the united states, or not over the next ten or fifteen years is going to hinge on a question which i

don't think anyone really should be completely know the answer to. which is this, what is structure really a increase in health care costs going to be? and how successful we going to be in controlling it? the truth is it's not going to be possible to control public health care costs vastly or severely private health care costs. because if you do, then the public programs won't work. and it won't work when half of 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 controlling overall health care costs. and given the interplay of technology, given the 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 ten to fifteen 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 of public obligation, i suspect the pressures for more revenue are going to be such there's not going to be a viable alternative to consumption and value-added. if efforts to contain health care costs are successful in keeping health care costs at rates only growing and 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. there's no way to be certain about it, but i think the issue comes down to how much will middle and upper and middle income people continually rising 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 could end health care costs have to rise, that much more rapidly and the proposal is a good one limiting the growth of government financed health care costs to grow a gdb plus 1%. that means that i will have to pay more out of pocket. i will for my insurance or for my health care or both.

but those are separate issues from what our focus -- >> we could have a long discussion about health care reform. let's not. i think your point, larry, if health costs keep growing. maybe the environment for value-added tax changes. let's go to here and now to simple if i back to it. one is tax expenditures. the other is the taxation of capital. the corporate tax and what should happen to capital gains taxes. there's a question of reduction. >> let me say one more thing. the value-added tax. >> 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%. it doesn't make any sense 2 or

3% of gdp. 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. that's why i'm saying the value-added tax isn't an important part. >> the revenue right now, but let's go to the current debate, and particular i are the taxation of capital. marty, i want to start with you. but the traditional economists is that, you know, the taxation of capital is more efficient. more pro-growth, and yet, we have corporate tax here, you saw the article in the sunday's "new york times" the loophole. the taxation at the personal level. still the corporate tax. how much of a problem is the u.s. corporate tax? and what needs to be done with us? >> well, the opposition

correctly about the u.s. corporate tax. that the margin 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 rate, we complies don't have a clue about who ultimately pays the corporate tax. how much of that is owned by shareholders, how much of it is owned by capital. but we understand is that in a world where capital can easy belie leave the corporate sector to go into other things, housing, unincorporated businesses, the rest of the world, then the corporate tax is not born by shareholders or may not even beborn by capital at all and ultimately is born by

the workers rather than by capital. we don't really understand that. but the perception of the corporate tax that's that's it's born by corporations or by the owners makes it a very hard tax to give up. so every country in the world has a corporate tax. what distinct herbs 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 the net of it all is that we now see that more and more multinational u.s. corporations earn profits through their

producing in the rest of the world but don't bring the profits back to the united states because of this extra tax 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 u.s. to join what every other ose country does is have a territorial tax system, which says that you can bring funds back to the u.s. paying a relatively small tax 3 or 4%. and we can pay the tax whatever you earned it in the rest of the would. and that's what all other cups are doing. and it would eliminate a lot of the game playing that story in the "new york times". >> what about you would that be your priority? >> i'm a little more enthusiastic about corporate taxation. i guess i make three points.

first, yes the incident of the corporate tax is complicated. corporate executives see in doubt about it. nobody ever comes and argues for major cut in the payroll tax, but..

i'd adapt the dollar and so it only cost me 65 cents, 35% of the cost is shared with the government, 35% of the profits that i yearn as consequence of the advertisers shared with the government. whatever maximizes my if there is no tax, would also maximize 65% of my profits. same argument works with respect to research and development. what about with respect to putting in place a new fat jury or a new building clinics the last couple of years with respect to the news that tree, we let you write that investment up in the first year. we do not do that going forward. we require you to depreciated. so there is a sense in which the government to sharing more of your proffers and sharing of your costs. and that was a really big deal

in the old days in the interest rate is high. but in the current world, for the interest rate is 2%, the fact that you have to do for your attacks -- depreciation tax for five years really doesn't reduce very much its value at all. so it is far from clear that the corporate tax is operating as a major deterrent to investment grade now. the most vexing issues to involve, as marty said, the question of international allocation, offshore income, all of that. and there you have to decide on which your philosophical approaches. we probably are caught in a bad middle right now and they're basically our two approaches that the world can take. one is you can basically give up and right now you say that with

a lot of travel and absurd the irish touch standard and staff you can do investments abroad and not pay much taxes on non-and it's really not worth the people go to all that effort to remake it official. and that is that the territorial system does not reasonable argument. the alternative view is that we ought to attempt to crack down in serious ways on the allocation of income. we ought to raise questions about furl. we have to cooperate with other countries and so we don't have towards a world, where multinational income is taxed at a very low rate because of their ability to pay one jurisdiction against a matter, given the distribution of that income.

so it seems to me that right now the u.s. tax system is like a library. we're running a library, this note dumbest thing you can do is announce that she'll have -- have everybody think 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 there are was not bringing that the books, waiting for the amnesty and so you never get the money. that is that the u.s. debate is right now. no one in their right mind would bring in money inc. in who is going to know what happens next to be some kind of repatriation. even if you thought you ultimately have to bring the many home you'd surely be waiting right now. this is a debate, which my hope would be that the clearer it becomes in the direction of internationally collaborative efforts to tax incomes rather than avoiding seven pounds.

the clarity in a different direction would be better than the current place, which ensures that the money will not be brought back and doesn't tax it and generates all the extra complacency. >> would have to persuade every other country to give up the territorial system and to crack down on their company. this seems very unlikely. >> can i say one other thing. larry was very careful to say some thing about short run versus long-run in terms of the corporate executive. yet the profits of a corporation in 2012 are not going to depend on the corporate tax rate, pretax profits and that's probably true in 2013 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 happened over the longer run. i think that is whereas economies 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 revenues since we don't know who's ultimately paid. >> i need to move on to corporate tax. >> there is an issue you have to think about witches i don't know what that percentage is my and i guess it's on the order of 20% of u.s. corporate shares are owned by pension funds or endowments or foreigners in ways where there is no u.s. individual income tax page. and so it is one thing to say you should eliminate the corporate tax, but the income will be taxed anyway by dividends and capital gains. it is another thing to say that when the end come is held by the

nebraska pension fund or the harvard endowment and it's going to be no taxation of rent income, you can say there's so much more capital accumulation that actually what feels like corporation isn't paying taxes, ultimately because there's so much more capital accumulation, profitability will be less than the economy and wages are higher in the economy comes the ultimately cutting the tax would benefit workers. that's a lot of steps. >> there's clearly a division there. the crackdown to summarize that connie used to be personal taxation, so capital gains and dividends, where one argument might be that sn 1986 they were equal. there's a pretty big gap. what direction should the taxation of capital gains ever go? schematics of the fundamental question is do and tax not just

capital gains and dividends but increase as well to have tax as well and have a kind of mixed system. we say you put your money into an ira, you get a deduction. so they give you a deduction for savings. you put your money in a roth ira and don't get a deduction, but we don't tax the end comes from the savings. so for a lot of people, we have the system then in my judgment correctly doesn't tax the return of the savings or doesn't tax savings itself. i think there are two advantages to that. when is the kind of peer fairness of vantage. i might like vanilla ice cream and marionette like chocolate ice cream, but we think it's very unfair if we have a higher tax rate on vanilla ice cream then on chocolate ice cream because i'm the guy who likes the vanilla ice cream.

but that is similar to weather when i a my man, i want to consume it today or set it aside and consume it in the future. and so, the tax law currently, unless you are in an ira situation or 401(k), it taxes people who want to consume their income leisure and want to save now and consume it later, taxes then at a higher rate than the fellow who wants to consume his and come now. so from a pure neutrality and fair pureness point of view. >> nobody pays rather those tax rates and get his income and region can. >> i want to stay with the legion can to begin with and say if i decide that in time, save some of it, consume some of it now, the interest, dividends, capital gains i get by

postponing it is just a question of the timing of this spending is that income, just like the division of my income between vanilla and chocolate attacks i would've been mutual with respect to that. >> it depends on what examples you choose an murphy's point about the double taxation of savings is a fair one. but not the other kind of expand or you can imagine. imagine, zanny, do you start the next facebook. and her karachi's got some idea. you take your friends to loan you some money make an investment in you own a third of this thing in your garage. the moment you get to third, there's no income because the thing is not worth anything in your immunotherapy and worth a hundred billion dollars annually

to have been worth $33 billion. many of us would feel that she should pay some taxes. but under the law, you've paid no taxes. now you might think that at some point you will want to diversify, you ought to sell your facebook., your zanny book stock, but if you have competently advise coming you will find ways to borrow money and be all too spent dirty one other $33 billion without ever incurring any tax liability. you might ask, what will happen if 60 years from now you die and get the money to your children. and then your children -- they don't care about zanny book. but they pay capital gains tax? the answer, no they will not pay capital gains tax. you have an issue around great

fortune at a moment when the top 1% or 2% of the people own half the wealth in the country. large portions is a significant issue and you have to factor that into the discussion of the income taxation. i do not favor the idea that we should not have capital income taxation for reasons that i think though crucially to fairness. we can't, as a country, figure out that a guy who runs a private equity company is earning income by working. they let him call his income capital gain. and so in a country where he can't figure out how to do that, if we cut the capital income tax rate to zero, there will just be massive erosion of fairness of progressivity, so i'm not going into that agenda at all. >> let's look at your aside for a second. conversely i think that you do have to be realistic about these things that capital gains. and a current world, where we

tax them only when they realized and when they don't try to -- where we allow them to entirely escape taxation if they are passed on their estates, the 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 the revenue maximizing rate is 30%, to sort of follows that raising the rate from 25% 30%, you'll impose a very large burden on people per dollar of revenue deal joined for the governor. so i think a thoughtful approach to capital gains taxation does involve recognizing the elasticities of realization behavior and does believe you to

lower capital gains rates and certainly the race we now impose and certainly the top rates that we now impose. i'm less pleased with the case for reductions in dividends taxes because you don't have an issue like the realization issue and because we can't need to raise -- we do need to find ways for the same revenue. i do think that this whole area of escape erosion avoidance, all of that does require more attention than i am told by those who advise people much wealthier than i that good

advice, the capacity to vary substantially avoid estate taxation is quite substantial and brief worms that address that issue would it seems to me be constructed without requiring higher martial race. >> i want to come back to the savings very briefly. there is also an efficient fee of distorting people's decisions to consume now are consume in the future and not affect dachas capital gains, dividends and interest. i think it is worth distinguishing between the person who in the background stars in a business and then has a cap road game and people whose capital gains, dividends and interest and we do that with iras and 401(k)s and roth iras. the question is should they be opened up? should they have the feeling they have now or should individuals who want to postpone

the taxation of income via would've put it into an ira or pay the tax and then not the tax on the dividends, capital gains and interest by putting it in a roth ira? there's a strong case for fairness face and efficiency case for allowing that. there is a separate issue on whether you should be incentive to take time off of your current work to work on the zanny book technology by giving you the chance to get very rich from that innovation and that is certainly what the current law is designed to do. >> before i do that, one last thing we have it covered. from your initial remark, larry, it seems you didn't assign an enormous priority to the meeting tax expenditures and the whole debate about what should you get rid of them, give up the credit. very briefly, how high a

priority should that be a crack this act to be capital? >> if you hurt me that way, i misspoke. i suggested that i did not believe the substantial base broadening done in the likely ways with 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 the place where marty and i would even agree matt. maggie has put forward a variety of proposals. the obama at has put forward ones that are somewhat less ambitious than marty's, that are directed at limiting the full use of all the existing

deduction and the premise of both efforts is the strategy that you're better off attacking deduction and exclusions that the group then you are trying to choose which ones to go after anything that is a good thing to do. i think with respect to most of them, but not all of them, there's an oddity that if affluent individuals gives a dollar to charity, they get a 35-cent deduction and if the metal the metal and can than to be gives money to charity, they get a 15-cent deduction. so i went for the most part favor the conversion of the deductions and credits and then some limitation on the deductions. how best to do that you can debate the technical means, that i would be very much in support of base broadening. >> so when i typed about raising revenue, i said there's good

ways and bad ways. raising tax rates in marginal tax rates is a bad way because whatever distortions are in attacks that they exacerbate whatever disincentives there are, in knicks versus wow. so what i would think should be done is to cut back on these tax expenditures, what subbase simply cause spending through the tax code. and since this been made, the government saying above 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 excluded or did that day, somehow it seems to be republicans and democrats that kabila come together around that. democrats say we want to raise revenue, republicans say 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 we have to get the extra revenue that we need a cutting back on my spending. so this shouldn't be a decision -- political division between those who want to cut spending and those who want to raise revenue if the way we get the revenues by cutting tax expenditures. the specific way i think we should do it is to say keep all of the current tax six amateurs that she'd have, on the deductions, excludes them of health insurance, but she just can't be too greedy about it. you can't take too much of the tax savings from it. so you add up at the tax savings would be for them all at scheduled deduction, one line on the tax return and your health insurance exclusion and if that exceeds some percentage of your adjusted gross income, that

access is not allowed. so everybody gets to keep all the current tax expenditure benefits, but only up to a certain amount. and i've done the calculations on not, putting the cat of 2% and that produces roughly the same percentage extra tax every broad adjusted gross income class. it doesn't change the progressivity of the system, but produces an enormous amount of revenue. does you could start with a less binding cap. you could face it up over time. i wouldn't put it in next year for the reasons that larry said because of the can earns about cyclical situations. >> also than avoid the fights between which types? let's go to questions. we have very little time to pull together. gentlemen in the fourth row on

this site. we can just wait for the microphone. [inaudible] >> i'm a retired individual. i'm very concerned about inflation and my net worth. in my corner but it's unfair is the fact that long-term capital gains whether his houses or sacks are earned are not indexed to inflation and i'm curious to hear some comments about that. >> i did say in the opening remarks that one aspect of the fairness of those, don't take into account capital gains that wouldn't be hard to do if we continue to have the capital gains tax. >> i think you are right in principle on capital gains. i've noticed every time there's rather more than the xeon son for recognizing the inflation component of capital gains and there tends to be for recognizing the patient elements

of interest deductions. of course on the same principle that one does it for capital gains, one should do it for interested action and i think there's a reasonable case for doing it. it would be surprising to me if the country had thought about doing this and decided not to do it at a moment when we had five, 6%, 70% inflation with out gravitate to this issue, a moment when inflation is very, very low. >> cheaper now. >> next question. >> i heard a lot of talk about base broadening and i just want to know if you both favor taxing harvard and harvard endowment as part of our base broadening of. as tax expenditure they are. >> i wouldn't call that a tax

expenditure because we have decided it is my texaco entity. it was not a question of the measurement of the tax bill and come, but whether or not their income should be taxed. there is the broader question which is how we should treat a nonprofit in this country. should we allow contribution to harvard and museums, symphonies and all that. there's two choices. we can do it the way we do it in this country or we can do what europeans do and make those government financed organizations. the universities, museums, symphonies and so on. and i think the diversity and the way we do it in this country is reputable. >> gentleman here. >> question for professor feldstein. a great many republican have signed up for pledges not to

increase taxes and as i understand that those who promote the pledge and clue filling in the polls on anything other than a revenue neutral way. given what she said today, does that worry you, it do you see a way of financing that? the mac some republicans i've talked to think that even though they signed up for that kind of an agreement if there is a tax reform, which is pro-growth, tax rate lowering comment that even though it raises revenue, they can go along with it. so i hope once we get past the election and people move from their hardened positions both with respect to entitlement on the democratic side, with respect to tax revenue on the republican side, we will see an operational way of dealing with this problem. >> i'm afraid ragtime and that's

actually an appropriate place to hang. it seems to me we've had an extraordinarily interesting discussion, but one of those from two different days there's actually a lot of agreement. a lot of difference in emphasis that a lot of agreement and hopefully the next panel because some are concrete flesh on that in terms of what we actually get to in the next few in terms of a concrete tax reform. thank you very much indeed. [applause] >> the libertarian party holds its 2012 convention this weekend in las vegas to pick its presidential nominee. c-span's coverage begins tonight at 9:00 eastern with candidates for the libertarian party for the convention.

>> bisbee concept to our guest is set to become a director and producer of the documentary on charter schools.

it's called "the lottery." >> host: madeleine sackler, what was your immediate reaction when you read in "the new york times" that first sentence of your review when jeanette casillas said with a little tweaking the lottery, your documentary fit nicely into marketing materials for the highlands success academy? >> guest: i mean, it's an unfortunate description. i talked to families in the film that link because this is a film really about them and their experience and i think all of them were little bit hurt that bad because this is a true story. these are real kid that are experiencing something very difficult and the families are experiencing something very difficult. so i think to reduce that to propaganda or calling an advocacy or something like that is a little unfair.

>> host: what is that? >> guest: the film? the film was called "the lottery" at about four families from harlem and one the bronx who enter their children's into a lottery for the school in harlem. unfortunately thousands and thousands of families are going through the process every year and our chances are about one in seven. initially we're excited to make a film solely about that, for families, a poor shed and experience. we found there is political controversies surrounding that process and a particular school they were trying to get their kids into a not a concert at the second story line and the film. post a list watch a little bit and i see similar questions.