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is hosting the panel with speakers including peter swire. former advisor to the clinton and bush administration on online privacy concerns and the former executive director of the technology algd e-commerce for the u.s. chamber of commerce. a discussion about online privacy issues getting underway in just a few minutes.

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[inaudible conversations] >> again we're wait for this discussion on online privacy issues to get underway. the congressional internet caucus advisory committee is hosting the panel. the house and senate are

adjourned for the memorial day recess. when they return the senate continues work on amendments to the farm bill, a five-year reauthorization of farm and nutrition programs. >> deserve a medal for being here. i really appreciate it. thanks so much. this event is called, do not track privacy, is it dead or alive? that's what we'll be discussing today. before i do that let me get to some thank you and housekeeping. i do want to thank the congressional internet caucus cochairs, senators leahy and thune and congresswoman goodlatte and issue to help put this tooth today. to hold debates between internet companies is really important and we're really in their debt. next week we have another briefing coming up on patent control litigation. that will be on may 30th, friday. this issue is hot in the high-tech community. senator corp. anyone introduced legislation to -- cornyn to compliment senator

schumer's legislation. there is the shield act by congressman chaffetz in the house. the week after that on june 7th which is also a friday we'll do something called faceoff a fact based debate on internet policy and networks which sounds painfully boring but actually it is a good debate about the economics of internet so you better understand the really important issues like net neutrality and netflix and some of those things that will be really important. the twitter handle for today and the hashtag is do not track. the hashtag is do not track for all of one word if anybody is following along. all the resources will be put up on twitter. it would be efficient way for you to get some of that information. so today's issue is basically on this concept of do not track, which kind of got going, it has been going on for a long time but kind of the issue and kind of named do not track, kind of

modeled or inspired by this kind of do-not-call registry that the federal trade commission implemented many years ago and you all remember the do-not-call registry where you, in order to avoid telemarketing calls you would submit your phone number to the federal trade commission's list and presumably not get calls during dinner. the idea was kind of inspired by that, for do not track, for your online web surfing. i will get to that a little bit more later but interestingly when the federal trade commission implemented do not track, or do not call, forgive me, they didn't have the authority to do that. some companies immediately filed suit against the do not call registry and won. congress reacted immediately to that lawsuit. and, the federal trade commission's inability to implement it. in the house within 24 hours the house and senate passed legislation within 24 hours almost unanimously to authorize the federal trade commission to do the

do-not-call registry. that is important thing to remember, how wildly popular that registry was. now we're at do not track. online are you being tracked across a variety of different web sites? people have been working on this kind of idea dealing with how do consumers kind of say no to being followed across unrelated web sites across the internet and being served ads based on those movements? today we really want to look at whether implementing a technical measure to allow consumers to do that, how would that work? is it feasible? is it necessary? is it wise? and that's a really, these are really good questions we're going to explore today. i got to really quickly introduce the panelists in succession. to my left is peter swire, who has a long title but is important to explain it. he is the co-chair of the w-3-c worldwide web consortium, tracking working group. i'm going to the georgia

tech as a professor and congratulations on that. also importantly in his bio it is important to mention he had stints in the white house from 2009, 2010, he worked for the national economic counsel and then, before that, many years ago, from 1999 to 2001, peter served as the chief counselor for privacy in the white house under the clinton administration. that was probably first position of its kind i ever heard of that. i don't think we have a equivalent of that now. press reports to the contrary. then we'll go to askan sultan any, independent researcher and consultant. he has 15 years of do not and tracking and online privacy issues. he was a staff technologist in the division of advertising practices at the federal trade commission. so he has consulted with them. he was also senior advisor and consultant on "the wall street journal" what they know series. you might have seen that in the "wall street journal" over a period of years, a couple years ago. then we'll go to mike is a

niece, senior public policy and general counsel interactive advertising bureau, a huge trade association of online companies and advertisers. and before that, mike also is with the united states chamber of commerce. lastly in the cleanup spot is critical la brees, legislative counsel for the -- chris calabrese. why do we care whether people are tracked across a variety of different web sites and served up ads based on those experiences? is that a problem? why do we care? peter swire mentioned in a recent wired article, when we go into a maternity store, not me, not pregnant, never been pregnant, don't plan on being pregnant if you go into maternity store you expect to see ads for diapers and online store you see ads for diapers and binkies and other things. you kind of expect when

you're in that online store. but if you go to other web sites across the internet you see those same ads for perhaps, diapers or things like that or you go to a golf site and go to a travel site and then you see ads for, you know, discounted travel to myrtle beach to play golf or something. people say, well that is unnerving. is there any harm there? and that's a fair question that we're going to get to today. i think the question, is just a creep factor which people have never been able to define? that is what this panel will kind of go into. i guess, i guess the question is, why are we here today? fore! get about the fact it is day before memorial day recess. i apologized before. why are we here today? well, many years ago a lot of groups from web browser companies started implementing this kind of do not track feature into the browsers. everybody has their favorite browser. i will not do a show of hands, whether it is chrome, whether it's internet

explorer, whether it's firefox or on the mac using safari. when you're using your mobile device or ipad, you have different kind of browsing experiences. everybody has their favorite one. so these browser companies are trying to implement the these do not track features in a lot of different ways. it is putting pressure on people to develop consensus. privacy advocates want a do not track feature and omnibus privacy legislation. united states senators have introduced legislation on the topic and also been introduced in the house and in years past. the idea is that, really comes down to the idea behind cookies. you know, in its current manifestation, cookies are being put on our browsers essentially and being used to kind of follow us across unrelated web sites and thereby service a tailored ad based on that surfing. is that a problem? is that, is that wise? is there any harm there? and i think, you know, that is what i want to get to.

this issue kind of kicked around in a variety of different ways over the years starting in like 2006 and people can go back further on this but recently, and i have a timeline here, the worldwide web consortium which is a standards body that says, here's how we're going to make this code work and browsers and everybody gets together and let's have a good idea and do that. this is standards body that really helps us create standards for our web browsing across the internet. they created something called and peter can explain it in better detail, the tracking protection working group to bring everybody together. i will let peter explain that. but that group has been working very, very hard to which all the panelists can attest. they had their last face-to-face meeting on may 6th, i believe, which was just a few weeks ago, to really get to consensus is this dead or alive, will this work or not? i was not there.

we wanted the group to come together and say at least in this manifestation is it dead or alive? and depending on that question, what is congress likely to do about it? and, so, they have a, they have to get their paper out by july. so we thought, this would be a great time to update people on where this is, you know, whether folks surfing the web depending what browser they're using are going to have some do not track feature to keep this kind of tracking from happening. with that, let me leave it up to the peter to kind of explain more his role, the role of the working group because it is a important, not the only piece in this puzzle but certainly a major one right now. and in part, in answering is it alive or dead. >> well, thanks, tim and thanks everybody for coming. i will try to say this stuff as close to plain english as i can. i think it does start with do not call because people have intuition. how many people have done a do not call opt out for your

phone number? let the record show a lot of hand went up. okay, what you do, you do step number one, you go to the web page. do step number two and say not me for these phone numbers is the way you can do it. there is a number of ways to do internet choice on internet now so say i don't want this company or web network to keep track of me. if you go over number of different web sites or over a period of time there is not handy way to do that as certainly privacy folks have asked for. maybe we can come up with a standard, come up with a standard way to do it where it would be cookies or any other technology. if they do it another way of tracking it doesn't matter, you could do that one-time click like you did for do not call and it would work. it would work next week and work next year. so a persistent one-time user choice and that way you as a user i am comfortable, i want to have a lot of sort of targeted ads or you could say i don't actually want to do that, i want to make a

different choice. that is the idea. that is the i am simplest way i can explain the idea of do not track. so there has been lots of ways you can imagine doing that. the way i'm working with right now is this group, the w3c, the worldwide web consortium. that was founded by a guy named tim, who people say invented the web which is pretty good start and he is head of this. what have you done in your career? invented the web. that's good one. he was first and the guy. he is my boss's boss. he is the director of this whole thing and they're a standard group and what does that mean? well you heard of html? w 3 c is the place where they came up. this is not something invented for do not track. this is standard way to do privacy stuff on internet. that makes sense. it is an internet based thing for a simple reason. there has to be a way to

express your choice and say, like my do not call, i want to send a choice. you typically do that through a browser or something like that. then somebody has to receive the choice. so in the phone world the telemarketers find out in various ways who they can call and who they can't. in the internet there is lot of web sites out there and different ad networks and stuff out there. so they have to be able to receive the signals. if we can send it in a standard way and receive it in a standard way and know what it means, then we have something that is good for users. they get to express their choice and it works and the servers know, the web sites know what they're supposed to do and we get this really great word, standards people love. they really like this word a lot. the word is inneroperability. you heard that. you like to plug in your phone charger for all the different phones in your house. you like a lot of inneroperability. this way you can use any browser and go to any website and we is would have a standard way to do it. that is the hope.

to make this fun and easy, we brought together at the w3c and working group the relative stakeholders. today there are 99 different stake hold are groups. now we have to get consensus among all of those and we'll have a standard. that is sort of senate-sized. you know the senate is always easy to get consensus. sort of easy to get consensus in w w3c also. you sometimes get consensus on the senate side and we all laugh. we have senate staff here. we lived in town for a as long as we lived in town. anyway, my own role is that is the co-chair of this process. there's, a very good engineer person who is working on the technical part, how do you send the html header. you really don't want a law professor running that part of the process. the part i'm working on what it means to comply with the standard. when you send and receive it, what does that mean for users and all the web sites? and i try to play the role

of good listener or honest broker or press sometimes called me mediator. i worked with a lot of different parts of the industry and the privacy community and the government and so i'm trying to facilitate a process. so what that process means, i will let others say and probably after we come back through the panel i will say more about what happened recently. here is the effort to come up with the consensus that gives you as users a choice that actually works. that is what we're trying to do. so i will stop there. >> ashkar? >> thanks, tim. many of you mute know me. i'm a technical -- not wearing a tie obviously. actually wore the shirt for two reasons. one i'm a technologist and two i think the industry has kind of a attention deficit disorder. if you look at the general issue you can go all the way back to 1999 when there was a lot of attention on this issue of third party tracking and again as tim

laid out, third party tracking is sites that you go to like "the new york times" can set these cookies that identify uniquely and bunch of people you never heard of or interacted with can uniquely identify via cookies and track you across the web. this issue came to light in 1999. in 2000 or so microsoft and basically netscape, mozilla at the time, announced features it to allow users to block the third party cookies to maintain privacy with regards being tracked online. but again the same issues came up, what were the defaults? back then again the defaults were users had to know about the tracking and learn to block it to the find the setting and it was very hard to do. then the other issues, what were the exemptions? some of the opt-outs would still allow companies to track users and identify them uniquely even when they didn't want them to be tracked for purposes measure ising how often a user visited a website. i will come to that in a

second. but contrary to when users think they're opting out or blocking tracking. and then, there the issue of what is consent? when a user opts in what are they consenting to, what are the privacy policies, say what are the terms. these are the exactly the same issues in the 2000 era, same issues that started beginning of the w3c process three years ago and they're currently the big sticky issues still. to summarize them, how much tracking do we want to allow? how much tracking do we want to enable in this industry? one of the key ways to understand the context of this is kind of the dirty little secret not a lot of people discuss which is, it is not just about behaviorally profiling you or knowing to serve you pet ads if you have a pet. it is also the ability for a bunch of different people in this space to uniquely measure that you are you and you visited this page a thousand times or visited this website over a thousand

times over the course of a year. or when you visited this page you've gone to another website and purchased something so the effectiveness of the ad can be measured. the ability to track uniques is effective currency in this market. unique tracking is how a publish letter goes to an advertiser and says we have this many conversions or we served this many uniques on website and so pay us this much and vice versa. one of the big sticking points in this debate a lot of people still want to maintain this ability to track people and as a result goes against what we think of do not track as being completely anonymous. there is a record of our activity being maintained somewhere. there have been a bunch of technical solution in this the prossy with interesting to address these things. don't store my information for more than you need to. store it for a month. there is bunch of browser tools and technology solutions we'll talk about that are supposed to help block this and help consumers have choice but

most of my research, companies because of the incentive to uniquely track people apbecause of the fact that this is currency have found ways to go around consumer choices when they want to opt out, block cookies and want to remain anonymous. if you look my research on flash cookies or third party tracking there is arms race where there is incentive to go around consumer choice. so the question is, what can we do? the idea behind do not track in addition to the technical mechanisms come up with a policy mechanism. while peter describes this as a technical process and a technical standard it is really a policy mechanism, it is a voting mechanism where you as a user can express your interests with regards to privacy to a bunch of web sites or a bunch much of third parties and they can respond accordingly. it is more of a policy, like raising your flag. it is not a high-tech, technical standard. like wearing a dot on your shirt or driver's license that says you don't want your organs donated. so, i think it is important

to realize the context this comes through and realize the opportunity, right? so what ends up happening by providing a kind of centralized or reliable, easy way for users to express consumer choice is that you bring this issue of third party tracking to the forefront and you allow people to engage an decide what amount of tracking they want to allow. you also allow the industry to come up with new innovative ways to say get information. like, for example i like bicycles. i'm happy to disclose that to a lot of third parties and get content related to bicycles especially if the content facilitates the web sites i might see. i might be sensitive about dieting and like sugar-free sodas. maybe i'm sensitive about. that i want the ability to express what i want to express. by using technology and technique that brings the issue of tracking and targeting to the forefront you allow a better market and better ecosystem with regards to advertising and

marketing and a real opportunity here. >> thank you. one thing, before i want to go to mike, i want to mention something i didn't in my opening which i think is really important and did mention it interesting enough at a briefing we did two weeks ago on spectrum and wireless mobility. the idea was for the panel, like the need for this spectrum crunch and to have our mobile devices be able to download the content we want the idea, i asked the question was, whether or not the bandwidth constraints on mobile devices would prohibit users from accessing full, as much advertising in the types of advertising on their mobile devices as they did on their pc or in their homes? and the idea that if people couldn't access advertising on their mobile device because of bandwidth constraints, you, the advertising platform that enabled free content on internet as we know it today would not be available in mobile devices. it is a question, not a conclusion. but we sometimes take for

granted the fact advertising has generated, kind of the free services that we really take for granted today. before i went to mike, i wanted to say we mentioned that last week in a spectrum panel but that is kind of an important part of this conversation. what is the role that advertising plays here. >> i think that's right. thanks, tim for bringing this panel together and addressing this important issue. and also making that pitch for the importance of advertising. it is a homegrown industry here in the united states. it is a $36 billion and provide over 3 million jobs to american workers and it's been a robust growing industry by 15% year-over-year the last few years in a relatively down economy. so we have to recognize innovation and economic growth is a part of every policy decision that we make for the internet. and that's why i think today's discussion is really great. so, at aib, we're here, tim

asked the question why are we here and why do we care? i can tell you that aib's 500 plus member companies who companies create original content and services largely freely available for users because of advertising and that supports content and the services, they care because they care about consume are privacy and that is because consumers care about privacy. they care about how data flows online and they care about the experience they receive in the digital ecosystem. so we need to find that right balance. that's why iab is here. that's why we worked with our industry partners at the w3c. it has been a long process but it is not likely even if the w3c ends today you never hang a banner and say we i can figured out privacy. there is always going to be a new challenge because the industry is going to continue to evolve and grow and consumer expectations will continue to evolve and change. we want to meet those consumer expectations. and we think we're doing a pretty good job.

that's why i ab was one of the founding partners with the entire digital supply change to come together and create the digital advertising alliance which is an industry self-regular hatory program that was lauded by president obama's administration last february when they released their consumer privacy bill of rights and they held the daa program up as a model of success for how industry can self-regulate and create what they call, enforceable codes of conduct. and what that means, we've literally revolutionized the way consumers receive information about how data is collected o an line. this transparency principle. and if you haven't seen it, once you look at it, you recognize it. if you haven't seen the ad choices icon, it is being served in more than one trillion ads every month. that's revolutionary as far

as consumer notice. we've also expanded consume are choice and empowered consumers to make a choice. if they don't want to have data collected about them, about their browsing behavior, which is what we're really talking about today, as you traverse the internet and go from site to site, if you have really have concerns and a lot of consumers do, we empower them very simply to one click to opt out of virtually the entire digital ecosystem, about 120 companies now participating. so, it's, there's a lot going on in this space. there's a long history and nai for more than a decade and nai has been a great partner at the daa and they're expanding their program. all of these things are meant to sort of meet consumer privacy expectations but, we recognized a year ago when we were at the white house and and they were supporting our system, there was the next phase of this. we could do better. we had to continue to evolve

as an industry and through self-regulation. that is when we made a commitment to work to incorporate browser tools. that's what we're really talking about at the w3c is. how do you, when, as a user of the internet, you use your browser, you have to by definition use some type of a browser user agent but we'll talk about that later. and so maybe there's another possible consumer point. beside the ad choices icon that is ubiquitous maybe we can provide another consumer touch point to exercise choice. that is why we're working with w3c. that's why we're working within industry to try to come up with other ways to empower consumers. that's what this is really about. you know, the nice thing too about self-regulation it is becoming global. we've rolled out a european daa we're about to roll out

a canadian daa we're working in south and central america on self-regulation to have as peter said, inneroperability. not because we want inneroperability for companies but because users, global internet users want to have a seamless, easy, usable experience when it comes to privacy in the online space. and that is something i think only industry self-regulation can really achieve. so the second question you asked was, is this dead or alive? do not track. and it is very much alive. and i think that the w3c process is very much alive, largely because i think when peter joined as a co-chair breathed new life into it. that was refreshing. i think there's a real opportunity to get something done that is good for users and that is good for industry as well. but i think the key is going to be focusing on the technology. i think when you look at there are two documents. one is a technical

specification of how browsers sort of talk to each other and how servers on the back end talk to each other and then there is the compliance drok which is what is sort the legal obligations. every w3c standard is voluntary. it requires industry to voluntarily agree to follow whatever the w3c comes up with. which is why getting the language exactly right is key so we have broad adoption like we have had with industry self-regulation you but i think there's an opportunity to ad van consumer privacy there. i think the technical side is not that difficult. figuring out a consistent way for browsers to present this to, this tool to users a consistent way for servers on the back end to talk to each other, this signal and this response. the compliance one is tough but we're working sort of hand in hand in partnership with peter and privacy advocates, academics and

regulators at the w3c. >> chris, you represent a rather large union of folks. why is this really necessary? why do consumers do consumers care about this? is this an issue? also like where is there agreement? i'm trying to figure out where the agreement and disagreement is here if there is any? >> oh, there is. thanks, i, it's funny, i've been listening to my various panelists and been revising my remarks a little bit on the fly which is always dangerous so bear with me a little bit. i think one of the things we haven't really talked about yet is why should we care? why is this a big deal? so i'm going to try to lay out a few scenarios i think illustrate the particular potential harms. i'm not saying all of mike's members are causing these harms. so i want you to sort of understand the basic framework that we view this through. what we believe or at least

the cl -- aclu beef and quite a few consumer groups as well, one of the problems with this sort of collection of information and this tracking especially when you're not aware of it is that it creates a power imbalance if you will, an information imbalance. in other words people know things about you that you don't know about them or you don't know they know. so what does that mean? that is very abstract. so let me try to make it a little concrete. "the new york times" did a great story a couple years ago, actually a very sad story about richard guthrie. he was a very senior, senior citizen. a war veteran. i believe he was a world war ii veteran. in his old age he had become a little bit seen nile. a little tough time making decisions on his own. well, he had been targeted in a marketing database as someone who would be sort of an easy mark. someone you could sell

things to. he had been bilked out of substantial amounts of money, he was identify someone you could call and answer the phone and get him to buy a product he didn't need. now that is extreme example. what i think we see, if you can use the information you collect, about someone you can make decisions about them. i'll give you another example. the target company does a very good job of targeting consumers. they do a good job of identifying what consumers might want to buy which is often not a bad thing, right? they got particularly good at it and this is an example that also comes from the "new york times" that made me laugh. apparently they identified sort of a certain category or types of purchases that indicated someone was pregnant. they would start to send them mailers, hey, good news. you might want to consider buying all these other things. well a parent they had an irate father coming in, why

are you sending this to my daughter? this is completely inappropriate. targeting her for baby supplies. she was 16 or 17. of course he had to come back about two weeks later and chagrinned and embarrassed. seems like there were things going on in my house i didn't know about. she was pregnant. information is revealed that may be revealed you might not be aware of that you don't know that were revealed. what is even more troubling, this type of information when it is collected can also be integrated with other information you have, off-line information, for example, how much money you make. obviously something of great interest if you're advertiser. knowing who is a consumer, who is really -- and so what target does is, they send you coupons based on things they know about you, like how much money in you make. if i'm a wealthy target consumer, i may get a $10 coupon because i know that is how much it takes to get

me in the door. whereas if i'm a lower income customer i may only get a $2 coupon because i know that is enough to get you in the door. well, that is, we could have a long discussion about economics and, but it is clearly, knowledge that you didn't realize you had released as being used to sort of deprive of you a certain benefit or possible ben it. that is something is we have to consider here. i think that, we want to bring in a do not track mechanism, at least the aclu does, in order to help consumers sort of level the playing field. and i think that, tim, you asked about who is, what's the benefit? why should industry and others come on board? i think you can hear from mike industry does think there's a benefit. i will try to lay out a little bit why i think that is. i think there are still a significantgoer of people who are afraid of the internet. they don't know what's going

on there. they worry about things like tracking. there are still a lot of people who have not plugged in yet. and, i believe that giving them tools like do not track that allows them to control what information is collected is a great way to start saying, no, you don't have to worry about this tracking that you may not be aware of and be fearful of. in fact you can, you know, participate without tracking. and i think that will help bring people on the internet. i think that benefits everybody. parochially from a, aclu point of view we worry about tracking not only by industry but also by the government. we fear this type of information collection can also be accessed not just by customers. it can also be sold to the government. it can be collected in a wide variety of ways and the aclu views the internet as one of the most powerful tools for exercising your first amendment rights since the printing press. right? you can speak. you can learn. this is a tool that

unparalleled at its value. so but if you're afraid to go on a particular website because you think that may it you in a certain profile or class, that may target you in some way you may not want to learn about sensitive information. you may not want to delve into areas or join particular groups. we think all of that harms your first amendment freedoms. that is one of the reasons we think a do in the track mechanism is a powerful way to create a shield for you so you can do the things that may be controversial or sensitive. with all respect to the good work you guys are doing in terms of self-regulation, we don't think self-regulation is enough. we believe that all of you policymakers have a crucial role in passing some kind of a basically legislation that creates a do not track option of some sort. it's the law has a real power, right? it means it can't be changed by the fine print. it means a company can't

decide to opt out of it. it means this is a legal, this is a protection i can count on. that means a lot for building a do not tracking mechanism that is meaningful and been, doing all those positive things that i was discussing. i also believe that self-regulation does a good job of getting industry to sort of do what they think are best practices any way, right? you know, all the good guys in a particular industry want to do certain things. if something is an industry norm that we think needs to be changed, everybody in the industry agrees with it. they will not pass a self-regulatory regime that changes what is essentially integral to the industry. i think tracking in many ways is integral to a portion. advertising industry. i don't think the whole advertising industry to any extent. i think it is unrealistic to expect self-regulation doing a good job of tackling that on. too much talking? >> i want to make sure we

get to the rest of our issues. >> okay. absolutely. let me just say there is a core value here we should all be able to control whether we're tracked online. i will leave it at that. >> okay. part of the main reason we're here today, the day before memorial day recess, this tracking protection working group of the consortium had its last face-to-face meeting. we have a july deadline and one of the main questions i wanted to ask folks today was, whether this do not track feature, at least as embodied in the world way web consortium process is feasible? i have to ask, peter, where are we today? >> well, i think where we are today is pretty well represented in a one-pager at that came out of the meeting. one word which i like consensus. consensus action summary. i will briefly mention sort of the four points that we're in that if that's

okay. >> in layman's terms. i read it. >> i will try to say it in english. i've been a teacher for a long time. i will try to speak english. before we get to the four issues the key part there have been quotes in the press before we met on may 6th, 7th, and 8th in california. there were quotes in the press this thing would die and it would blow up that week. instead the key language, there was sufficient progress during the meeting to merit moving ahead toward our july deadline. that was signed on to by the privacy people in the room and the advertising people and the browser people. that was the room. and so i think that's interesting to note, that everyone said look, we're not abandoning this thing. this thing should go forward. the four issues i say in english. the first one is about audience measurement or market research. and here's why this is here. the daa, digital advertising alliance and mike's group is very much a part of that, put out its code about good practices and they said in the code back a year ago that there were collection

limits but there were a couple of important exceptions. and one of the exceptions is, if you're doing market research and you don't target it back to tim, you can gather all the data you want basically. and in my testimony in the senate last year before i came into all this, i actually went to the daa said, this looks pretty wide open as an exception. do you think we could do something to change this? at that time and since the advertising industry says yeah we have to come up with new language on measuring the audience said. you track people partly in order to send an ad to that person but you have a lot of cookies and stuff how many people came here and what were their demographic and stuff. we're trying to figure out the market research to figure what is in and out of off-line collection. >> give me an example? talking about zip code, block? >> tv. women or men watching "american idol" this year. is it southern or northern and why dot southerners seem last longer and northerners get kicked off.

there is audience emdid grachx for lots -- demographics for lots of reasons. there are a lot of reasons in advertising you want to spend money where people are that you care about. that can turn out to be a lot of data about the people. that is why it is privacy and partly the normal part of advertising. the second issue is how do we do sending and receiving. what will show up in the user's eyeballs when the user gets to the browser. what is the back and forth with the web sites. advertisers and browsers and others are having good conversations about that the third one is once the data is collected do you keep it forever and do you keep it sort of full form forever? if you're going to address tracking, then keeping it in your database forever seems sort of like tracking to a lot of people. maybe what you do, you scrub the data overtime so you might have aggregate statistics but don't have it link back to peter or tim so you scrub it. how long do you scrub it? and how hard do you have a

scrub it? it could be called deidentification. it could be called data retention. what do the sites do with the stuff they did collect? we worked a lot on that. that is an area i worked on previously. data hygiene. how long do you keep data. those are three areas, market research definition and send and receive and how do you scrub data. the fourth point said there will be ongoing discussions of unique identifiers as a critical issue for advocates. and we are inviting proposals on ways to solve this issue. so from the privacy side what they have said in the meetings is look, i turn on do not track and then, as i go around the web somebody is actually still putting a unique cookie on me to identify me. that shouldn't be the way it works with do not track. industry said back, wait a second, we have to have security for our systems. wait a second, we have to debug problems when they happen. maybe we have to keep track for accounting reasons and stuff.

there is a back and forth where the privacy really said let's move to a world where we don't needed unique identifiers. industry up until now said that is not practical as we see it if there is magic technology that could get advertising and not unique tracking that would be very attractive. there is an invitation for people to find ways to do that. those wered issues that came out of our consensus document this month. >> this is a consensus document. i will ask the panelists and frame it in these terms. does this document mean as peter said in line number four we're moving forward towards a document, when this is done after july, does this mean, what does it look like users in the audience or at home want to download the latest version of firefox or safari or chrome, their favorite browser they will be able to, it will do this to prevent tracking? what does that look like? how does that play out? do we have consensus for that to happen?

>> we're not allowed to talk about what that will look like at the w3c. that is the irony in this, right? we have browsers and to present an opportunity for a user to express something. >> but we're not at w3c. >> what this looks like and i think it is important for us to understand what it won't look like first. >> okay. >> then we can talk about what it might look like. i think that's helpful because we're having a discussion about, can browsers present something to users? but at the w3c, we're not allowed to have a discussion what that should look like, what we call user interface. so we're trying to have that discussion. frankly we're also trying to work off-line with some of the browser companies because certainly if we're going to present something to users it should be clearly stated. it should be, i will just circle back to our, the agreement we had with the white house a year ago and what everybody agreed to

then was that we should have as it consistent user interface for browser control such as this. and it shouldn't be turned on by default. it should be a user's express preference. which actually is, this group, it is not the do not track working group. it is the tracking preference expression working group. so what we want to -- >> protection. >> protection. we want to give users a voice to express their preferences. that's key. so i'm not sure we're going to decide this interface issue. >> so when the user downloads the latest version of firefox under your imagination of how this, again we're not at w3c i don't think you will get penalized, user will have to do something affirmative to turn on that preference, to choose, to not have this tracking issue happen? >> yes. we should, we should have users expressing a preference. >> is there consensus on

that? >> i was just going to say and sort of surface why we don't necessarily agree with that. and i, so to try to kind of boil this down, it is kind of an interesting question, right? people tend to leave whatever the default is. whatever you give them is what they leave on, right? if do not track is on. they may leave it there. if it is off they may leave it there. so the that is a really big question. i think advertisers and correct you if you think i'm mischaracterizing you have said they believe it is an unfair choice to present to consumers as on. you should -- >> we don't believe it is a consumer expression when a company, such as a browser makes the decision to turn on do not track and oh, by the way, that was the very first area of consensus at the w3c working group agreed, it should not be turned on by default. advocates, regulators, academics and industry have agreed on that position for well over a year.

>> but the let me, can i just unpack, and i want to finish. this is really crucial. why is it a choice if it is given to you off and you turn it on but it is not a choice if it is given to you on and you turn it off, if tracking has such value? >> i think that is kind of, not to beat a dead horse but it is same issue we saw the defaults in '99. the ninth nine there was an opportunity to do something, the question came down what should the defaults be? the general consensus you get as long as, from the ad industry is, in general as long as it is hard and not a lot of people do it then we're fine with whatever it is but if, in fact, some, and there's no, to be fair there is no, there is a decision, say, 10, 13 years ago, to decide what the default should be then. no reason it has to be that now. kind of like if i happen to be using, i happen to be gardening in your property and suddenly you say, you know what?

i want to take that back, right? but i would say i have a thriving farm share based on your property. still doesn't give me the right to actually come into your property, right? i think that is kind of the way to frame this. >> can i challenge you on that? we're talking about opt in versus opt out essentially. >> yeah. >> back in 1999 the first network advertising initiative agreement with the federal trade commission agreement they agreed to have an opt out cookie and there was no opt in version of that. that seemed to be satisfy the federal trade commission at that time. >> right. i think proliferation of tracking has gone up quite a bit. >> so something has changed. >> just to finish, there is no reason defaults have to be one way or the other. microsoft has presented on first launch of browser you ask the user to make a decision. safari, the apple browser, for a long time blocked a lot of these mechanisms by default anyway right? so safari out of the box block as a lot of third party tracking mechanism.

there is assumption needs to be one way or the other i think is false assumption. we could prompt the use ir. could anti-virus software. i use a firewall. maybe my firewall wants default tracking as well. >> let's unpack that a bit. there is dizzying number of press accounts. some are not accurate. jennifer lopez what she is doing lately. >> i have never been compared to jennifer lopez. >> you have been now. sometimes they're accurate. sometimes they're not. i don't even know. we invited browser companies to participate. because of west coast nature of them they were not able to participate. there is lot of discussion where they will turn this on by default. some of them are. some backed away from that. can you give me assessment for people that have a favorite browser, where people are on this browser companies. >> block third party cookies by default. >> we're talking about, are we having discussion about browser controls or cookie?

>> no, we're not. everybody's browser has different things. if i'm looking at something i wouldn't want other people to look at i go into incognito mode in chrome. if i'm in internet explorer go to inprivate browsing. firefox i forget what the term is. you can mask those things or also use, those are browsing, cookie controls have been around for a long time. now, we're talking about the actual implementing this do not track concept. >> right. i will tee off the do not track concept. >> we don't have a standard yet. peter says there is consensus but not a standard. >> the reason it is important what those defaults are, my research has shown for example, when you're in incognito mode or block third party cookies or try to use the browser features you're talking about a lot of times there are technologies that go around those preferences. i've shown companies like hulu will track users even incognito mode across multiple browsers even with two browsers on same

machine. >> are you expressing a choice when you go into incognito? >> the issue was we didn't this meant to opt out they deleted cookies. we'll help them resurrect the cookies. this is known as flash cookies. the concept behind do not track and what those defaults are should probably reflect what the browser preferences are for the user, right? so the user should be able to say, i don't want to be tracked. i want to clear my cookies and i want to send a signal. >> mike? >> i don't know what the question is. i'm happy to walk through and do survey what the status quo is for browsers. >> we can do that i think i wanted to circle on is what the browsers are doing with regard to the implementation of do not track. >> yeah. >> and again, we don't have a w3c standard but they're doing something different. >> i think that would be useful for this audience to talk about the status quo, knowing that we don't have a standard yet, but presentation of do not track today, microsoft actually

requires you to, well, they present it. it is already prechecked. so it is default turned on and you have to turn it off. safari and chrome and firefox, the three, the four of those are predominant browsers. they all basically just have it as an option in your privacy settings or similar other settings. so the user has to go in and express a preference not to be tracked. >> user has to know there is invisible third party tracking going on and than find the setting which is usually buried a little deep. >> let's get to how consumers know in a second. go to peter first. >> so in your browser, there's many times there's a privacy setting. privacy security and a bunch of things. the basic pattern, you go to privacy, click once and have a list of options and you click again. and that, at some level a little bit like do not call because you do one step which is you go to the

website and do a second step and click it. that's a basic approach but then, how easy it is to find or not varies. how well-labeled or described it is varies. so people can get into a lot of discussion even at that sort of two step go to the settings and click but that idea of go to the settings and click is something a the laugh people have done at least sometimes in their browser. >> but how hard is it? i use incognito browsing now and again. most of the room, when you asked anybody sign up for the do not call religion stri, most of them in the room raised their hand. they went to some website. they searched for do-not-call registry. they went to the federal trade commission website which forgive me, isn't the most user friendly. and they found number. they called it. they registered it. that is a little more that is a fair amount of work, right? why is it, why is that that not do hard but, you know, going into your cookie preferences is? >> so i think, you notice when you get a call during

dinner that interrupts your dinner, right? you know that there is someone calling you on the cell phone while paying your minutes. a lot of this stuff is issue most consumers are not aware, right? the way this information is used is not immediately apparent to them, right? a lot of my research has shown, to, companies that will charge or provide different offers to consumers at different prices based on their browsing history and most consumers won't know that someone else received a different price. or consumers, we one company we worked on "wall street journal" would profile you based on cars you browse online on cars.com. when you made, go to the d.c. toyota dealership and sign up to see a car, they would send that dealership information about what other cars you looked at. so when you're negotiating a deal, that dealership kind of knows that you really like the red honda or red toyota. this is to speak to chris's information symmetry point. most consumers won't know that is happening to go into

buried settings. to the question of everyone, there was a large show of hands who opted out or did the do not call, how many people ever changed a browser privacy setting? >> wrong room. >> not a controlled setting. >> i guess the question is, isn't there some benefit of actually, obviously a lot of benefit as i noted. isn't there some benefit to, you know, surveying targeted ads? i had a bounce castles, one of those little kids bouncing cancels and i owned one, which is awesome. for my kids. not for me. >> is this confession time. >> it develop ad leak. the i tried to patch. best way to patch is pool repair lining. i bought some pool repair lining stuff from a site. they sent it to me and i patched it. now i get pool repair catalogs from them. i live in d.c., i can't put a bathtub in my backyard let

alone a pool. i wish i would let them know i don't own a pool. isn't tailored ads better than junk being served to you. >> i don't know if it is junk. i think that is a fair question. i also think it begs the question, if it is so valuable will consumers choose to do it. people often say i like those amazon consume every preference things. they suggest books i might like. i like them too. >> forget about first party tracking. >> there is a relationship there. i think it is a fair question, to say does advertising have some value or tracking have some value. i think consumer choosing tracking that has a great deal of value. i'm not sure all of that translates into a third party that you don't know about. . .

is going to only through the internet economy out of balance. that's just the reality. that may go quickly to questions. i is several more i can ask. if you ask a question, make it a question of not a comment. please identify yourself before hand. mark. >> two points. the first line as chris, you

went through a litany of alleged harm. offline data of 10 targeting their store, use of mastercard data. it talks about catalogs. the fact is none of that has anything to do with do not track. do not track is nothing to do with online data and mastercard user data. it's exclusively about first party versus third-party, not responsible parties. that's created enormous duchenne about what do not track would do and not do. if anyone has concerns about competition issues is because there's huge issues. we just mention this week she thinks the sec has been seeing the impact on small business, small publishers. so the first is what is the harm we are trying to solve if it isn't way of the state? and two, what about my business and publishers?

>> really good point. if you pay do not track ngo, the harvest you swear. >> it's right in the middle. i would start with i don't agree. i don't see you. behavioral targeting is creating a business model of profiling individuals and creating detailed summaries. it is connecting information that's been collected offline entities united for a wide variety of purposes, including but not limited to behavioral targeting. i believe that implicates all the harms i just described and is in fact a logical outgrowth. however, to those who those who can aramark's question can be set offline isn't covered. i think that opting out or do not track allows you to limit the collection that is going

into the detailed profile, lassie to prevent the linkage and has served to significantly balance the harm. >> i guess it would make a point and do not track process is not really the do not track or assess because it is not about stopping tracking. there are always going to be necessary uses of browsing behavior for things like add reporting, thinks that click fraud, other types of fraud prevention. it's not about stopping tracking of what the user would think. we should be clear about what we promised to the public. that is really key. it's not about stopping data collection. when i is a user go to a website by definition that website no science fair. by definition there a third party entities such as an analytics firm, which helps the

website know how many unique visitors they have each month. that is how they stay in business. they have to know i was that that website. not zaneis, usually through a cookie. we're not going to stop tracking. we're not going to stop collection. that's not what were talking about. it's not just stopping behavioral advertising. what you talk about what these proposals is stopping the ability to collect any data, which effects every online business. it affects their analytics. it affects the way they create their content. almost all websites have third-party partners or other domains and they funnel information from and people would like to stop that from happening. this is the way the internet works. what we ought to do and what the wc three has done because peter has gotten us to focus on a common consumer program, which

is a night of the user not want to have third-party entities collect dean a long history and i might want to express my interest not to have that for a long period of time. soa talk about trying to empower. that's what it is really about. not all these other things. >> the second part of mark's question was not answered. let's table that for a second. he did raise a semantic issue of do not collect or do not target. that historically has been a big discussion point. i want to explore that further by may. you mentioned the white house in the privacy of your market not meant back in december 2010 and danny white or, deputy chief technology officer at the times i do not chart does not mean do not collect. rather it means do not collect

web user data for behavioral advertising. however, julie brill, the fellow trade commissioner has one thing that do not track is just do not target. it is also when the consumer so chooses, do not collect. i don't have enough time to read senator rockefeller's thoughts on the subject frankly, but the question of do not target, like do not serve the advertising or is it do not collect the information? >> and i respond to that in terms of the process for this is discussed a lot of ways. they do not collect way has been emphasized by the fcc chairman ramirez. this comes back to the market research that i mentioned earlier. in the da advertisers code itself, part 1 is called collection limit, when you go across sites over time. and there are two exceptions that are quite broad and say

they're going to address and one is measuring the audience market size and the other is product development. i said to the group if those get addressed in the way they can be addressed that i think we could honestly say that w3c do we have collection laments that would not be obstructed by a wide range of actors who haven't agreed to that until now. is not stopping our collection. there's a time it happens in a lot of ways. you can send stuff to the patient must another ip address. it would be a substantial good faith like to say there's collection laments that came out of the process. >> i just want to identify the other three gaa exceptions. the reason i say you're not going to stop collection of data online. the noncontroversial stew collection, even if you are

user, you celeb information collected about you for things like ad delivery and reporting, which is what is the the economic engine that she's gone too and think click fraud and security. that's just not going to change because for -- that's the way the is protected. that's the way companies do their research in the way they faroe fraud and first-ever security reasons and by the way we also have legal obligations, things like sox compliance, the media ratings council which requires us to select certain information for certain services. no matter put anti-data collection, you'll still have certain data collected about you. that's where the internet works. i'm sorry. >> i want to take the opportunity to agree with mike and give everybody a sense they are not totally loggerhead.

yes, we're not going to stop collection. but that does not mean we are all the way over at do not track me stressed-out target me, but do whatever else have roustabout with the information. there is a wide spectrum there. reasonably speaking, we are going to collect some information. that makes it all the more imperative that we have strong concrete guidelines for what the collection is and what you can do with it because we are going to be able to say nothing less collected at all. personally that's why congress needs to get involved in the legal protections not for mike's members who are good actors, go for the limited fraction of people in any society who do not want to play by the rules and are not interested in self-regulation and are not interested in doing anything by pushing the boundaries and doing more collection and created more problematic situations. that's an argument for legal protections, but i also want to know we are not saying do not

collect anything of her. >> i have a question here, here and over there. sir. [inaudible] -- third-party cookie blocking by default. following that meeting this week we learned that the browser decided to delay implementation of that. [inaudible] either technological issues involved here or is this a market pressure situation? >> i'm not inclined to speculate. you can read the blog post by the chief technology expert mozilla on their statement. >> cannot necessarily speculate on their reasoning. certainly i've had conversations with them. we applaud mozilla for delaying the implementation of what they call patch. we don't have to think our basic

as this operations which require cookies is a bug in the software of their browser. we happen to think it's a $36 million industry and depends on cookies or some sort of unique identifier to run sites. but we certainly applaud them for that. we would like to see perhaps if we can get something i do not track. mozilla has signaled that is their priority and it may be one to back away from cookie blocking. i can tell you what i'd be put on my petition appeared at 955 small publisher website stating if mozilla were to block cookies, those businesses might go under. their livelihood would be threatened. i'm glad it hasn't fallen on ears at mozilla. >> i'm curious, to those sites also block safari because the patch proposed to put mozilla in

mind work with safari does by default, which is block third-party cookies by default. i'm curious what those publishers do. >> most of the sites were created in the last few years and so they've been living with the safari decision and the reality is the safari marketshare is so small, three or four, maybe 5% that they've been able to grin and bear it. they haven't been happy that it's not lost revenue. the difference now is mozilla with 20% arcane chair, a change to be lopping off 20% of revenue. that is within their operating budget. it's a real problem. >> it sounds like a lot of people do what we are not going to support it. so for a lot of people do it, were not going to support it. >> is no support for cookie blocking. it's one company deciding there will technologically block

cookies, which are part and parcel of website operation. there is no agreement to it or not agreement to it. they do it. it's their decision. we have to understand that the economic realities are and there are hundreds of thousands of small american businesses at stake and that's not hyperbole. they are voicing their concerns. >> if you look at history and industry of conceptual based advertising is not targeted as they advertising. the fact you have to have third-party cookie to provide advertising online is actually false. it's totally not a true statement. look at companies like google and what percentage of their market share is from simply contextual-based or search-based advertising compared to oda, a recent offering by them. this has historically been the case.

this red herring again that the ad industry says cookies are part and parcel to the way -- third-party cookies are part and parcel to way it operates. it was a decision made a long time ago that not all browsers support it. safari has not supported that decision since very early versions in 2006. >> which are doing is limiting your analysis to online behavioral advertising. a party identified that's not what this discussion is about. it's not oda. websites use third-party cookies for all types of things from analytics to content customization he is certainly advertised as part of it, but not the only thing. so when you technologically block a cookie, when he block the infrastructure for a website, committee were fundamentally undermining their operations. >> what i made an opening as

this is the dirty little secret. by blocking is coming you can promote other business models for measurement, for things like that option to share certain information about things i'm comfortable with and others. this idea that she must have this is again a red herring. you can have a variety of different innovative business models around this concept and have the industry thrived. >> i agree with everything except my statement. i agree you can put limits on the internet and completely ranch near the internet, but that's not what anybody's interested in. >> i'm a little confused. press accounts may or may not be true about browsers implementing certain do not track features or to speak on their own here's some by default, some not by default, some pullback. why do we need a w3c standards process to define do not track when the browsers implemented anyway?

what's the worst that could happen? from that as it's the advertising companies antiquated bread-and-butter of the internet. why should we care? >> can i take a shot at that? i read an op-ed about an arms race earlier this month in wired. here's the way an arms race could go. so we have our current story of how it works may hope to come with a standard soap interoperate. let's say there's a bunch of cookie blocking that happens from the browser side. the advertising industry meetings have said they would then have to seriously consider doing a tracking things often called digital fingerprinting, which instead of using cookies, others to tell who the user is and has been privacy objections

about fingerprinting. some people in the browser side said that's fine because that will figure out if your digital fingerprinting and stop you there. but you see is escalation that brings business models. it also breaks a bunch of privacy protections and choices that users have because a bunch of change has happened what users thought they were doing. so i've offered the idea that negotiation where we send and receive is better than an escalation of technical measures and countermeasures. that's a reason why it can get us to a better outcome. could be legislation, could be other things. a negotiated outcome is better than having days. >> about to ask you, let's say a browser implements they do not track feature and i can turn it on myself and express my choice. let's do that rather than be

default. i affirmatively say i do not want to be tracked whatever he understand that to be. let's say in her arms through scenario, a website, publisher or company circumvents that choice for some other technology. is there any recourse from a regulatory death. who would enforce what i consider is not abiding by my choice? is there any recourse? 's >> 's >> were talking about two different things. one is cookie blocking which we've seen that circumvent safari cookie blocking and that is not if you don't circumvent that. you're not following outside of the law. if you use are we sending a signal, which is different than

cookie blocking, is there they go recourse? the reason peter once negotiated settlement or agreement is because he wants industry to abide by a standard. just as redundant self-regulation, where we've publicly abide by that standard, we have an independent person and to the better business bureau with the forces against not just iep numbers but the entire ecosystem. finance company said we followed dnt, certainly would have an fcc hook. >> the hook would be quick >> to subsidize. >> without such an agreement, that would not be possible. >> is completely voluntary. not just browsers. you have hardware manufacturers.

if software manufacturers to turn on dnt by default. you have today millions of users. i'm sure they have no idea, but it's largely ignored because nobody has a definition first of all and nobody said though actually follow it. >> there has been a process, the w3c process many years ago called three p. three where there is a standard set in taxonomy about what things meant in an expression of i.q. not want to have this in place. some companies have circumvent that. why do not trigger federal trade commission authority? >> durban federal trade commission investigations around things like flash cookies, which is another way to circumvent a cells expiring rideau cookies like chittick, which is one of your members.

[inaudible] 's >> right, so business models you may not want to support, which is circumventing user choice. there's a lot of cases -- i don't understand why the assumption is users start out there expressing that choice as the software turns it on by default. for example, many people could use safari because they want to block by default. 's >> where they be watching microsoft running an ad campaign on the idea they're very strong privacy protected company and you should choose their products. >> it's not a crazy idea. if i could make another point. >> yes, double-click question. >> there's a lot of entertainment options in the world that do not track you, whether it's tv or movies or books, people still read books, even not e-books.

there is a value to doing this that is a general value defining an agreement, to peter brokering something among these desperate people at having a regime in which we do not have tracking via default on the internet. i want to hope they can find common ground on this. the congressional action is key to bolstering not. [inaudible] -- is a statement of issues statement question is will you get to last college of mind and of mind and to think of it to a final standard by next april? >> said the consensus document says we're going to be moving ahead towards her july 2013 month call deadline. last call is a standard term that no people ever know what it means.

it basically means we are supposed to have a tax that goes to the world for public comment. it's a lot like a rulemaking. you put out a full document in the world gives comments in our process response to this comment. but it is designed, but will the standards process is to have a real-life text people to respond to and meet every wednesday on the phone and people are made on the sides and working on around. so there's a lot of work going on track to get to the document by the end of july. >> is somebody who's been a participate in networking group before peter took over for almost two years now, i think finally because we've identified what we are trying to solve instead of oil in the ocean and solving are everything, we found some legitimate consumer privacy concerns that we think we can advance the ball on as chris said.

i'm pretty optimistic we can get to something. there are challenges within the w3c with their rules and processes and i am not sure we look at everything done through the w3c, but there's an opportunity to do something for the w3c. if we can't get it done there, there's willing partners outside of the w3c whether it is the daa or someone else to finish out the deal hopefully. >> gentleman and a checkered shirt. hot air lack -- they had to be reminded at the beginning of their meeting yesterday that consensus and unanimity, you know what i'm saying are not the same thing. so peter, what does consensus mean for your group and that she have to air on the side industry a little bit. if you can get 70% on what

dayton, but they don't want to sign-up, do we have anything? >> i would not say we have to lean towards any one direction. really clear on that. consensus is one of these magical terms that i am still learning the glorify consensus means. a lot of the times you say in a consensus that man is there anything about this piece you can't live with? as people might prefer it this way, that way. that is roughly the direction of a consensus means. not loving it and cheering and waving a flag. we have a challenging process because roughly speaking i have consumer groups mostly thinking about groups. we have brower-- browsers and third parties who are the advertisers and others who didn't put in the url and its

regulators who care and european regulators who care and press and all that. so that's a lot of different folks with a lot of different ways. my own effort has been to see if we can get to some name that makes sense for all the major parts of it so i can say with confidence this is better than the alternative of not having a deal. that's what i'm trying to get to an animated presentation about why i thought something along the lines of what we're working i met that test. some of them agree, some don't agree. there's challenges. it's not unanimous. we are trying to get a package that people think is better than the alternative. [inaudible] -- why is it we assume the fcc is the only approach?

[inaudible] some party kazan and installs code they said they don't want on their computer. why is not violation, just like using employers internet access in a way that they say is a violation -- [inaudible] >> where you are going to look at me? >> i actually can play law professor. the fact that a user says you have to give me $50 if you send me your webpage does not mean the webpage has to send you $50. professor server pc cases and go to the harder cases. a unilateral statement that i want something doesn't always win. same for the website. go them a thousand dollars if you go to their page. so the question is have you broken some other law that looks like spyware or wiretapping or hacking? what you have to do then and

there's plaintiffs lawyers and defendants who say they're wrong. you have these claims that this is a hack for a wiretap and there's been a lot of plaintiffs cases that are filed and some of settled for money depending on what practices are. all of this is against the backdrop against hacking and spyware and wiretapping. a lot of normal business practices don't happen to fit under our legal rules about hacking and spyware and wiretapping. so look at the facts in a particular setting and if you find a winning case, find your favorite plaintiffs lawyer and go get them. >> but a new site on their computer is an outside what might be a violation -- >> the computer fraud and abuse act, one of the issues they are, which is a torture statute at the moment, by the way. there's been discussions of

change in it. one that is what in the course is if i give you some words and say these are my terms of use that you say you don't care, is that enough to count as a hack, as a violation? some say it has to be a technical measure them and not just words and terms of use. as a whole site to be at that has not been anywhere near the center of the do not track discussions. >> to follow up and people can weigh in. in my estimation there really -- the answer to whether the federal trade commission was not all clear for the answers the panelists gave me either. >> i definitely think the federal trade commission having worked there -- there's a lot of enforcement turnley and the ftc will go after it. i've worked with them -- [inaudible] >> someone occurring on my private property is issued for

whether they are doing deceptive marketing. >> all the papers have resulted -- i don't agree that tsa is the right law and i agree it is outside of what you would be able to enforce. hopefully will, today in terms of legal requirements. for now we have unfair deceptive and state ag's bringing some of these cases as well. >> we have a lot more questions to ask and material to go through and i really apologize. i do want to thank ashkan for awareness adhd t-shirt because it reminds me i've been tracking the protection working group process for several years now and i stayed on it because i thought this was an appropriate time to do this. but what i see as there've been a lot more faces to go through. i just wonder if this weather to burn out than it away or whether there's some success were people out home at-home other browsers can use this stuff.

i want to thank the panelists for the time and thank you, audience and happy memorial day recess. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> and a look at the white house now or later this afternoon president obama will sign a bill designating the congressional gold memorial, commemorated the lives of the four young girls killed in the 16th street

baptist bombing of 1963 in birmingham, alabama. earlier today, the president gave a commencement address at the u.s. naval academy. here is a bit of what he had to say. >> our military remains the most trusted institution in america. when others have shirked their responsibilities, our armed forces have met every mission we've given them. when others have been distracted by petty arguments, our men and women in uniform come together as one american team and yet we must acknowledge that even here, even in our military we've seen how the misconduct of some can have suspects that ripple far and wide. and our digital age, a single image from the battlefield of troops falling short of their standard can go viral and endanger their forces and undermine our efforts to receive

security of peace. likewise, those that commit sexual assault are not only committing a crime, they threaten tress indiscipline that makes our military strong. that is why we have to be determined to stop these crimes. they've got no place in the greatest military on earth. so class of 2013, i say all this because you are about to assume the burden of leadership. as officers, you'll be trusted with the most awesome of responsibility, the lives of the men and women under your command. and when your service is complete, many people go on to help lead your communities america's companies. you will lead this country. if we want to restore the trust the american people deserve to have in their institution, all of us have to do our parts in

those of us in leadership, myself included have to constantly strive to remain worthy of the public trust. as you go forward in your careers, we need you to carry forth the values you find that this institution because our nation needs now more than ever. we need your honor, the inner compass that guides you when it's hard and uncertain, that tells you the difference between that which is right and that which is wrong. perhaps it will be the moment when you think nobody is watching, but never forget that on our lead character is what you do when no one is looking. more likely it will be when you're in the spotlight beating others. the men and women look at to you to set an example. never ask them to do what she don't ask of yourself.

live with integrity and speak with honesty and take responsibility and demand accountability. >> the most fundamental differences seems to me between left and right is that both look at the economic ladder and those on the left seek to reach down and physically take people admit that the economic ladder. and that is almost always driven by noble intentions and yet it never, ever, ever works. the only way anyone is ever climbed the economic ladder is to pull himself or herself up one run in that time. >> nearly all of you will experience failure. some of your questions really are that she will recover from and yet learn from. and yet we all the better for because you have failure is the only good option to take some and from it. of course very few of you will

never recover from your failures and statistically speaking, between two and five of you will spend some part of your life in prison. [laughter] >> news in the last day coming out about the irs targeting political groups. the "washington post" writing that lois lerner, director of the tax exempt organizations division at the irs has been placed on administrative leave. i understand is the new acting irs commissioner aspirin is lerner's resignation and she

refused to resign. senator chuck grassley said in a

it is the most difficult of all because it depends for its success and viability on the good judgments of too many of

us. irs headquarters just outside washington d.c. speak to the need for government at all levels to exercise sound judgment in order to earn and keep the confidence of the american people. that confidence was broken recently with the news of the irs targeted conservative groups seeking tax exempt status. in doing so, the irs abandoned good judgment and lost the public's trust. the american people of every right to be outraged. targeting groups based on political views is not all that inappropriate. it is intolerable. we need to understand how and why this targeting occurred. we need to know who was involved and who was responsible. we need to install new safeguards to ensure this targeting never happens again.

the irs has one of the most direct relationships with americans of any agency in our government. the irs employees know where we live, where we work, how many children may have been and what investments we make. because of this, iris employs her face in a position of great trust and they must exercise this trust in a fair and evenhanded manner. employees tax-exempt unit in cincinnati abuse this trust. the treasury inspector general's report found that employees understand that targeted the groups with names containing tea party, patriot and other terms with conservatives. the inspector general's report also found that tax-exempt unit was a bureaucratic mess. employees are ignorant about tax

laws, defiant of the supervisors and blind to the appearance of impropriety. this is unacceptable. at the inspector general's report also raises many unanswered questions. for example, the report examined 298 applications and since then the iris office reportedly identifies 96 of those 298 applications. using political screening terms. but what was the nature of the other 202 applications? were they filed by liberal groups, moderate groups are groups that have no political affiliation? you can measure the full impact without knowing the nature of these additional applications. and who is responsible? been a irs officials to stop this behavior and who in cincinnati perpetuated this behavior. one person, to people, who? we don't know.

i intend to get to the bottom of what happened. as part of our oversight of the iris, this committee has launched a formal bipartisan investigation. we've requested additional documents to the irs is part of her independent inquiry. you will follow the facts and see where they take us. the inspector general's report demonstrates the need for congress in this committee to review and reform the nation's tax laws when it comes to 501(c)(4) organizations. we have come a long way from the tariff act of 1894 when congress first created exemptions for charitable religious and educational organizations. today there are countless political organizations at both ends of the spectrum of masquerading as social welfare groups in order to skirt the tax code. these groups seek five o. one c. for tax-exempt status. why? it allows them to engage in

political committee or keeping the identity of donors secret. according to data collected by the website open secrets.org, 501(c)(4)s spent $251 million in the 2012 election about equal to the combined spending of the 2012 democratic republican political parties. none of the donors behind these multimillion dollar campaigns were focused. this is all secret money. in 2010 i got a letter to the irs asking them to look at all major tax-exempt organizations. 501(c)(4)s, c-5 and ceefax. i asked this question, is the tax code used to eliminate transparency in the funding of our elections? elections that are the constitutional bedrock of our democracy. this letter is part of a long

line of investigations the senate finance committee has connecting to nonprofit organizations. in 2006, we investigate the affairs of jack abram off he is not profits to lobby congress but senator grassley was chairman of this committee, we investigated religious organizations nonprofit hospitals in the nature conservancy. once the current controversy clears, we need to examine the root of this issue and reform the nation big 501(c)(4) tax laws. neither the tax code and other complex regulations that govern nonprofits provide clear standards for how much political it to be a 501(c)(4) group can undertake. the code is not even provide a clear definition of what qualifies as political committee. in the statute provides one definition of 501(c)(4) irs regulations to say something different. the statute says its

contributions or earnings must be quote, devoted exclusively to charitable, educational or recreational purposes, and quote. the keyword exclusively. irs regulations on the other hand to find a 501(c)(4)s as organizations primarily, not exclusively, primarily engaged in promoting the common good in general where fair with people of the community. how does the irs justify regulations that we consider from exclusively to primarily? ambiguities may contribute to the iris taken an acceptable steppes examined here today. americans expect the iris do his job without passion or prejudice. the iris can't pick one group to give others a free pass, but that's apparently what they did. as adlai stevenson said, the success of our government depends on the good judgment of so many. it is clear to exercise poor

judgment in this case. today, will have to answer for it. senator hatch. >> well, thank you, mr. chairman. before i begin, would like to take a moment to say my thoughts and prayers are with the good people of oklahoma who have been impact goodbye yesterday's devastating tornadoes. in particular, my prayers go out to those who have lost loved ones. it really catastrophic storm and i hope they will be able to deal with this tragedy and every good way. thank you, mr. chairman. you and i do not always agree on the issues, but on this point we agree. despite some claims to the contrary, dirs irs is a scandal. it undermines american trust that the government will enforce the law without regard to political beliefs or party

affiliation. make no mistake, this hearing in the investigation that will follow are absolutely critical of this country. over the weekend come to senior white house official said republican are on a partisan fishing expedition, unquote and we are conducting trumped up earrings. i hope they are not referring to what this committee is doing or the area we have today. as to be very disconcerting, particularly after last week with the president said he was committed to working with congress to find out the truth. these hearings are not some sideshow to distract the president's agenda. i hope the president and his administration are not attempting to distract us from getting to the bottom of this. this committee will pursue this matter wherever it leads to the internal revenue service is one of the most powerful agencies in our government. everybody knows that. it has a broader reach than any other government agency or

entity. indeed many law-abiding americans are already afraid of the irs. the american people ever to expect the irs will exercise its authority in a mutual nonbiased way. when a direct together can make sure this is precisely what it does. any hints of political bias or partisanship the iris needs to be taken seriously. sadly as we discussed during today's hearing, there appears to have been more than a hint of political bias in the irs processing of application of groups that point for tax-exempt status. we have a report from inspector general for tax administration indicating the use of criteria was all too common in evaluation of these applications. so far, here is well be now. we know between 2010 and 2012, conservative groups applied for tax-exempt status for targeted

by the iris and subjected to increased levels of scrutiny. we know these groups were targeted because they had the words tea party repatriates unquote, et cetera in their name because they sent in applications they wanted to do things like quotes make america a better place to live, unquote. for no conservative groups were asking invasive then questions about their donors. their positions on issues and political affiliations of officers and directors. we know some group applications were delayed for more than three years, even if applications workers traveling to the president of liberal causes are promptly approved. we know despite earlier claims to the contrary knowledge of this operation extended beyond the processing center in cincinnati and irs officials in washington d.c. were aware of the program at an early stage.

we've seen evidence that employees another irs offices besides zanotti scrutinize conservative organizations to an unreasonable degree. in spite of what the irs has said publicly, it is clear this problem is not limited to a few employees in cincinnati and we know that by june 2012 at the latest, the number two official at the department of treasury, to be secretary neil wolin was aware of an inquiry into these issues. here so we don't know. we don't know why retargeting began. were concerned about the extent to senior officials at the irs and department of treasury became aware practices and they found out what they did or did not do to put a stop to them. and most important why the irs purposely misled congress may lead us to believe no groups were targeted when we repeatedly raise this issue at the agency last year.

this to me as one of the most disturbing elements of the story. multiple occasions in 20 tautly spearheaded letters of republican senators to do then irs commissioner shulman asking questions about the processing of applicants for tax-exempt status and reports that the process had become politicized. i received two separate responses from acting commissioner steven miller who is serving for services import them. neither response even hinted the possibility that the targeting was going on even know these officials in washington research you where a number of conservative groups had in fact been heard. indeed despite multiple efforts during the 2012 election campaign to find out the facts about this targeting programs, the irs did not decide to come clean until the release of the report was imminent in their hand was forced.

even then one of the top irs officials in consultation with department of treasury chose to disclose it had targeted innocent organizations by responding to a planted question at a press conference. the american people deserve to know the truth about what went on here and they deserve to know where the truth is kept from them for so long. for the top irs officials woefully blind to what was going on? or were they simply holding out until after the election? will the targeting of conservative groups and the rio process has received most of the attention does far, it's not the only problem that needs to be addressed. am of course referring to the fact that in 2121 of the office is targeting conservative groups applications also improperly disclose confidential information about some of the same groups to a left-leaning media organization called

pro-phobic. this comes on the heels of other allocations at the irs described to media outlets confidential information submitted by conservatives nonprofits. we need to look closely at all these allegations as well. so as you can see, mr. chairman, there's a lot of problems at the irs and i'm glad that are members of both parties have recognized the need to address these issues. mr. chairman, i'm pleased to be working on this investigation and i hope we'll continue to work together in a bipartisan basis to get to the bottom of all this. i want to assure colleagues and american people will find out exactly what happened here and do everything we can to make sure it doesn't happen again. the only way to fully address issues and restore credibility is to have a full accounting of the facts in one way or another were going to learn the facts about what went on here.

i hope we can do so with the full complete cooperation of the obama administration. today's hearing is the first step in this process. thank you, mr. chairman. >> are there to welcome our panel of witnesses. first, j. russell george, tax administration for united states treasury. second, mr. steven miller of revenue surplus here in washington d.c. and third, former commissioner of the irs, the honorable doug shulman. thank you for comment. as i could a while since i very human, please. raise your right hand, please. do you spread the testimony you're about to give us the truth, the whole truth, nothing but the truth, so help you god? thank you. you may be seated. as with our regular process will conclude you are prepared statements the record and ask

each of you to summarize them in about five minutes. we'll start with you, mr. george and after that the committee will have a lot of questions. >> thank you, chairman of baucus, ranking member hatch by members of the committee for the opportunity to discuss a report with the internal revenue service chairman of groups applied for tax-exempt status. our audit was initiated based on concerns expressed a certain groups objected to fair treatment by the irs. the report issued last week addresses three allegations. one of the irs targeted specific groups applying for tax-exempt status. two, the irs delay processing the group applications and three at the irs requested a necessary information for the groups are subjected to special scrutiny. our review confirmed all of these allegations. inappropriate criterion used by the irs to target tea party and

other organizations based on their names and policy positions. the practice started in 2010 and continue to evolve and till june june 2011. the criteria we obtain from a briefing held by the irs organization function in june june 2011 for the organization's names, including tea party patriots or 912 project, whether the organization of policy positions involving government spending, government debt or taxes. third, the organization's intent to provide education to the public advocacy are lobbying to make america a quote, unquote better place to live and lastly statements in the case about criticizing how the country is run. these criteria were inappropriate and did not focus on tax-exempt laws and treasury regulations here for example, 501(c)(3) organizations may not engage in political campaign intervention, which is defined as action taken on behalf of or

against a particular candidate running for office. 501(c)(4) organization's main engage in such activities aligned it is not their primary activity. iris employees began selecting tea party and other organizations in early 2010. from may 2010 through may of 2012, a team of virus specialists in ohio referred to as determination soon it selected 298 cases for scrutiny. we found that first-time executives are washington d.c. became aware of the use of these criteria was june 2011 with some executives not becoming aware of the criteria until april or may may 2012. these inappropriate criteria remain in effect for approximately 18 months. after learning of criteria, the director of exempt organizations changed them in july 2011 to remove references to work in a station name some policy

positions only to have staff in cincinnati change the criteria back again to target organizations with specific policy positions. .. withdrawn, and 160 cases were still open. it is noteworthy that the zero cases had been denied. of the cases still open some have been in process for over three years across two election cycles without resolution.

of the 108 cases approved, 31 were tea party, 912, or patriot organizations. another troubling aspect we uncovered was the fact the irs requested a necessary information for many political cases. 98 of 170 cases that receive follow-up from the irs had unnecessary questions. we found a stab at the determinations unit sent letters requesting this information with little or no supervisory review. the irs later determined these questions were unneeded, but not until after media accounts or questions by members of congress arose in march 2012. and example of unnecessary information requested was the names of past and future donors, the irs informed us that they subsequently destroyed the donor information received from applicants. in closing, the irs demonstrated gross mismanagement in its

operation of this program, the allegations were substantiated and raise troubling questions about whether the irs had effective management oversight and control, at least in the exempt organizations function. chairman baucus, ranking member hatch, there's of the committee thank you for the opportunity to present the findings of our audit. audit. >> thank you mr. george. mr. miller, your next. >> thank you for the opportunity to be here today. and fortunately given time considerations the irs it was unable to prepare written testimony. i would note that i've a very brief statement before i take questions. first and foremost, as acting commissioner, i want to apologize on behalf of the internal revenue service for mistakes that we made and the poor service we provided. the effective organizations and the american public deserve better. partisanship or even the perception of partisanship has no place at the irs. it cannot even appear to be a consideration in determining the tax exemption of an

organization. i do not believe that partisanship motivated the people who engaged in the practices described in the treasurtreasury inspector geners report. ivory to the treasury inspector general's report and i believe its conclusions are consistent with that. i think that what happened here was that foolish mistakes were made by people trying to be more efficient in their workload selections. the listing described in the report, while intolerable, was a mistake and not an act of partisanship. the agency is moving forward. it has learned its lesson. we have previously worked to correct the issue in the processing of the cases described in the report come and we've implemented changes to make sure that this type of thing never happens again. now that tigta is complete its that time and issued its report, management will take appropriate action with respect to those responsible. i would be happy to answer any questions you may have. >> mr. miller. >> [inaudible] >> you might pull the microphone closer to you.

>> chairman baucus, ranking member hatch, members of the committee, thank you for the opportunity to appear before the committee to talk about the inspector general's report there i was commissioner of the internal revenue service from march 2008-november 2012. during that time the agency was called upon to tackle a number of challenges. the agency played a key role in stimulus and recovery effort during the economic downturn, aggressively addressed offshore tax evasion, i completed a major modernization of its core technology database. the agency also continues to deliver on its core mission of collecting the revenue to fund the government. the irs is in operation with more than 90,000 employees who work on issues ranging from processing individual tax

returns the building complex technology, to ensuring compliance with businesses, to educating the public about tax law changes, you administering a very complex set of rules governing tax-exempt organizations. i have recently read the treasury inspector general's report. i was dismayed and i was saddened to read the inspector general's conclusion that actions have been taken creating the appearance that the service was not acting as it should have. that is, as a nonpolitical, nonpartisan agency. the irs serves a critical function for our nation. it collects the taxes necessary to run the government. because of this important

responsibility, the irs must administer and it must be perceived to administer our tax laws fairly and impartially. given the challenges that the agency faces, it does its job in an admirable way, the great majority of the time. and the men and women of the irs our hard-working, honest, public servants. while the inspector general's report did not indicate that there was any political motivation involved. the actions outlined in the report have justifiably led to questions about the fairness of the approach taken here. the effect has been bad for the agency, and bad for the american taxpayer. i'm happy to answer any questions. >> thank you all, three of you.

i have a couple of questions, first mr. miller and mr. shulman. essentially, it's my understanding the irs headquarters shut down the use of political terms such as tea party and other terms we all learned about in june of 2011. why weren't people then fired? or? >> guest: ? more significant action taken than just told don't do this? given how outrageous this conduct is. why it was a more definitive action taken? >> i -- sorry. i don't believe that i was aware of the time that happen. i first became aware of this in may of 2012. >> mr. shulman, you were around during this time. >> yet, in june of 2011, i don't

believe i was aware of this actually -- >> well, who was aware? someone at headquarters was aware obviously. besides lois lerner. >> well, the report indicates that the exempt organizations, there's no indication i think from the report, you have to ask the inspector general that others new at this time. >> you are actually, you know, head of the irs. who did know? i mean, come on, you read the report. you were acting commissioner. you were commissioner. no, on. if you don't know it, it sells like somebody is not doing his job. so who, why was a more direct action taken first, you know, when these terms were discovered right away, and second, get a

second chance, the irs had a second chance after the same activity start again in june the 2012, incredibly start again, irs stop for a while then went back again, old habits, i can't believe that, frankly. why wasn't more firm action taken by people, either the commissioner himself or by people that is -- it's outrageous. any person can figure out this is unacceptable. mr. miller? >> again, sir, all i can say is we're unaware, i was unaware. when i found out in may i took action. >> up what action did you take? >> so, i was briefed on, after sending a crew to take a look at the case in may, the reported back to me in may of 2012. essentially much of what had transpired and what is shown in

the ig report that the cases were languishing, that a list have been utilized, that letters have gone out that were much more broad than they should be. at that point we had already taken care of letters because those had come up and this is how new -- this is how we knew something was going on. i asked for a review. we been trained our folks who held workshops to ensure that they were going to do the work well. we took a look at the cases. i asked for the cases to be looked at, and grouped in a fashion that those that looked like they should be approved were approved. those that look like they needed work got that worked, and those that needed for the development got that development. we took action on that. i also, at that time, i was aware that tigta was working on this, but i i took some intermediate action pending tigta. we transferred and reassigned an

individual have -- we been involved with the letters, and i asked that the person or delete at the time was responsible for the listing that all counseling occur. at the time the listing profit had -- >> i appreciate that. this committee has been many questions -- has sent many questions to you and others to try to get the answers to some of these questions and we're not going to get the answers at this moment, that's good a deeper question is what created this culture of indifference to the american people? such aggressive behavior and probably targeting certain groups. what caused that culture to develop? what did you do about cracking that culture, either one of you, mr. miller, mr. shulman? i will start with you, mr. shulman. >> sure. during my time at the irs, you know, i believed and i articulated that the irs needed

to be a nonpolitical, nonpartisan -- >> you may have a ticket of that, but how did this happen? >> i think that there's a set of rules build into the system, there's laws, there's education of people that it into vast majority of the irs employees understand that. >> what conditioncondition s cause about? my time is expiring here. it already has expire differently. 80 pages very quickly in a nutshell, bottom line, how did this happen? >> mr. chairman, i can't say. i can't say that i know the answer. i am six-month about -- >> you've got some sense because you're a commissioner for good number of you to give you some idea. you've thought about this. >> i am six-month out of office. when i left, the ig was looking into this together all of the facts. i don't have the benefit of reading the report, and that come in, full accounting of facts that i have at this point.

so i don't think i can answer that question. >> i'm disappointed because you time to think about this and you certainly have more thoughts than that. senator hatch. >> thank you, mr. chairman. on two different occasions, my colleagues and i wrote letters to you, mr. shulman. the first letter of march 14, 2012, we asked about selective enforcement by the irs and request for more information. then we wrote again on june 18, 2012, to request more information about the irs's practice of requesting confidential donor information. as i wrote in my march 2012 let her, quote, it is critical that the public have confidence of federal tax compliance efforts are pursued in a very evenhanded and transparent manner without regard to politics of any kind, unquote. the responses that i receive from the irs were anything but transparent. the irs respond to these killers on april 26, 2012, and

september 11, 2012, and both of these responses were signed by you, mr. miller. these responses did not disclose that the irs had any reason to believe that it had improperly targeted tea party other, or other conservative organizatio organizations, or improperly asked for confidential donor lists. i ask unanimous consent to put all four letters in the record at this point. >> without objection. >> recently we learned the irs was, in fact, aware that the irs had targeted tea party and other conservative organizations. we know that by june 2011 at the latest lois lerner, the director of a sent organization scripting d.c. was aware that i was examiners had issued a quote be on the look out unquote listing regarding tea party and other organizations. we also know that on may 30, 2012, tigta briefed you, mr. shulman, about its ongoing audit

of these practices. yet when you testify before congress on march 22, 2012, you said quote, there was absolutely no targeting, unquote. to this day you have not corrected your testimony, even though you know that the irs was screening tea party organization. mr. shulman, why had you not come forward before today to correct the record that, in fact, it was inappropriate screening occurring in the irs, the organization that you headed? >> let me, let me answer a few things. one is the full set of facts around these circumstances came out last week in the tigta report, which i've read. until that point i did not have a full set of faqs about -- >> but you knew this was going on. why didn't you let us know? that's what we were inquiring about when we sent these letters. >> what i knew was not the full set of faqs in this report. what i knew, sometime in the

spring of 2012 was that it was a list that was being used, knew that the word tea party was on the list. didn't know what other words were on the list. didn't know the scope and severity of this. didn't know of groups that were pulled in workgroups that would've been folding anyway -- >> but you knew -- >> what i thought at the time, and i think now, was the proper step when it concerns fraud to the commission of the internal revenue service, which is to make sure that the matter is being looked at by the inspector general. >> but we send you letters, inquiring about this with a number of senators on those letters. and you should have corrected the record. you should have done it long before today. that's the point i'm making. mr. miller, your signatures on both of the responses that i received from the irs.

nowhere in your responses did you indicate that you knew the irs was improperly selecting tea party organizations for extra scrutiny. nowhere in your responses did you indicate that you knew the irs was asking improper questions about donor contributions. you just sat on the guilty knowledge. mr. george stated that he briefed you on may 3, 2012, about tigta's audit. so we know you were unaware of it at the time that she responded. to my second letter, if not both letters. but you didn't mention any of this in your responses to me, to the senate, or to any other congressional body. mr. miller, that's a lie by omission. there's no question about that in my mind. it's a lie by omission. and you kept it from people who have the obligation to oversee this matter. on friday you swore under oath you told the truth in your prior responses. you said that the irs have been

guilty of quote horrible customer service, unquote. mr. miller, what we learned about the irs in recent days goes far beyond horrible customer service. why did you mislead me and my colleagues? my fellow senators, and most important, the american people by failing to tell us what you knew about the exact subject we're asking about? why didn't you tell us? >> mr. hatch, i did not like. >> you what? >> i did not like, sir. >> you lied by omission. you knew what was going on and you knew that we had asked, you should have told us. >> i answered the questions i answered them truthfully. get i know about the list? yes. not on the first letter by the way because the timing i wouldn't have known. on the second letter we answered those questions, sir. frankly, the concept of political motivation here i did not agree with that in may. i do not agree with that now. we were not politically motivated in targeting

conservative groups. that's borne out by mr. george's report. >> what else would you call it quits he just said he hadn't found up to now. and today's stable was a little more definitive than the one he gave to the house. now let me just say this, you knew this was going on. you knew we had written the. you had our letters. why didn't you correct the record? why didn't you let us know? we could have solved this, a longtime good? >> tigta was look at the cases. >> tigta's responsibility or was it yours? >> i'm sorry? >> commission relied on you to answer letters. why didn't you answer them? why didn't you tell us this information when you knew what? >> i believe i did answer them and i did answer truthfully, s sir. >> next is, we're going down the list, misstep in a. >> thank you very much, mr.

chairman. this is an incredibly important hearing. and let me just say as we heard estimate, you were saying this is a mistake. we would suggest it's extremely serious mistake. and mr. george says, quote, mismanagement. what i don't understand is how, again, something could start in 2010, it was not until june of 2011 that the director of exempt organizations learned of the practice. it wasn't until january of 2127 months later that they set up a new criteria, which was still in focus after they've been told to change it, and it wasn't until four months after that that the cincinnati office finally started doing the right criteria. and so both for mr. shulman and mr. miller, it took almost two years, almost two years for the irs to finally fix the problem,

including 11 months after it came to the attention of the division head. help in the world could it take so long for senior people at the irs to find a prom, fixed the problem? and was there no ongoing oversight of the employees in cincinnati and what they were doing? mr. shulman, let me start with you. >> you know, again, i'm not there to go ask a set of questions of people, what happened when, who and how. i -- >> with all due respect you were there though. >> i was there, when it came to light and the full set of facts were there, i have been able to be back there talking with people doing things. so let me just answered your question. >> but why didn't you know when you were there? >> i, i agree that this is an issue that when someone spotted it they should have run up the chain and they didn't. and why they didn't i don't kn

know. >> mr. milner? >> i would agree. i'm not going to disagree at all with the characterization of bad management here, because i think that did happen. and i don't want to understate concerns with the list because we should not have done that, simply should not do that. we should be looking at the files, be looking at the facts. we should not be looking at names, we should not look at the positions taken on a given topic in terms of how we pull people into full development for these cases. but we were not, it was not elevated. >> mr. george, could you speak more about this management, what your review has revealed about the irs management, how was that break down possible given the management structure that has the irs than anything to make the unacceptable actions like this less likely in the future? >> while we have not yet

completed our analysis of their response to our recommendations, we do intend to do so in the future. so, senator, i will be able to sporespond and for once we've completed that review. it is worth noting that the terminations unit in cincinnati did seek clarification from their headquarters unit in washington, and it took almost a year before a response was received by them to their requests on how to handle some of these issues. and the bottom line, senator, it was again a breakdown in communications, mismanagement on the part of the internal revenue service. >> it does sound so that the first clarification they received, they took that back and then they changed again and did something inappropriately. >> well, there were two parts of it. they sort of vacation initially, had not received an answer. eventually did get direction

from ms. lerner to change the way they were acting, and then on their own decided to revert to a different, slightly different yet still inappropriate way of handling these matters. >> thank you, mr. chairman. >> thinks center. senator grassley? >> i'm going to direct my question, or at least the first one, to mr. shulman and mr. miller. now, this comes directly from iowa. one of my constituents attempted to establish 501(c)(3) charity called coalition for life of iowa. she told my staff that an irs agent told her quote, your application is ready to go. however, it will not be approved and tell you send a letter signed by your entire board under penalty of perjury saying that you will not protest at planned parenthood. end of quote. that's outrageous, that

statement was even made, made by anybody in government that some of you got to compromise your first amendment rights. she also received a letter from the irs asking several invasive questions, including the details of the groups prayer meeting. now, stop to think about, the government getting involved in somebody having a prayer meeting. it appears that the irs essentially offered this group a quid pro quo, you can become a charity if you don't protest in front of a planned parenthood. generally speaking, so you don't have to worry about 6103. is it appropriate even for an irs employee to offer a quid pro quo in the example like this? mr. miller or mr. shulman, either one of you. >> the answer is no. i mean, you know, we shouldn't be trading -- >> okay then, let's move on. that's a good answer because that's the answer you ought to give.

but how on earth could you let something like this happened under your leadership? and even if you feel any responsibility or remorse for treating american citizen is why? >> i think i started my public statement with an apology, sir, and i would continue that. i don't know happened in your given case, and as you well are aware i can't speak to it under the 6103 rules. but i do apologize to the treatment of folks to look, there are two things that happen with these cases. first was this election and selection criteria was that. second was their treatment once they were in that group, and that, too, was bad. it was. i don't know whether this particular position was inside or outside of that group, but the service that folks got was not the service that we should be providing anyone. there's no question about that. >> mr. miller, i'm a 14 i wrote you a letter raising questions

about the so-called spontaneous apology lois lerner made at the american bar association may the 10th. initially ms. lerner said the response was spontaneous and denied that it was planned but however you admitted during her testimony last week that the irs had in fact i did the question to be asked at the aba conference. you said quote, it was a prepared q&a, end of quote. whose idea was it to create this prepared q&a, and why? >> well, i will take responsibility for that. the thought was, now do we had a tigta report, you had all the facts, we had our response, we thought we should be begin talking about this but we thought we would get out a policy. the way we did it, we wanted to reach out to hill staff about the same time, did not work out. obviously, the entire thing was an incredibly bad idea. >> has the irs ever used

repaired q&a in the past? and if so, give us some examples if it's been done before? >> apologize. i would have to think about. nothing comes to mind. >> how is it appropriate for the federal government employees to secretly plant questions or release information advance of an ig report? >> i think that what we tried to do was get the apology out, sir, and start the story. the report was coming, we knew that. and the report was done. >> mr. miller, on may the eighth, this year, ways and means subcommittee hearing representative crowley asked lois lerner if she could quote, comment briefing on the status of the irs investigations into these nonprofits, end of quote. ms. lerner pointed to congressman crowley through a question on the web, irs website. she said nothing about tigta's

pending report or the disclosure she may just two days later about political targeting. as a result i think very understandably representative crowley has said that he feels misled and has called for ms. lerner to resign. do you agree with representative crowley that ms. lerner gave misleading testimony to congress because i don't have any notes one way or another on that. i did not watch that. >> has the irs proposed to discipline ms. lerner at all, for all, any part she played in the underlying events, or testimony before congress? >> at this point now that tigta report out, now all this is coming to light, discussions are ongoing and i will not be part of the discussions obviously, but -- i. >> thank you, mr. chairman. >> senator nelson, your next. >> thank you, mr. chairman. i want to take a different attack. i would like to go back how we got into this mess in the first place. and the statute, of course, says

these organizations, see for, the net earnings of which are devoted exclusively to charitable educational or recreational purposes, and then the rule that came along fleshing out the statute, talks about promotion of the social welfare organization is operated exclusively for the promotion of social welfare, and then it further defines that term. the promotion of social welfare does not include direct or indirect participation or intervention in medical campaigns. so i want to just -- political campaigns. i want to get back to the original purpose of the statute

as being intimated by the irs. how could you all, in the irs, allow the tax breaks funded basically by the taxpayer on these political campaign expenditures? can you all shed some light? >> well, i can start, sir. let me try to restate some pieces of the question and see if i'm getting them right. please correct me if i'm not. there's a question out there that the statute, and i believe the chair referenced the statute talks about exclusively for social welfare. the regulation which was pummeled aided 50 some years ago talks about primarily -- >> it uses primarily but then he goes on to say what is promotion

of social welfare. this is the rule. does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. and yet what we have seen in course of the last two campaign cycles is enormous money running through both, through the sea for organizations, which the avowed purpose -- (c)(4) organizations is only half of or in opposition to any candidate for public office and the intervention in political campaign. so where is the irs in the regulatory process enforcing its rule to stop this in the first place, which if it had would have gotten to the mess that we're in right now?

>> there's a couple places where we have to act and again, if i can set the context of little bit, as a 501(c)(4) organization you are permitted to engage in an amount of political campaign activity, you are. as long as it is not along with the other things that are not social welfare, your primary activity. we have an obligation to take a look at cases, both in the audit stream. we are out there doing this sort of work. or in the determination of the process which is why we began to centralize these cases. you asked for the genesis of this. centralization here was warranted. we have to look, we're obligated under the law to look at what an organization does in order to grant exemption. the way we centralized was wrong, and that goes to the listing we used. but we are to look at the amount

of political campaign activity that is planned and how an organization operates as we do our work, and that is what happened in the determination letter process here. >> okay. well, i would safely say, mr. chairman, since we are doing the oversight here, that the rule, i understand the king's english, and it says the promotion of social welfare does not include direct or indirect participation or invention in political, intervention in political campaigns. now, how you interpret that to say that that does allow some intervention in political campaigns is beyond me. and if that had been cut off at the pass we wouldn't even be getting to these -- yes, sir. >> i would just like to note

that tigta will be conducting a review of the irs oversight of the level of campaign intervention by 501(c)(4)s, shortly. >> who will be doing that? >> my organization, tigta, the treasury inspector general for tax administration. >> mr. chairman, in conclusion i would say that if we could get the irs to follow the law and the regulation that implemented it, we wouldn't have this problem in the future. >> senator i think i agree with you but i also think it's very complicated. and it's unfortunate that this issue has not been addressed the last couple of years with any precision, any focus, any straight thinking. and we're going to have to get, we'll have to enact some changes in the statute and also irs has to i think of a better job of following the statute. my personal view is this confusion is ambiguity has led to part of the problem here.

and -- >> i certainly agree. >> we have to straighten it out. next, i have senator robert, you are next. >> thank you. listening to the responses of both of you gentlemen have provided my colleagues on this can be, i'm reminded of one of my granddaughters, age four, when she knows she's done something wrong she just shuts her eyes and says, you can't see me. well, we can all see what happened. the problem is no one is taking responsibility, other than horrible consumer service and apologies. there's a canvassing, never lie unless you have to, and if you don't have it in good light,

stick to the truth. seems to me we need some real truth tellers here. and facts are stubborn things. what we have here is targeted harassment and abuse of conservative groups. we can talk about the statute all day long, but that's what is happening as we hear daily from others, many who still didn't contribute to candidate of their choice or stated personal views. i think that's a significant. nobody likes to be audited and nobody likes to say they have been audited. especially with what has been going on. so we have on her hands is abuse, harassment, and suppression of the first amendment rights and no one owning up to the. the fact of the matter is the irs has been operating in a highly politicized manner for at least three years. three years ago a top economic adviser to the white house divulged confidential tax information regarding a privately-held company in order to make a political point. i asked dig for tax of administration her response and in her back. never heard back at all. not late, just in your back.

last humans of this committee as senator hatch is indicated, hearing a growing number of complaints asked if individuals or groups were being singled out or targeted in the application process. here is the letter that you sent to me, and other members of the committee, the same letter, different names. might want to look up, you will see this. it's 10 pages long. singlespaced, about 12-point. at any rate, a completely silent on targeting but full of detailed analysis of the law, but you knew that targeting was going on. i just don't think you do that. that really befuddles me as to why anybody in a position like you or basically, mr. shulman whatever do that, just not respond to you also said that the determinations simple time for a more efficient way to process the huge number of exemption implications. and we have cincinnati.

aires officials milling about doing the best, falling short, foolish actions, need more money, need more lawyers. this may have been foolish but given what i know about the irs operates, i find it very hard to believe that the irs employees were given free range to set up a bolo list, beyond the lookup list, like law enforcement. there must've been a directive from washington or something. we need full disclosure of how this has happened. there was a news report quoting an anonymous cincinatti irs employee. they had been taking a lot of grief here. and accordingly this quote was attributed to this anonymous irs employee. well, we got all the problems with this and we knew it was wrong. we knew there would be hell to pay. we also knew that when it hits the fan noted at the top will take the blame. it will come right down the slide right to us. well, i would like to at least have somebody come lois lerner,

the lady who doesn't do math but in plant a question, sir hauling two is not going to working for the of for health care act office, and that's my next question if we go to another round, has how on earth we do that with 15,000 employees trying to administer the affordable health care act, although specific question. let's move up to joseph grant as the deputy tax commissioner. we're not going to hear from him. he retired. mr. miller only apologized, and then you are leaving. mr. shulman, you are six months out so kevin member. mr. wilkins, the chief counsel of the irs, he is not here but he probably should be here. in the secretary of the treasury, jacob lew. it went right up there. then finally to the white house general counsel. do any of these folks, and yourself included, ever say what was going on and take responsibility? i just have not seen that. my follow-up question will be in

regard on how on earth can the irs have oversight and management to the implement the of for will health care act, given the current situation? thank you, mr. chairman. >> thank you, senator. mr. crapo, you are next. >> thank you, mr. chairman. you know, there's been a lot of discussion about who knew what and when they knew it, and one of the big questions i have, this is probably for you, mr. george, is it seems that there is an argument be made that there was no political motivation in these actions. is that a conclusion that you have reached? >> in the review we have conducted thus far, that is the conclusion was reached. >> how do you reach that kind of conclusion? >> it is, in this instance it was as a result of the

interviews that were conducted of the people who are most directly involved in the overall matter. and so you take it one step by another, and we directly inquired as to whether or not there was direction from people in washington beyond those who are directly related to the determinations of unit. and their indication to us, i have to note, this was not done under oath. and again, and audit, not an investigation, but he did indicate to us that they did not receive direction from people beyond the irs. >> when you see people beyond the irs, that could beat anyone up the chain of the irs? >> and three could be but we have no evidence thus far that it was beyond, again, the people, in the determination jeanette. >> so in other words, you have separate the statements of those who are engaging in the conduct saying that they were not political motivated? >> that is correct, sir. >> and based on that, and

statements not under oath, you have reached the conclusion that there was no political motivation. have you reach a conclusion that there was not or that you haven't found? >> it's the latter, that we have not found any, sir. >> because it seems to me that it's almost unbelievable to look at what's happening and then say, well, there's no political motivation here. how could an agency with the power that the internal revenue service has engage in this kind of conduct, and it not be politically motivated? you know, i think that most people in the united states have a very quick and intuitive understanding of the reason that these revelations are so concerning to the country. as you look at the intel revenue agency, the internal revenue service, more than perhaps any other agency of government, it has the capacity to be the prosecutor, the judge, the jury

and executioner in ways that can devastate individuals and families and businesses. and americans understand that. and to have the investigation reached the conclusion that these kind of actions were just statistical anomaly or did they just all sort of statistic we came together at the same time. not that there was no finding of any kind of political motivation. i think is almost beyond belief. is there any way that you can conduct further investigation? and perhaps by putting people under oath, identify where the direction came from? ..

suffice it to say that this matter is not over as we are concerned in terms of our next actions in this matter, senator crapo. >> you believe there are be further investigation on this issue quite >> continual review and if it leads to an investigation that may be the case. >> all right. thank you. >> senator enzi. >> thank you, mr. chairman. bills from cheyenne, wyoming caught inside the mr. was not

the real problem in just a fall guy. from the testimony we heard earlier, there is disciplinary action taken, but the administrator did know about it. doesn't disciplinary action filter up in these organizations? i got a call from charles of pinedale who had concerned the churches were targeted as well, noting the irs had requested above and beyond what i could be done. to follow up on what senator grassley was saying on mrs. lerner's question that the american bar association taxation, doesn't the irs have a policy of not commenting on issues subject to inspector general audit prior to the public release of the audio? and if so, why did the irs feel is necessary to make such statements days before the report was publicly released?

why did the iris nosh of late years ago when it became aware of inappropriate targeting. in the discipline i to. mr. miller. >> first, affect the correct part of your question going back to the disciplinary action. i took disciplinary action in in may of 2012. going forward we do have a practice of not talking about investigation or audit. the audit was done at this point. we thought mistakenly we should get in front and apologize to reach out to the hill in advance to the coming-out and not was wrong. we made a mistake. >> all of that testimony. i thought you were not aware of disciplinary action. at any rate, it david of casper, wyoming posted on facebook you'd like to know why i arrestor information with tea party

groups and the purpura public. anybody have an answer to that? >> i would recommend and i don't know whether you speak to this, but there were in the media, discussions of the release of data to pro-public of. a referral was made to tigta on that. at this point, he would know better than i. >> to follow up a little bit on what senator robert said. mr. george, when you comment and last week he said the actions were in a perp reacted not a legal. would you weigh in on whether you still believe that is the case or actions taken by the irs employees illegal? if not, would you please elaborate way or audit finding as to not suggest there is an illegal activity. there is an investigation that

could have been illegal activity that your audit could not uncover? >> yes, senator, two things. the point about the matter you mentioned, the release of taxpayer information could he a violation of title 26, section 61 of three which does have criminal penalties associated with it. that's something i cassation investigates, we take quite seriously and if we do find evidence of such a cavity, we refer to prosecutors for criminal prosecution. i am otherwise restricted by law from revealing any information beyond that. i simulates a difference or not her for restructuring and reform act of 1998, certain to provide for the action to be taken irs employees are guilty of using, and this misusing among a number of other things taxpayer

information. we are charged again with reviewing. we are doing so and if we determine something has occurred, we will certainly pass it on either an administrative environment or a cynic and it is very likely criminal environment pursuant to the act itself are 98. the rr98 has few if any criminal actions to the there are several that can be taken as a result of his violation. based on that again, we does far have not uncovered any actions we would deem illegal in this instance not. >> i guess the american public what can a judge that, but it seems borderline if not illegal. my time has expired. >> thank you, senator. >> thank you, mr. chairman.

as several questions for you mr. shulman and mr. miller. notwithstanding the troubling and unacceptable conduct of the irs, political organizations do not want to be scrutinized by the government. they shouldn't seek public eye tax-free status and anonymity for donors. to argue otherwise is to advantage tax cheese to the detriment of law-abiding americans. satisfy my hope out of this debate will come clear and enforceable rules that treat all political groups equally. so with respect to questions, mr. miller and mr. shulman, the lines have blurred between political act of groups, the 527 and those who do nothing. those are the 501(c)(4)s. it has become apparent that organizations that are to be 527

are applying for c-4 status to avoid disclosure obligation. that means there is an incentive for people to choose their tax status based on whether they want to hide their donors. my view is that they would pull the sought to close. given to be exempt from federal income tax, section 501(c)(4) of the code requires nonprofits to operate exclusively as opposed to substantially or primarily for the social welfare. my question to the two of you, mr. shulman and mr. miller, why was the problem not corrected? mr. shulman. >> senator, could you clarify the problem? >> lines have blurred between the 520 sevens and the new fours, so there's an incentive to choose tax status based on

whether they want to hide their donors. the line is blurred and i want to know why not. >> let me state the lot and a tax-exempt area is very complex. >> dr. shulman, we understand that. why did she do anything on your watch to correct that? >> let me continue. the treasury regulations the ir staff of cincinnati was wrestling that in this case our long-standing regulations. i believe they are 40 plus years old. i did see inspect your general recommended treasury ought to look at the regulations. the chairman would say he would look at this and all i can say is this is a very hard task given to the irs.

to have the irs, which needs to process 140 million tax returns and get lines of dollars in refunds to people every year, to also have them have this piece of the operation that by law has to be asking questions about political activities is very difficult. from where i sit as a former irs commissioner, if congress could help clarify the law, that would be a helpful thing. >> mr. miller, same question. what did she do to correct this problem on your watch? >> so we put up guidance, but not enough. the issues are several fold. one is to get 70,000 applications for exemption each year. the number of those is much less, but even those have doubled over the last four years. there is no doubt when citizens united release the wave of cash that some headed towards c-4 organizations fec data and irs

data. that does put pressure on us to take a look. by 27 organizations can do all the politics they want to do. 501(c)(4) organizations have a limited ability to do politics. when organizations choose plan b, it's our obligation to look hard at whether they meet requirements or could be a 527 organization but in fact we have to talk and i'm sure staff will work through issues in the lot now that you can't convert -- we cannot convert a 501(c)(4) organization into a 527 organization at this point i don't believe. >> what troubled me on your watch when the lines are blurring on the disclosure issue as far as i can tell, you ought to do anything to correct the problem in a meaningful way and that's very regrettable. another issue for the future going forward.

the irs inspector general agree on a number of reform proposals come under the irs does not support the most important, developing and making public clear guidance for processing potentially political cases. even the best trained dozens prepare employees to apply ambiguous rules. in the absence of guidelines come in the country is left to the wives of the bureaucracy. wouldn't make sense are those knowledgeable about campaign finance work with the irs to develop clear and enforceable guidelines that are really at the intersection of these two areas campaign finance and tax law? would not make sense to get to agencies, particularly the federal election commission and the irs working together under congressional and public oversight at this point? >> we can start with you,

mr. shulman. >> sounds reasonable to me, but i don't direct with the irs does. i can't speak for the irs should be doing at this point. >> should redo guidance? absolutely. there's a guidance in the tigta report and i agree i'm not. whether there's some sort of template we can do to move cases forward and the concern of those involved and that is not as these cases are fact specific and i may not be possible. given all of this, we ought to work. >> my time is up. the inspector general is right we can get more expertise of which are bringing people knowledgeable about election law. this is another failure in my view in terms of the problems we deal with now. >> i might say in response to the question about why to do something when you're on notice. frankly i'm sure senator wyden

was not comfortable with your answer. i assert i am not because i wrote a letter to you, mr. sub for september 28, 2010 asking you to look into this question for senator wyden is raising. clearly a mack truck is being driven through the 501(c)(4) loophole for the reasons discussed here and i must say the answer we got back from you in february, many months later basically says yeah, we are sharing the concern but looking on it and that's all it says. you were on notice and he did acknowledge you were on notice, but nobody did anything about it. and i'm just disappointed. next is senator manon says. >> thank you, mr. chairman. i join you in your opening statement that the idea that any

government agency with researchers a politically charged terms to single out groups for selective review is truly as to our concept of democracy and it's not all men except to fall, but pretty appalling and undermines the very nature of the government and its people that can send by virtue of leaving its institutions will work in a way that are fair and transparent. having said that, i also have wrote to and i want to follow up on two scandals here. one is a management layers and the whole process of singling out specific groups. the other is how we take statutory authority and then extrapolate different from what the congressman. i read the statute with reference to 501(c)(4) anna says the public organizations not-for-profit operated exclusively for the promotion of social welfare.

the irs took that statute, the congressional vote to stage exclusively and turned into an organization for the promotion of social welfare if it is primarily engaged in promoting some way the common good in general welfare. i didn't see about primarily. i saw exclusively because we wanted to limit the scope of who could avail themselves of the benefit of a seafloor under the tax code. so i'd like to ask to inspect her general, do you believe in what little reading of the statutory language could have taken some of the subject of scrutiny out of the hands of the irs officials both avoided on mitigating problems we are talking about here today? >> senator, i will respond to your question, but i just have to acknowledge the secretary of the treasury is delegated all

tax policy questions exclusively to the assistant secretary for tax policy and the outside, the direct issue you raised with beyond the scope of this order. but it would be nice if what you are saying but the accurate that they should have not necessarily taken the interpretation they did. >> mr. miller, hottie jump from exclusively to primarily? how do you take the congressional action generally subverted to a different view? >> when they say a couple things. one is that they mentioned, this was a regulation come a treasury regulation in effect for many years. speaking on behalf of myself and i know how long mr. miller was there. this is in place when we got there. i don't disagree with you that this is a place congress about

because from where i sit, the irs has given a very, very difficult task of trying to go in and figure out you can do some political activity, but you can't do too much and the confucian and great town you saw happen in the cincinnati office is inexcusable, but i would also have part of it because of the very difficult task given to these people. >> it is a task which are clearly correct. i envision exclusive -- even exclusively, not primarily. i have a copy of an august 12 op-ed by karl rove which i ask unanimous consent to be included in the record. and this, roughly 111 million of mr. obama's outputs are paid for by his campaign aired outside groups should get over 20 million. the romney campaign spent over 42 million in response with

107.4 million more in ads attacking mr. obama's policies are boosting mr. romney from a the grooves with crossroads gps come ecru pinning meeting him i helped found presiding over a half. anomie to single them out is the got back here because there's many on the spectrum, but this is the nature of the abuse. there's a reason you seek a 501(c)(4) status because you can hide your daughters and you have a tax advantage. otherwise you don't need to seek the 501(c)(4) advantage. i'd like to see what does it cost the american taxpayers and the granting of all of these 501(c)(4)s and they are not being used for social welfare, but they are used in essence for political advocacy. final question to the ig. inspector general, chairman isaiah sent a letter to all the inspector general's per minute

than it requires ig's report flagrant problems to the agency had within 70 days, what has become known as the seven-day letter. did you receive that letter? and if so, did you respond to chairman issa of your investigation to the irs? >> senator, we did receive the letter. chairman issa's committee was the first to contact us regarding this matter. and so, through the course of engaging in the review on occasion we have had communications with the staff. >> in 2012? >> and since then. >> thank you. >> senator cardin. >> thank you, mr. chairman. i think we will all agree we cannot allow, permit, tolerate targeting by political views and that we need to make sure the process is clear to hold those

accountable who violate that, but also to make sure this doesn't happen again. having said that, i want to concur with many colleagues on the interpretation of the law. the regulation, mr. george, uber wine on was in 1958. i know it's issued a long time ago, where he said not their primary activity interpreting what was exclusively engaged in promotion of social welfare and dvds, which seems to be hard to understand. 1958, the political parameters for totally different than they are today. i understand his responsibility is to change regulations, but it seems to me this is an area that needs to be dealt with. i want to get further clarification on page eight of your report where you have a pie chart that lists the 298 cases pulled out for additional

scrutiny. you identify 72 with the name tea party in it if i am reading the chart correctly, you have been with 912 and 13 with pastry at the ninth 22 others. can you give us further clarification of what makes the is 202? >> senator, we were not in a position to do so because in many instances they would only -- we were only reviewing names of the organizations, sister names were so generic we were unable to determine whether or not they had a particular point of view or what have you or whether the irs is using the policy positions those groups held as a determinant for for this special handling. in other instances, when the name tea party was used, is quite obvious by the name patriot or is 912 was used --

>> was the selection for the 202? were you able to determine that? >> all of the 202 were reviewed to determine whether or not significant campaign intervention was engaged in. >> if i understand correctly, 90 summer because of the name of the organization. the other 202, why were they selected? >> according to our review it was to determine whether significant campaign intervention honecker by those organizations. >> what basis was used to single out 202? >> i'm going to defer to mr. miller. >> you know what is this was used for the 202? >> what i believe is what was in the report. more cases were being pulled and, where folks saw evidence of political act committee. those would include any case

that came across their screening tasks. >> you don't know what standard they use to make a judgment that they were involved in activities? could be the name of the organization? >> i'm trying to figure out how these were selected. i has to be some stated reason i must of random selection. is it a random selection? >> now, sir. i believe was evidence of political activity of the screen or believe as and therefore put in. >> i will say this. it is my hope would you alter your view that some of these things will become more clear than they are in the report. >> i'd be very interested as to how the irs on about selecting all the groups for review in addition to the ones to let it because of the use of the word tea party or peachtree, which is absolutely wrong. >> that is part of the problem

because in many instances there was no indication why these cases were selected and that was something we identified as a problem in the way the irs handled matters. >> you don't know the standards used? >> i know what it's been in the report and what was in the report indicated the screeners are looking for evidence of political activity. >> we need more information as to how these were selected. if there was an arbitrary selection it could well be an arbitrary selection of 300. one last question deals with your training dollars. one of the inspector general's findings as the staff was not adequately trained in order to meet the challenges. this is a complicated area that involves that such judgments, but it has to be done in a uniform way. can you just share with us whether you have adequate resources in order to pursue the training at the irs?

senator portman and i a few years back worked on irs reforms and those of us hoped would never be at a hearing like this after the reforms passed back to. one object -- was handled in the professional non-parties in way to you the resources to staff? >> we did not trained well enough. that's the finding of the report are not the case as well. that has caused us to cut training drastically. in this area, we have maybe 140 of our folks that do this sort of work goes in cincinnati and reporting to cincinnati through some other offices, which has been some confusion i've seen out there. do we have the resources to get the job done?

i don't believe we do at the point. >> thank you very much. senator brown, you're next. >> thank you, mr. chairman. thank you to the witnesses and i agree with everyone here that is made the statement, that the irs should neither go after anyone, should never single out anyone because their political affiliation. that is the most important thing. it is however, i believe, not worthy of public trust and maintain the current troubles as a result of the entire fault of freelancing no bubble employees are asleep at the switch managers. it's pretty clear conservatorship back and persistent for too long, far too long in this particular tax law. the failure of the irs for five decades to define what constitutes political activity.

you know the statue. it is clear that 501(c)(4)s are operated exclusively for the promotion of social welfare. back in 1959 and since, we've not seen change that. it was created by the treasury when issued regulations to define an organization, operating exclusively as an organization primarily engaged in promoting social welfare. explain that to me. what does the term primarily for social welfare name? the irs is not made that clear when the statute says exclusively and that's the root of so many problems, mr. miller. >> so i think some other companies mentioned this to my top about this. we've had 50 years of regulation and the framework is only recently with the flow of

political dollars called into question about whether this is the appropriate way to regulate these organizations. we have not made a good job of putting out guidance on even how to figure out what a primarily means. you look at the dollars of the organizations and expenses. but not crisp on that either. >> much of that is your predecessors, but we've had three years since citizens united. two federal elections, tens of millions of dollars come as state state spent by 501(c)(4)s. how long do we wait until the irs from washington cannot blame in on cincinnati, but from washington, how long do we wait? >> is a question i have to ask my successor. >> mr. shulman, what if any steps were taken to define a

test for promoting social welfare? where is the line where steps were taken to establish a clear definition of political activity? >> the inspector general stated those that the treasury for tax policy has authority to make tax policy. i don't tank is fair to blame the irs for not fixing that. the irs can give input, but this is actually something that if congress decides it should be changed, congress either clarify or should be done in regulation. thank you. >> thank you, mr. chairman. >> senator thune. >> thank you, mr. chairman. i think it's clear both liberal groups and conservative groups follow the law and regulations as they exist today. but there's only one group targeted and you all can get here and say there wasn't political targeting, but it does

not comport with the facts. maybe it wasn't you, that somebody was one of the purposes is to find out who was targeting conservative groups. otherwise you can't explain the fact you had conservative other patriarchy party or 912 selected for extra skirt knee. you have no evidence there were groups with progressives and insight that similarly targeted. but this issue to rest. i don't think there's anyway you can know that. i'm ingesting and knowing, mr. miller and mr. shulman again if you you were aware that is lerner was going to plant a question and get ahead of the new cycle by disclosing prior to the release of the ig report. >> i mention i did know, yes. >> were there any discussions at the white house was aware april april 24 of this information. were there any discussions with the white house about

ms. lerner's intention to drop this bomb at the aba conference? >> i had no conversations with the white house. >> are you aware of anyone else that did? >> i am not aware of that. >> is also reporting that deputy secretary neil wolin were made of the ig report looking into the targeting of groups last june. did you have discussions with treasury around that time? >> is a question to me, sir? you are mr. shulman. >> i was happy at that point, but i did not have any conversations at that time. >> mr. shulman. >> cannot remember having a conversations with the treasury department. >> the treasury department became a lawyer of this information way back last june. none of that -- no discussions

between the irs and treasury are aware of? >> let me clarify. i think everybody now that it is very difficult to administer c-4 laws. i don't have any memory of it, but they're very well could've been been conversations about policy, the policy matters members have talked about should the primary purpose test be changed. at least for me there were no conversations i had with the treasury department about matters in the report relating to an appropriate criteria. all the things in the news. >> that's the answer is giving, sir, just to be clear. >> mr. shulman come he testified in march of last year that there was no targeting. you became aware of that and

may. don't you think i should've had an obligation to clarify or correct that statement? achieved in front of the house committee? >> in the spring when i found out about a list that was being used to help place these applications into the determination cnn, what i now was there was a list. i did know the tea party was on it. i didn't know what else was on the list. i have a partial set of facts and i knew the inspector general was going to be looking into it and i knew it was being stopped. sitting there then, sitting here today i think i made the right decision, to let the inspector general get to the bottom of it, chase down on the facts and make its findings public. >> let me ask if i could,

mr. george, you mentioned earlier the disclosure of confidential information be a violation of the law. >> it is, but whether administrative or criminal is the issue. but yes, it could be a violation, specifically title 26 and/or the restructuring and reform act of 1998. >> so the reporting of the giving of the information to pro-public release of confidential information could very well be a violation of law? >> it could be. it could've been. >> let me ask all of you because there is a statement by somebody from the white house at the law would be irrelevant. do you believe the law is relevant or is it relevant to this? >> i believe the law is always relevant, sir. >> gentleman? [inaudible] >> there was a statement made over the beacon whether the laws broken were relevant.

do you believe the laws are relevant in this case? >> i guess i would agree with the inspector general that people should not break the law. >> the answer would be yes. >> there's two issues, one is targeting that has to be a lot of overtones. the other is information disclosed, but that would be a violation of love as a serious matter. the american people believe this is a serious matter for both those reasons. they believe the law set to be followed and they also believe they ought to have an irs that competently conduct its business in object is, fair and transparent way and those are all things missing in the equation. and so, i hope we continue to get more facts out about this in the correct his actions are taken. thank you, mr. chairman. >> senator burr. >> mr. shulman, who briefed you? >> who briefed me on what,

senator? >> who briefed you on the investigation? >> on the investigation? >> yes, sir. >> to the best of my recollection on the investigation was mr. miller, telling me there was the exist in of the lessons have been inspector general is going to look into. >> mr. george, did you brief mr. miller or did any of your team reef in may of 2012? >> may 30 senator, 2012 come at a monthly briefing which we regularly hold with both the commissioner and his chief deputies that we first raised this as an issue. obviously at the out that. >> mr. miller says he's not aware of the practice going on. did you brief him on the scope of the investigation? >> i don't believe we went into the detail that they have laid out the scope, senator.

we certainly alerted them to the factor cannot in this audit. i may have misused the word investigation. there was an odd that we were engaging in. >> neil wolin as my colleague pointed out, deputy secretary was briefed in june 2012. i just heard two people at the table say they didn't pretend. a part of your investigative team brief neil wolin, deputy secretary of treasury? >> senator, i personally brought to deputy secretary wolin the fact we were engaging in this audit. >> of the briefing covered the details of the scope of the investigation? >> it did not commissary. other than to describe the nature of the audit was the extent of it because they are other matters we were discussing. >> mr. george, your investigation state the council was briefed in august 111 of the case at the eo.

was that the irs council or the treasury general counsel? >> actually, june 4 of 2012 in terms of the regular setting that i have -- may deny how the general of the department of the treasury. >> i know you are talking about your briefing. i'm talking about a reference in your report at the council was briefed by somebody. i take for granted in the somebody with in the eo. this is an exchange on the practice going on at the council at the irs was knowledgeable in 2011. am i correct? >> server, it was just pointed out to me that attorneys for the office of chief counsel within the irs were briefed on this. >> chief counsel of the irs understood the crack is going on within the eo of these

applications, correct? >> i don't know the extent to which they received information. >> here again, before your investigation started. her investigation concluded the general counsel of the irs note practices discussed in the attorneys said the internal revenue service. >> the office of chief counsel was provided brief. >> is it normal for the chief counsel's office of the agency not to have any conversations with the commissioner of the deputy? >> type no idea of the practices. >> let me turn to both of you. mr. miller, are you testify in the council never talk to you about this? >> i haven't been asked the question. if we could step back for a moment. i don't know this very fact, but the timeline you referred to in

it talks about chief counsel is the office of chief counsel, not necessarily the chief counsel could've been anyone in the chain. >> you've got attorneys involved in the discussion about the practice of eo is conducting on how they process applications and that would not have been something raised to the level of commissioner? >> let me start by saying i didn't know that until i read the report. i don't know anything about that meeting. that said the new guy should take a look at. >> mr. shulman, you testifying the council never discussed this with you? >> if you're asking the question did anyone from the chief counsel's office come tell me about meetings they were having with the exempt organization function, and no memory of anyone doing that. >> mr. chairman, let me suggest many the chief counsel william wilkinson to testify to see if they sign off on this process.

that's utterly crucial now. mr. miller, has this practice stopped? the dissent how they does consideration of these applications, keyword, conservative tea party, pastry at. >> i believe that did happen. the names wintry and to first learned of it. the second learning when you take a look at it in the inspector general's report is so problematic because it talks about policy positions, but it is not particularly partisan and how it talks about policy positions. >> it was partisan before? >> yes, it absolutely was. >> let me point out for the record that the target within these applications is 120 days. there's currently some applications over 1200 days without action.

so let me ask you, has this practice stopped? and if it has, what is the day i stopped? at this outcome is inside these applications would've been processed by now. >> let's break this up if i can answer your question. the process i was talking about was the selection process that's been modified. we've also worked on the technical knowledge they need to work these cases. some of these cases are difficult cases. they should not take as long as they havecome up with a sony development in those cases are being worked. >> is there an application you don't think of the process in 1200 days? >> i would hope they could come under cases that go into appeals court in all sorts of cases. there's no doubt some part of the 1200 was when they were languishing before may of 2012. there's no doubt about that.

>> thank you, mr. chairman. >> mr. isakson, your next air >> thank you, mr. chairman. last night he did a town hall meeting which i do every month in my state. in the course of an hour they are 2500 people on the call. during the course of the hour i had 21 questions i now must make note so i could review the for whatever. i can't call last night was turn a person named said in a statement was sent whole. given what is happening apparently at the irs, i've lost confidence in the night dates of america. that was not a reactionary comment, but he went on to further safety agency that collects taxes for me is able to target the qualification for tax-free status to keep them from using the tax that is further things. the reason this is an important hearing, the reason it's an important on it and the reason

we need to have an import investigation as if for no other reason to restore the confidence of the united states of america in the internal revenue service. i want that understood yet that is my concern that came from a constituent last night he sent a far better than i could possibly say it. >> mr. george, i want to make sure you said correctly. i believe that ms. lerner was approved in 2011. is that correct? >> yes, sir. >> i thought i heard you say the cincinnati office was ordered to change their criteria by the director and following the order to change it, they changed it back. >> that is correct, sir. >> do you know who initiated the change back? is there anybody per-person was that all of a sudden criteria

change back to? >> we have not found evidence to the person who ordered the policy. >> that's my point and i'm following up on senator byrd's question your statement. you didn't audit, not an investigation? >> that is correct, sir. >> audits are developed to find a possibility of wrongdoing, is that not correct? >> among other things. looks at the systemic problems that may exist within a program. >> today there's no internal investigation at irs, is that correct? >> that i'm not aware of, sir. i defer to mr. miller. >> we took a look in the march timeframe to look about as happening in the cases. that was reported to me and may this sort of thing would be done by tigta. >> let me ask you and mr. shulman the same question. you are now past commissioners of the irs, correct?

there's going to be a new commissioner, correct? let's assume that commissioner will meet a phone call before he or she accepts the appointment and ask for your advice as to what to do. regarding this issue, what would your advice be to the next commissioner of the irs? mr. miller. >> i would agree with your opening statement, sir. breaks my heart because i spent 25 years trying to protect surveys. right now the perception is an issue that commissioner needs to attack it. he or she needs to take a hard look, make some changes, put in place safeguards that are very obvious in terms of transparency, what the process is, how we do things and regain the believe that the american people that the irs is and remains nonpartisan.

>> mr. shulman. >> the commissioner of the internal revenue service has multiple things to deal with. filing season, to knowledge a last are the fiscal cliff. offshore issues and i take the challenge for the next commissioner is frankly what you talk about, that this whole episode is clearly put a blemish on the agency. its cast a shadow over the good work the men and women do every day. but the next commissioner needs to do is try to rebuild the faith people have in the impartiality and fairness of the agency without losing sight of this is a small sliver, an important one about the agency does not have it overwhelmed and so problems emerge elsewhere. >> well, my hope was the answer would have been that whomever the next commissioner is, he or

she should immediately request an investigation of defining the audit to determine if there were violations, if there were, who authorized them and who actually carried them out because to me the one thing we've never gotten to is that the chairman referred to at the beginning of the hearing is to, well, where and when. only when those answers to that question take place can you begin the process of restoring confidence of the american people in the internal revenue service. thank you, mr. chairman. >> thank you, senator. senator cornyn is next. >> thank you, mr. chairman. i want to thank you and senator hatch in a strong bipartisan way in accordance with the finest traditions of the senate. this is a very important issue as we all know and without regard to party affiliation for striker ideology, if we can't trace the irs to perform its functions impartially in

accordance with the rule of law, the confidence in the american people will be shaken to its very core. so this is very important and i want to see thank you for that. mr. miller, mr. shulman, and 2011, 2012 i began to receive complaints from in waco in san antonio for organizations and future it's through the san antonio tea party asking me to assist them to inquire why the irs is taking a particularly aggressive posture with regard to tax exempt status and i share senator hatch and others comments and concerns about the denials that have occurred over the course of time and a targeting was taken place when we now know that was in fact

taken place. you started your testimony by apologizing and mr. shulman you wonder if you have any words of apology for my constituents and others that feel that the public trust is violated by the irs. >> i am deeply, deeply saddened by this whole set of events. i read the ig report them very much regret that it happened in that it happened on my watch. >> is not an apology? >> to your constituents. i don't know the details. i don't know what happened to them. i didn't look at particular constituents in taxpayer matters. as a general principle, as the irs commissioner i didn't touch individual case is and i didn't touch cases that involved political act committee. if i knew the details i can give you an answer. >> so it's not your

responsibility? about doesn't stop with you? >> i certainly am not personally responsible for creating a list that had inappropriate criteria on it and what i know what the full facts that are out is from the inspector general's report, which doesn't say that i'm responsible for that. with that aside, this happened on my watch and i very much regret that it happened on my watch. >> well, i don't think that qualifies as an apology. it qualifies as an expression of regret, which i think is well deserved. beyond just a question about the particular activities here that the inspector general has discovered in which we are now becoming acquainted with, i have

a question, mr. shulman about which he talked about earlier is a core function of the irs and the core function of the revenue that the federal government needs in order to function. it seems like over the years that congress has given the irs additional responsibilities, for example, to police political activity and speech. and now to implement obamacare. i believe you mentioned some 90,000 employees in the irs. would you share my concerns that the irs has deviated from its core function and should be reformed to focus on that core function and perhaps not be given these other additional

responsibilities until it can get its house in order. >> i guess what i would say is the irs is passed with the ounce ability of it this during the nation's tax laws and over the years the nation tax laws have been used for more and more thing. and so, i defer to congress to decide what it wants to use the tax code for and whether it wants the irs to other functions in in the tax code. as long as the irs has given responsibility, the obligation of the agency is to do to the best of its ability. >> mr. chairman, i know my time is almost over, but i would say i agree with your comments he started out with insane if we need a clarion call that we asked the irs to do much more than its core function to get involved in things that policing political act to beauty and speech are now implementing

obamacare that it's not all that surprising that these kind of problems have arisen in addition to the discretion to admit in love have and the lack of proper management practices. this is a great opportunity to what happened here and address tax reform their returns the irs to the core function and gets them out of policing political speech and other activities. >> thank you, senator. >> thank you, mr. chairman. let me say i also had about 25,000 people at any one time and the questions are coming in from republican, from democrats,

independents all seen the same thing, which was outrage. the outrage expressed at the very least the irs ought to have an evenhanded in a fair administration of our tax laws given the power of the agency. mr. miller, in response to concerns expressed by grassroots organizations around ohio, as you know senator hatch and i put it of our colleagues sent a letter which pertain, 2012. you responded to that letter. i just want to tell you why has senator hatch on this letter. the county tea party of ohio was asked to point out every post in its made and turn over the names every person has spoken at the meeting. i thought that was really odd. the liberty township tea party was hit with 94 follow-up questions and demands in march 2011 in response to gene replication including resumes of

all past and present employees, social media pose. one question i specifically gotten a connection with an individual who does some of in the macaroni, lives in my home county and was involved in another tea party. they were trying to find an individual that had no connection. kind of scary. a coalition with it the similar questions, concerns delayed by over two years. shelby county, liberty group sent me the letter from the irs and it is says mr. george is talked about earlier come inappropriate, irrelevant questions also given three weeks, 21 days to respond. these are individuals who are asked to come up with tons of information in a short period of time, much of which was difficult for them to compile so they contacted me. they want to know the names of

every person and organization in the amount of time they spent at particular offense. they want to know detailed contents of speeches, forums, so on and so forth. so that's why we wrote the letter. i letter asks for the irs to give us assurance that this recent string of inquiries is consistent with the irs treatment of organizations across the political spectrum. the letter was very specific. there is no question what we were asking. the letter asks when and on what basis to require 501(c)(4) applicant beyond standard information and what criteria are used to identify greater scrutiny. these questions go to the heart of political allegations we were hearing about. let me ask you, mr. miller. did you receive and read that letter in march 14? did you receive that letter and read it? >> at some point, yes.

>> did you think the allegations described as serious implications of discriminatory enforcement for learning? >> i was aware of the problems occurring in those letters and i was in agreement. if you are aware this was occurring? >> in the same timeframe, sir. >> i didn't realize that. unity for the m@ unity for the march for teen letter the serious allegations were out there? you testified on or about march march 23rd. you testified on or about march 23rd, 9 days after the letter that u.s. nancy marks, senior technical advisor for tax exempt and government entities to the 15 and look what was going on this and allegations. is that correct? any test of a nancy marks reported on may 3rd with the revelation that political criteria have been used to target certain 501(c)(4) applicant. today the 2012 briefing included much of what is outlined in the ig report by mr. george.

for six weeks from march 23rd when he sanger team to find out what was going on to may 3rd come you didn't bother to ask for an interim reporter updates from the team the past investigating serious allegations? >> i don't believe i did. >> he sent he sent a team often didn't ask what was going on? ever heard from them? >> i don't recollect they did that one way or another, sir. the implication is this is a pretty short time frame, sir. >> so you find out about serious allegations and for six weeks you never hear back or had the curiosity. >> the allegation we had handled. we gave people more time. we pulled back the donor list requests. >> you haven't acted yet. this is still going on during this period. between march 23rd of may 3rd. >> there's two pieces. the letters reacted immediately.

we tried to get people more time and you should talk to your folks. that's going to be what they'll say. >> if you didn't bother to hear back for six weeks, you responded to her that her april april 26 and he did not bother to ask if anything was wrong before you chose to respond to allegations? in other words, march 26 with assurance nothing was wrong to laugh, you did not even wait to hear back from the scene investigating allegations. you chose to respond with that information? >> now, i responded to questions asked about the donor list and they responded to correctly and truthfully. >> is the letter where where we have specifically whether there was political targeting. it was clear we were asking about. it takes six weeks. it's a week before you heard back from them and you didn't bother to get the report before yours on it.

is that accurate? >> i don't think i did, sir. i answered the question. >> senator hatch and others in your role 26 letter to irs applies scrutiny to 501(c)(4) applications based on individualized consideration whether issues remain in no criteria whatsoever. let me ask you this. we've learned today it is august august 2011. >> five seconds. >> i don't know that. >> thank you, senator. >> thank you, mr. chairman. >> maxon was just a matter me. >> senator hatch will come right back. i plan to have another round of questions.

>> thank you, mr. chairman. first point, number of my colleagues seem to be upset about the fact that some americans choose to exercise their first amendment right anonymously. i remind us all that perhaps one of the most important and influential of advocacy done in the history of the republic with the federalist papers written anonymously under pseudonyms. whatever one thinks of the treasury rule standards developed over the decades and how it's written has absolutely nothing to do with the irs decision was ideology as a basis for imposing extra screening on people seeking 501(c)(4) status. >> i want to be daren't follow-up line of questioning. we sit here and may 2013.

do you know who it is that initiated the policy of establishing of these ideological criteria for creating additional level of screening for applicants for c. four status quite >> it happened twice. the second time in half and i don't believe this clarity on that. the first time i think there's more clarity on that. >> who was there? >> i can give you a name. >> i think that's important we understand who did that, that we know who did that. who ordered it be stopped that occurred in july 2011? >> according to the ig report, lois lerner. >> so you don't have any other knowledge other than the ig report? >> i believe that's the way it happened. i believe that the case. >> who ordered it be resumed although using slightly different words, the same idea was resumed may 2012?

>> i believe i indicated in the ig concurs that's less than clear. >> so why is that less than clear even now? these people reporting a direct chain to you. you would think services and enforcement reporting to you if i understand correctly with their hall and grab the acting commissioner for tax exempt and government entities division, the exempt organizations, lois lerner reported to her. who in this chain of command are to know who is initiating the thick to be every initiating a? >> somebody should've known. there's no question about that. first processes in place that has made it clear who has the ability to either start this listing are modified the listing. at the time, those controls were not in place. >> somebody should've known, but

clearly there is a chain of command. there is an organizational structure here. there are people responsible. should it have been lois lerner, sir hall ingram? should have been yourself? who want to be responsible for making sure the function is carried out properly? >> under the current management chain, it is determined the director is in agreements even below lois has controlled that listing. sir ingram has been used several times already. she has been thrown into this and i don't know that is a fair thing. i don't believe she was working during that time that is discussed here. >> i haven't accused her of anything although i was under impression she was acting commissioner during this time. i would just say that if we believe that we still sitting

here today don't even know who was responsible for the decision to resume a completely inappropriate to the that had been seized, i don't know how we could come to the conclusion this is not politically motivated. we don't even know who made the decision. how do we know what motivated that decision? on the face of it, is certainly appears is completely politically motivated her to the best of my knowledge, there is no criteria identifying organizations as deserving special screwed me click using the words progressive for 99%. none of that was ever part of the criteria. said given the obvious one-sided nature and the fact was so don't know, mr. chairman, i suggest what we need to do is bring before the committee some people who might know the answers. to these questions about who decided this was a good idea, who decided we had to resemblance after the initial

malfeasance was ended. it is frustrating to have no answers for a hearing like this. >> thank you. on your mac i apologize. can you come back, senator? >> i can't. can i just take two minutes? >> okay, go ahead. >> i want to begin with were senator to me ended. the ig said he doesn't know who made the decision to resume the irs commissioner doesn't know who made the decision to resume. did you ask these questions? what do people in cincinnati say about who made the decision and were people in washington who made the decision. it seems impossible we don't know who that is her. >> i asked a man i was told name and it turned out they did think that was the correct name.

>> was that somebody in ohio? >> i don't know how we get to the bottom, but somebody needs to answer that. it doesn't seem like it's asking too much. i think we should ask again. and if the irs to it, we need to do it. i'll post on this, mr. chairman at this time is short and i don't want either of us to miss the boat. mr. shulman said the irs has been given the difficult job. no doubt that strew. i think the regulation of treasury wrote or whoever wrote it simply is not consistent with the law as written. i would argue the agency is taken on the task. since you have all the in this area, i ask you whether you think the break elation is written reflects the spirit -- not even the spirit, the language of the statute with respect to c-4. does anybody here want to defend the way the language is written? >> when a star.

i'm not going to defend or attack here. as the administrator, that's what we do. if we were to modify and we should be up into the conversation obviously the treasury policy folks would be key in this. we may still be in the same place to determine how much activity needs to be done because it might not be 100% you can't do it. even then we would have a hard time parsing was politics, what is not. what is an issue versus education. these are very difficult tasks. >> anybody else want to defend their? >> i don't want to defend it, sir, no. >> @guessing about 10, 15 minutes. [inaudible conversations]

[inaudible conversations] >> a look at the white house now where president obama will sign

a bill designating the congressional gold medal, commemorating the lives of four young girls killed in the 16th street bombing in 1963 iet baptist church bombingn 1963 in birmingham, alabama. are you today, the president gave a commencement address at the u.s. naval academy. here is a bit of what he had to say. >> our military remains the most trusted institution in america. when others have shirked their responsibilities, our armed forces have met every mission we have given them. when others have been distracted by petty arguments, our men and women in uniform come together as one american team and yet we must acknowledge that even here, even in our military is seeing how the misconduct of some can have effects that ripple far and wide. in our digital age, a single and manage the battlefield of troops falling short of their standards

can go viral and in danger forces and undermine our efforts to achieve security in peace. likewise, those who commit sexual assault are not only committing a crime, t sexual assault are not only committing a crime, they threaten the trust and discipline that makes our military strong. that is why we have to be determined to stop these because they've got no place in the greatest military on earth. so cost is 2013, you are about to assume the burden of leadership. as officers, you'll be trusted with the most awesome responsibilities. the lives of the men and women under your command. and when your service is complete, many of you will go on to lead your communities. american come the names. you will lead this country. and if we want to restore the

trust the american people deserve to have in their institutions, all of us have to do our part than those of us in leadership, myself included have to constantly strive to remain worthy of the public trust. as you go forward in your careers, we need you to carry forth the values he learned that this institution because our nation needs them now more than ever. we need your honor, that inner compass that guides you not when the path is easy, but hurting certain, that tells you the difference between that which is right and not which is wrong. perhaps it will be the moment when you think nobody dislodging. never forget that honor the character is what you do when nobody is watching. more likely it will be when you are in the spotlight, the men and women looking up to you to

set an example. never asked them to do what you don't do it yourself. live with integrity and speak with honesty and take responsibility and take command of accountability. >> the most fundamental difference it seems to me between left and right is both look at the economic ladder. ..

from your failures and statistically speaking between two and five of you will spend some part of your life in prison. [laughter]

>> good afternoon everyone, welcome to brookings and to the forum on implementing the affordable care act. i am a senior fellow here and director of the brand new center on an effective public management. i'd like to welcome everyone here today for a very important discussion of a very timely topics. it's been a long time since the federal government had to implement a great big new program. ten years ago we saw all implementation of medicare part c and implementation of the

brand new department of homeland security. there are substantial growing pains and there were predictions of disaster as there have been with the affordable care act. in the case of medicare part d, implementation exceeded expectations and costs have not been nearly as hot as ones originally was feared. in the case of the department of homeland security, the implementation was bumpier nonetheless ten years later both systems operate more or less smoothly and in retrospect, the crisis looks overblown. this year the obama administration needs to finalize implementation of the affordable care act. the historic piece of legislation and the most significant domestic policy achievement of the administration to date. the question of how it goes is front and center. even the president has admitted that there will be hiccups along

the way compared to earlier pieces of health care legislation this one is incredibly complex involving activities in 50 states, 50 state insurance commissioners and large changes in the private health care industry. just to add to that complexity as a republican party that still doesn't like it then on fact on thursday voted for the 37th time to repeal the act. so the question i'm going to pose in the course of this conversation to my distinguished panel last is how is it going to go? to do that i want you to be thinking the don't answer yet, be thinking about a continuum. one of the continuance is the hiccup scenario. that means more or less normal. if the implementation is

successful the exchanges will be up and running. there will be some glitches, some people who qualify for subsidies that walt get there and have to appeal. some people that don't qualify will get theirs and have to try to get the money. you know, there will be those kind of problems that kind of within the normal startup. the second on this continuum i call come and by instilling this from david brooks which explains why he writes for "the new york times" and i don't come he called this symbolic messiness which is a great term where there will be literally years of confusion, delays and opening many of the exchange's, serious problems with the hub being able to interface with exchanges. there may be waivers to the rules why they are worked out etc. there may be premium increases, maybe whole lot of

stuff but in the end it will prevail. at the other end of the continuum is what i called the repeal scenario and obviously large numbers of people here and around the country called republicans are rooting for this one. in fact, they seem to like this idea so much that they voted 37 times for its. some of the question is will this go at the coverage of the continuum the root of the 1989 medicare catastrophic care act which was passed, into law by president reagan and then repeals 16 months after its enactment making it the shortest lived piece of policy in the history of the united states. so there is our continuum. but before we get -- i'm going to ask dewaal to place yourself on that, but don't do it yet. because before we get there i want each of our panelists to

discuss some of the implementation issues that they see. and i agree to start with -- i will introduce everyone and then call on them. i want to start with a distinguished here currently the bruce and virginia senior fellow of economic studies here at brookings. he's also been the director of the economic studies program. he came to brookings in 1968. he also has taught at the university of maryland in the 70's and he was the assistant secretary for planning and evaluation in the department of health education and welfare. he chaired the 1979 advisory council and social security and is a member of the institute of medicine, the committee of the harvard medical school and founding member vice president and chairman of the board of the national academy of social insurance. he is the author of many publications dealing with

medicare, medicaid and social security. and i can't imagine a better person to have on this panel and to start us off. sheila burke and the only woman on the panel is an adjunct lecturer at the harvard kennedy school of government. i met her when she was the executive dean of the school from 1996 to 2000. before that, she served as the chief of staff to the former senate majority leader bob dole and as a professional staff member of the senate committee on finance. like henry, she's a member of the institute of medicine and also the national academy of sciences, and the american academy of nurses. she is also under some in case anyone feels as we start to discuss this bauble or scared. [laughter] she's also been a distinguished visitor at the o'neill institute for national and global health wall and serves on the board at the kaiser commission and the future of medicaid and the

uninsured. right over here sort of in the middle is bruce, the president and general manager of maximus health services with 20 years of public sector health and human services program, policy and operations experience to maximus. he leaves the company's global health operations which provide administrative program management and operational support for programs including coming and you will see why he is here, the health insurance exchanges and medicare, medicaid and the children so the germans program otherwise known as chip. this is the largest book of business generating huge revenue and they have a portfolio contract with vermont, connecticut, california, minnesota and medicaid administrative services in 18 states in the district of

columbia. so they are at the heart of the implementation game. finally he said another important meetings and he's going to join us and you will know who he is. we have the secretary of the maryland department mental health and hygiene. he previously served as the commissioner of health in baltimore maryland and as the principal deputy committee of the u.s. food and drug administration. he has a long interest in health information technology, served on the health information technology policy committee for the u.s. department of health and human services and as you will see maryland is one of the state's that's actually made some progress, and this will be good to hear from the state perspective. with that, what i would like to do is ask our analyst a series of questions and then we will open it up to all of you as we always do. and i want to start with henry.

i would like you to start off the panel with a little bit of a historical perspective on the health care system. nearly half a century ago 48 years ago this summer to be precise, congress passed legislation creating medicare and ten years ago they passed the medicare part c program with a prescription drug benefits. you said nothing, approaching the complexity of this rollout has happened in the u.s. history. can you spend some time telling us about this and the problem some similarities and differences that you see in implementing it as opposed to these earlier bills? >> i would be glad to do so. i want to add one item. [laughter] that is why currently sit on the d.c. health exchange so i am

getting to see the implementation from the inside as well as from the outside. eight does seem to me that there is one similarity between the previous experience with major health reform legislation and the current one. and i have to say they all concern health care. beyond that, i think the more delayed to differences are more important than the similar a. the major difference, and it's critical, is that both the extension of medicare part c7 and the original enactment of the medicare legislation were bipartisan efforts. the original medicare program as a blend of republican and democratic proposals. indeed, wilbur lead it clear that he wasn't going ahead unless it was and it ended up being that way.

similarly, with the extension of job benefits, the division of job benefits to medicare there was a substantial support on both sides of the aisle although not all democrats lined up with the president's proposal but the time. there is another difference which i think is of critical importance in understanding this bill, the affordable care act. in contrast to medicare, the original enactment, medicare was designed with the administrators in the room as the legislation was being written and that meant that the problems of implementation were considered as the legislation was being drafted. the was not at all the case this time. the administration backed off to a considerable degree. the legislation was largely drafted within congress without very much republican involvement.

so it ended up being a struggle among the various democratic legislative policy groups but the degree to which the administrative concerns were brought to bear and the design was to put the matter minimal. a third difference that i think is in a way paradoxical is that in a we but medicare cuts the enactment of medicare and part d were more radical programs, and i mean radical in the following sense. they created new programs that supplanted or replaced would have gone before. the affordable care act got itself in pretzels in order to accommodate existing institutions and disturb the current arrangements as little as possible.

given the fact that the u.s. health care system is exquisitely complicated, that meant that the legislation itself had to be exquisitely complicated and it fully delivered on the characteristics the final difference, and i think that this goes directly to the question that you posed to all of us concerning the aspects down the road, we have in my opinion for the worst developed a very intense and fast reacting adversarial political environment in which analysis is done frequently coming used in the matter of what alice rivlin sitting in the front row once called forensic social science and that is forensic social

science mobilized to make a legal or a political case. and therefore, the oval room that administrators have for working through problems before they are brought almost hysterically to the attention of the public, that elbow room has been narrowed. let me stop at that difference and come back to the continuum. >> we are going to come back to the continue of the. as you noted, thank you. >> the perspective that we can bring a company's but we are then the ones that look at that policy and figure out what are the process he's that need to be

executed and what does the technology needed to support the implementation in the ad so getting some thoughts that there is confusion at what it might look like, take a few moments to talk about that. certainly it is important to understand that on day one we will be exchanged version 1.0 and not to be a confused with 1.0 that will represent additional process improvement. there is no doubt that this is an incredibly complex undertaking and it represents really the orchestration of many stakeholders bringing together the consumer engagement and all that that entails, revisions to the legacy and the policies in the insurance market all under very much a new program and policy environment that i think as the doctor said quite well has to be interwoven with the structure.

the states and the federal government will make the october 1st deadline and will have operational health insurance exchanges. but it's correct the road will be done before the initial period and until things spoke out and there might be some bumps in the road and what is being done to address them. above all the states and federal government are focused on the consumer experience and ensuring that. the individuals can traverse the programmatic boundaries between the various insurance affordability programs and medicaid flexible. and as a consequence, when giving consideration to the prioritizing functionality to be available on day one verses on the day's end, the prioritization is on the back office manual and things that will not disrupt that consumer experience. many states are also in the process that should be noted

implementing new eligibility systems for medicaid or what are sometimes called multi program eligibility systems. and states are availing themselves of 90 cents to do that and they themselves are at various stages of progress in the implementation. and so just as we are looking at kind of exchange readiness in the number of dimensions seriously, depending on where the state is in the implementation of the technology, that can signal the maturity from our experience the states are thinking about the work around they might need to implement on those interfaces behind the scenes to be perfected. another important element is while we are talking about the individual exchanges largely, we are really talking about families more than individuals who will be applying for the sentence and the family situations can be complex. you might have depending on the income threshold and family composition, a father that

applies for the subsidized policy and another that is pregnant may qualify for medicaid and child on the chip program and may be about another to emancipate out of the program, so understanding those complexities of this implications on the protocols and the handoff would have to occur before the entity so we have thought about things to minimize the bumps in the road. the first i would offer is the importance they are indeed the front-line. they need to be well trained, certified, and importantly coordinated in the messages that they provide, the policy if you will, the procedures that the articulate and coordinated with the health insurance exchange, the service understaffed and medicaid staff and it is worth noting that there are four different categories. there's the navigator that we know about, there are agents and brothers who has many no may

continue to be compensated but cannot serve as navigators and there are certified application counselors. succumb the point being that individuals and families will be coming through multiple channels to receive this assistance from the existing call centers. these new exchange customer service centers and the sister's life mentioned as well as local county and public health offices come as a coordinating and communicating is very, very critical. not every application also on day one is going to follow. they've got the technical industry so the habitat is what we envision with the goal where everything is done seamlessly through the website clearly that is agreeable and something i think we can continue to strive

for as we move towards the exchange as well as mobile of petitions and so forth and mobile what for use. and there will be the consumers that will be applying for an exemption and exclusion from the individual mandate. they will want to ensure the income that is being used for their eligibility is more current income than might be available through the services hub. more knowledgeable fully trained individuals to handle those more complex cases can be an effective strategy. two other quick point, regardless of whether a state is a state based exchange, federal we facilitated exchange-listed partnership exchange and we will give that definition shortly.

>> there is a handout that shows the maps of which states have which. >> it's important to know there are certain provisions of the act that create the ongoing requirements for those states. the local public offices and county based offices and the existing cooperation, federal operation and so forth is critical as to whether they are going to be a screen in refer state from the federal exchange and it tapped on and make final decisions of the state level. regardless what they choose however they still own the responsibility for that case going forward. and finally, the thing states are focused on is insurance market readiness and qualified health plans are available for

selection by consumers of procurement process these effectively run its course and i think that the information can be uploaded if you will to be presented in a good format going forward. >> i think that you are beginning to get a sense of how difficult this is. i just want to put a little personal anecdotes in here. when i was a teenager my father worked for the social security administration, and his job was to write the training materials for medicare. and he wanted to be very clear about how he was writing those materials. so every night he brought them home and he had me read the materials and answer the questions. so i do believe i was the only 15-year-old an america that knew how to determine medicare eligibility. [laughter] and i don't know that i could have figured this one out. [laughter] dr. sharfstein, maryland is one

of the all star states. i mean, every press account says that maryland is up ahead of everyone else on planning for this implementing it etc. can you tell us when you started, what you have accomplished and then if you were to talk to the state, there of many of them that would say idaho in the last months the decided they would start working on this where would you have then began or what triage advice would you give a state that suggests getting into this? >> thank you. i apologize for everyone to coming in a few minutes late. it was not reformulated problem though. so, i think that we are excited for october 1st next year in maryland.

we are doing everything we can. i'm not sure i can say it's an all-star or not. our goal was to deliver but from my perspective, maryland has been has had some unique vantage is and i am particularly waukee because of the level of engagement. before i started in the exchange there were pretty decisions being made. the governor and lieutenant governor had a series of 20 or so public meetings around the state and hundreds of comments from the public and they had established a broad consensus that made sense to the state based exchange and so the logic behind that is that maryland could control its own destiny and that there are unique aspects that the exchange creates it would be more likely to sensitive to the state based exchange, and it's interesting to me i would sit next to people

with some degree of understatement that were not huge fans of the affordable care iraq from other states and they would say how much they hated it and i would say we are supportive but there is an irony the only one on the panel that supported but we are the only one going our own way. everyone else is going to be in the federal government exchanging your area whether there was like a term that they used some amount of. we went off on our way. we see the affordable care act and i think that the analogy that we used most commonly is a set of tools the states can use and customize in different ways to accomplish both improved access and control costs. it doesn't guarantee an outcome but that's how we have really gone about. we have had actually three separate pieces of legislation passed and be signed by the

governor so far. the first one was to set up the governance and that proved to be largely to set up the government and identify the topic that should be studied in the state and there were six studies that we did in the first year. the government was absolutely critical -- >> this was in 2011. it was to take it one step at a time. that has been our motto. we didn't say we are going to do it this way and we've got it all figured out. we said what's the governance and of was nine people on the board, three of them state officials on the health secretary and chair of the board and public members, really terrific people, the head of one of the to the associations of maryland was on their and former secretary executive director of the american public health association, health economists, consumer advocates, those are

the great people. then we set about studying the issues and advisory committees on each one. there were stacks this high of supports and comments and people felt like they were engaged and we get it down to 28 or so recommendations of the legislature and then a 20 procession the legislature passed a policy framework. when we started i felt there would be like 12 issues the because ugliness in terms of the the date that we resolve the legislation. i give a lot of credit to the lieutenant gavankar that brought everybody together in the legislative process and we have a terrific office so we gave everyone a chance to submit amendments, we had 300 amendments and responded to each one individually so if you were in maryland you had an answer and it's not why not. we did that for each of the

three years and we set up a posse structure and made decisions unique to maryland and we decided we would try to integrate small group exchange in the existing third-party administrators who sold the small businesses. we wanted to allow the brokers to settle without having to become navigators. there's a whole bunch of things the related in maryland and that there was fixing little things and getting the funding structure in place. so i think that would be unfair to say we haven't had our share of this agreement but we have had an engage process that we have been able to i think every nettie has been willing to say let's try to get this up as well as possible and i have had to say to people on all sides of the issue one of the challenges that hits me of what is that people project on to these, it is their fear or their hopes and both of them can be valued if you say the exchange is going to fix this problem we have always

had a in not being adequately reimbursed it's like i agree with you that is a longstanding problem but maybe not by october october 1st. if we don't have an exchange functioning extent be hard to fix that problem and to the credit of people in maryland on all types of different issues like people understanding our mission is to try to be successful and stand something that and then decide how we're going to use it in different ways so there are a number of different issues on how the contract and will go and the brokerage commissions we aren't going to try to micromanage that we will see how it goes and encourage certain things and maybe have some plans to meet with different people. so do we not need to be focused on the job at the beginning. so to your question about other states, i think -- i really do

think that the governing structure is important and the ability to engage the public and people talk about what they want to get out of reform and thinking about it not as a uniform thing that has a set of tools that can be applied. then you want to create a can-do spirit and i think that we are incredibly lucky the board has come together. we've had two years and contested issues in the sense that we when we went into it we didn't know what the answer was going to be. we've had one unanimous vote over two years we've probably had 100 it's because we get to the point people are really confident and there's a spirit of okay maybe i would rather have it this way but here is an interim step and we are going to collect information and think about the next step.

it's not on what i would call the fundamental issue what's just of a vote on this and everybody laughed and joked that. i think that's been really important. so can-do spirit, public engagement and the strategic. deciding what you can and can't do to get going, people that are just getting started that will be eight asked you can do that by being transparent about why. it's more like know we aren't going to do this now but we are going to look into it and it's going to be that kind of approach. >> that's great. i wanted to ask you something a little bit more about design and candian implementation but it relates. the mandate to purchase of insurance is at the heart of the plan and is the least popular item in the wall.

how do you think this is going to work? with to get people who don't have insurance now to buy insurance? is there a chance of a combination of the mandate and the requirement until small and of the health care plans will cause premiums to rise for those who qualify for the subsidies and for those that don't? how do you see this working together? >> i have to thank you for inviting me and say that when i first heard you have dressing josh i thought you called him of the all spark. [laughter] >> i think you've asked a series of questions for which we do not know the answer. you're absolutely right the mandate is one of the most

controversial aspects of the legislation. certainly the supreme court decision and the debate that occurred about the mandate and heightened awareness. but the actual effect will be and how many buhle were assessed is one of the questions we don't know the answer to. many of the issues henry raised played out here in the tension that exists in rolling the program forward and detain the fed and the state and the absence of a bipartisan agreement and the red bull dynamic we have to confront which will be critical in terms of what people know about the program and hal that plays out. if you think about the size and the nature of the question is approximately 300 million people we anticipate having coverage of this country at the near term.

a large percentage of those individuals are already covered either in employment based coverage, medicare coverage, medicaid coverage, tricare, one of the systems. there's a large number of people frankly that will be exempt and the basis could be on and come for a tribal organization or a host of qualifications that essentially exempt them from the mandate. the latest estimates by the kaiser family foundation suggests there are about 30 million people there will be subject to the mandate who neither have incomes that are too low or premiums that the seed the capacity to finance them so the universe of about 30 million. one of the critical questions in the mandate is the importance to the success of the program going forward and the list is

exchanges and the other programs not having an adequate number of people that are both healthy as well as on healthy so one of the desires is to essentially get people into the system to avoid some of the issues that have existed historically with individual and small group coverage which has been very costly because they draw people that are most at risk. one of the risks going forward in the exchange is whether in fact those people that are most at risk and need coverage essentially decided to require themselves to essentially purchase that coverage. i think one of the great conundrums is how do you get the young healthy invincible and that is the target of the mandate to try to get the broad population to enroll in these programs. i think with my own a 25-year-old son and whether or not it is a penalty of $95 for

premium in excess of $4,000 with his decision might be. [laughter] so some of the questions henry raised and that others have raised about what the coverage will be, what the cost will be are of course questions we do not yet know the answer to. we know that in fact there are a central health benefits that must be covered and we are only now beginning to see what participation there will be on the part of the jurors and the exchanges and they are now essentially at the state level making the decision. we don't know yet what the process will be. some of the conversations are beginning to occur. i'm sure that josh has already begun to see some of the conversations in maryland and in states like oregon and washington we are hearing of that is a premium cost or not. but in other states, there is in fact that year as was suggested that the size of the benefit that is now required as a result will be more costly than people experienced in the past even of

the protection symbol. you have the requirement of the guaranteed issue no pre-existing conditions and things of that nature some believe will increase the price of the product so the question is whether or not people will participate and we also know there are very few people that understand what it is that is required under the law and what the expectations will be in the polling suggests people don't yet know what is in aca so this may come as a surprise to some and we will have people that will make a judgment that the cost of the penalty is less than was required in massachusetts is not sufficient to encourage people to get coverage that might be costly and those who may not qualify for the subsidy

so you have a product you are not certain of so that is yet to be discovered and there are a great many things we do not know. you have questions on the environment into which the states will in fact actively aggressively seek out and try to make people aware of what is available. we have heard a lot of discussion over the last few days and weeks over the efforts to publicize the benefits and what the requirements might be. those will play out differently in every state and there'll be some states like maryland and others will make an attempt to make people available. certainly the web sites, the navigators and a variety of sources of information will be quite important opposable vary enormously by states. there will be some states were quite well equipped to do that and essentially put the systems in place and other states will

be slow to essentially take up that mantle and in those states you may have a little take up that occurs. so we do not yet know. it will essentially played out over those months to take place over the summer and also will depend largely on the states and the kind of information the states make available. ultimately, it will also depend on what the product looks like and what the price looks like and whether or not people feel compelled to do so or whether it then becomes a source of coverage largely for people who are at risk and very costly. >> i want to ask the panel and anyone can answer this, a question that is actually prompted by the news reports lately which is the ariana's scandal has been bleeding into healthcare as well over the issue of the federal hub. the federal hub is the issue where the data from five

different agencies comes together in order to tell the states whether or not someone in that state applying should get the federal subsidy. now, it is a complex information technology question but the issues now that are a rising has to do with privacy issues. for those that don't know, this is a place where i arrest data as of your income has to come together. the data from the department from and security on york immigration status comes together, the department of justice on your criminal history, incarcerated people for instance can't get a subsidy for the enrollment and other entitlement programs and fifth is data from the state government on the residency. this is five streams of data and

the federal hub needs to be able to interface with the state exchanges to determine whether or not you are eligible for this subsidy. so this is a fairly complex issue and we are hearing over the weekend this is a terrible danger to americans privacy because of the amount of information that's there. so maybe bruce we can start with you and anyone else that wants to play and on how valid you think the critique is and where do you think the federal hub is on its implementation. >> it is quite broad which is as it actually illustrates there are a lot of unanswered questions and the policies are not how this information will be hilboldt or only now being finally formulated and they have downstream impact on the designs of the systems and the business prophecies in the workplace.

space take for example willie consumer beagle to view their tax information on their title to income as part of the information that comes back. they have a business process that began with presenting the consumer the information that is the most committed formation available from that source allowing the information to drive footraces how they apply for eligibility there is reworking the need to redesign they have an impact on the web site, the workflow and the system of record. similarly, while i absolutely applaud the shortening of the application, the simplified application down to three pages with a fourth page to have someone else completing it on your behalf, that change came at the 11th-hour that is the

operational impact and a lack of clarity that keeps a vendor such as ours up at night. >> will this be a potential for a violation of american prophecy will this be subject to all kind of funny business? >> yes, we can. the government has in its possession large volumes of data about individuals. the problem that has come of it is not one in violation of individual secrecy or privacy. it's the alleged misjudgments.

the idea that because the irs may properly have mishandled one particular piece of legislation doesn't mean that it stands as a potential malefactor in the administration of health care policy for all of our social security it does not set the social security policy. it is an administrative agency that is involved in the implementation of a particular piece of legislation. as always, attention has to be paid for safeguards and avoiding serious mistakes. i think she love really put her finger on the critical questions. you have an all out effort in maryland, a unified government working on behalf of the legislation.

in the state of massachusetts you had bipartisan cooperation in implementing something very like the federal legislation. as i mentioned, on the district exchange, and i can assure you that this effort is proceeding in that same spirit and i sure that this is going to happen in a number of other states. but one could mention michigan, florida, texas, it's maybe not so much so what i think is going to end up happening is that not so much october 1st of january 1st, march 1st as the legislation begins to bite. the question will be whether our political system is able to

focus on the fact that this program can and will work in some places. the success stories as a template for where the process can evolve and that is the hopeful story. or on the other hand, the disinformation system that has taken over, certain elements of communication in the united states are able to emphasize the problems that will emerge, that will occur and turn this into a debacle. i don't see that very often that he was absolutely right that health care will be the major issue in the 2014 campaign. i agree with henry as well.

we can see a variation across the country at the ease with which this is implemented. going back to henry's earlier comment about medicare at the time of passage and subsequently the medicare part b. benefit, it is one of the things that occurred as we were dealing with a known population. these were people that were in the medicare problem and qualified on the basis of the quarters were reckoned to have a relatively straightforward definition of who is eligible. i think that one of the great complexities for purposes of the exchange and the description of the source of information and to the exchange shows the complexity we don't know who these people are. we don't -- we melanie general sense who is on injured. we know in a general sense if you remember in a tribal nation but fundamentally, we really don't know who these people are, how they will come to us and what the source of that

information will be. we are also dealing with the enormous complexity of language. one of the plans the was raised about a simplified form really helps. but if you are doing it in the state of california, you have got, you know, 27 languages that you are dealing with. and that is true largely now across the country as well. and the of devotee of the individual to access the information to confirm the information, whether the have case of -- pay stubs to reach out to a population that may not have had access to or information from or dealt with the government i think will make again the success enormously across the country and make it quite difficult again in terms of how the information flows and how we get people into that system. it's a monumentally complicated process. >> how do you think you are going to deal with this question of who is eligible?

>> to make one point, we take security very seriously. the security plans there is a lot of attention on the issue and in the state of maryland we deal with all sorts of information. i was at a meeting with some foundations that want to help us with our out reached recently and one is the foundation and representative said to me that she was extremely worried, she was up all night and worried that people wouldn't spend the money because issues we talked about before on the mandate and the next person said that he was up all night and was extremely worried all these people would get covered and we wouldn't have enough primary-care doctors to take care of them. [laughter] and i said you know, the good news for me is you can't be ready i don't think any of you appreciated.

it wasn't a winning answer. [laughter] it is obviously a complex undertaking. there are a lot of different directions that could wind up going. we have to be prepared to roll with the punches a little that. at the same time there is a potential benefit and we are trying to keep our eye on that to mitigate them where we can. i will give you an example we made a decision and changed our essential health benefits plan after we got additional guidance in the federal government because we realized we had flexibility and wound up picking our small group plan after we jumped out and picked a different plan.

they cannot along the way and said look you have it right the first time and explain to certain people why something that they were looking for isn't there anymore and we were able to get past that it is easing the risk that is going into the exchange and in part because we want to be somewhat strategic to the extent that we can be so we are trying to make those decisions but we are going to have to see what happens and keep a close eye on the enrollment. i think that if our system works as we are hoping, we are getting it into the medicaid and medicare in rome and we will be the will to answer some questions pretty well because it will all be in one system and that can be used to make sense of the bill. it >> that brings me to the question i want to ask the panel which is already the hhs has had

to delay implementation on a couple levels. implementation of the sharp exchanges for small businesses and it's been delayed by a year. the preexisting insurance plan stopped taking applicants in february because they ran out of money. they've been criticized for giving out waivers to states, for companies in the bill. what's next? is it possible for instance the hhs would pull back on other requirements? the one that comes to mind that you just mentioned is the health care plans would be certified as qualified health care plans. is it possible that they pulled back on that for year or two and for some of the state's there's not enough plans signing up to be part of the exchange or are there other things out there that could be a mother could be a pullback to kind of get this

rolling. >> i think most of that has happened. the federal government my understanding is they are just not watching the employee's choice part of the shop. so there will be a small group market. you know, so, i think that we made some strategic decisions like that in maryland. there are some things i have learned to the window must have come a nice to have. that is just nice to have. i never used that word in quite this way. if this goes above not work have we met all of the contingencies

or dependency is another. but i would not anticipate major changes. that could be a surprise. >> do you agree? >> i wouldn't expect major changes that if anything what we are seeing is very -- a great deal of pragmatic fought as to what the implementation challenges are going to be and how the administrative relief in the confines of their capabilities they can offer relief to the states when a letter was sent to state health officials and medicare directors outlining five techniques they are encouraging the states to take to the targeted in a moment strategy to help facilitate medicaid renewal in 2014. and one of those techniques is to allow the states to implement the use and modify the income

and with the systems are ready and avoid that period from october to january when it needs to be determined in the two systems. that introduces the complexity and so forth in some of the other techniques are quite interesting like for example using income evidence from the snap eligibility determination for medicaid and mailing the medicaid cards to individuals so if anything is to the complexity where the answer needs to go as i said previously on the experience to try to facilitate as broadly as possible. >> i wouldn't disagree that i don't expect any major changes. i think on some issues that question has been asked the department said we do not have the authority of a certain delays but some of the interesting conversations may occur about medicaid.

and the number of states or setting a good example but essentially want to approach in many different ways. the question of whether you can stay in which is the answer was no but the question is are there other approaches? there are interesting conversations around would be used as the bridge plan dealing with people that essentially go in and out of the medicaid program as relatively on secure and at one point you are eligible and you are not. you're eligible for a subsidy and then you are not and essentially how to manage those individuals and families that are essentially in those kinds of transition periods and so there is a lot of conversation going on that at the end of the day a lot of this will be what we find out, how many insurers choose to participate and what are the rates like and what is essentially they made a decision about the health plan benefits

as their model each of the states has gone through a similar kind of process. i worked with the state of tennessee as they looked at this question and they held hearings to understand what people's interests were in coverage and as josh pointed out there is a great desire to have it required certain benefits which in other cases people would not view as the central so we have yet to learn from those conversations and that may modify the decisions coming forward. >> this summarizes what people have been saying all of the deadlines are going to be met and the exchanges on the 21st and the enrollment is going to start and the plans are going to begin, people will begin to go in on january. the other elements of the proposal are going to be met. the administration has shown great flexibility being able to

give ground on particular aspects of the bill that were potentially problematic and i think that the reason is quite simple. the first goal is to get this up and running. if it works, and a very much hope and expect that a well, then it is going to be with us for a very long time and eventually, it may even become possible for constructive legislation to pass congress to fix things that are not exactly right now. so the thing is to stay alive, get it up and running and then try to deal with the problems that emerged in the way that is described. >> one additional comment i would make is if we still have legislatures to our meeting and there are a number of decisions yet to be made by the states and that is also the unknown and buy insurance commissioners as well so there's a series of decisions taking place at the state level

in terms of what the decisions will be in terms of participation were not, exchange structure, a government structure that will inform us how this is going to go forward. .. >> i think there's going to be a lot of variability. i really do