in the past. and should help power our economy in the future. and because we have a balanced approach, it means we don't have to slash the social safety net as the republican budget does. so i'll just close again by saying the issue here is not whether we reduce the deficit. and whether we reduce the debt. we have to do that. the question is what choices we make in the process. and we believe that the right approach is the approach taken by various bipartisan groups that bring a balance to the equation, looking both at the spending side of the equation, but also the revenue side of the equation. and with that, again, i thank you for the invitation, and look forward to any questions you've got.

so we're going to start by fast forwarding a little bit. i want you to bring us to the november/december time period and tell usow >> well, we have a convergence of at least three major fiscal events, right? one is the sequester. one, of course, is the entiration of the 2001 and 2003 tax cuts. all of them. and then we also have the looming issue of the debt ceiling where we're currently scheduled to hit the debt ceiling probably sometime at the end of next year. we may be -- end of this year. we may be able to manage it into the early months of the following year. so the convergence of those events hold a couple possibilities. one possibility is that it's an action-forcing event that produces a positive result. where you could get an agreement that deals with the question of

the taxes together with the sequester. after all, the sequester is about $1.2 trillion in deficit reduction. our budget, the democratic alternative budget, which we'll have on the floor of the house today, like the president's budget, eliminates the sequester, and replaces it with $1.2 trillion in deficit reduction by taking thissel baaed approach. now, at the end of this year, under current law, as i said, all the tax cuts expire. and that's about $5 trillion compared to current policy. >> right. >> so you have the ingredients for a deal that could take a balanced approach along the lines of various bipartisan commissions. the question is whether or not in that short period of time, after the election, congress would be able to deal with that. or whether you would really have to have that spill over into the first couple months of the new

administration. i think that if you don't get the -- a longer-term agreement during that period of time of the lame duck session, which would be difficult if tax reform is a part of this equation, that you're talking more likely having to address this in the early months of the next administration. although, you know, again, we would all -- just to be clear. we would all like to do this sooner rather than later. but that ability to get the balanced approach is has so far escaped us. >> this is the budget policy budgets. let's rewind. the ryan plan, which almost everyone thinks is going to pass the house, has been criticized as a really not serious approach, because of the tax th. the democratic plan is also seen as a not very serious approach

because $6 trillion to the deficit. the question is, why did you not ta opportunity to go far enough in addressing the structural problems of the social programs that are really driving at least half of the problem? >> well, i'm glad you asked that. the democratic budget, just to be clear, takes us down from a deficit, which is over 8% of gdp today, to under 3% of gdp by the year 2015. and keeps the deficit under 3% of gdp for the remainder of the period, and stabilizes the debt as a percentage of gdp t. sort increase in the deficit and debt. we stabilize that during the end of the period. now, the issue of dealing with medicare has been an important question in this debate. and i had a chart with me, but i didn't end up bringing it in.

but it's a very useful chart, bass it was a chart that was offered by the chairman of the committee, paul ryan, during our budget markup. and what it showed was with respect to medicare, which is obviously a driver of future costs, that the plan that he laid out, that paul ryan laid out, and the plan that the president has proposed, and the one that's adapt adopted in the democratic alternative, actually had the same cost trajectory. on medicare. those lines are the same. and the question is, how you hit that cost trajectory compared to the projected increase in health care costs. how do you deal with that gap. and the republican proposal, as i said, gives you a voucher and puts the risk on seniors. the approach we have taken is to try and change the incentives in the medicare program, to put more focus on rewarding people who deliver value care, quality

of care, rather than the quantity of care. in other words, you don't pay the hospital every time someone gets readmitted to the hospital on the same related -- the same condition. and we've already begun to implement some of those things. there are other mechanisms in the affordable care act that do that. there are backstop provisions to also bring down those costs. so we have very different approaches, but interestingly, the chart presented by the chairman of the committee showed that the cost trajectory for dealing with those costs was actually the same under both plans. so we do address those issues. we're going to need to do more. these are ten-year budt windows. we would get projections, you know, way out into the future. but we're going to have to take this one step at a time. the first step was to stabilize the debt. we do that. >> none of the budgets we have seen over the past week have

adequately addressed social security. why is everyone avoiding social security? >> well, i think the best approach to social security, and this is an issue that we discussed, actually, in the super committee, d disappointed we didn't address some of these issues in that context. you really need to take the approach that ronald reagan and tip 1980s, which is a bipartisan approach. i think that the model for how you get this done is out there. but you're right. i mean, that issue is not specifically addressed. now, i would point out that the social security trust fund is 100% solvent between now and the year 2037. if congress takes no action between now andal security beneficiaries would take about a 25% reduction in their benefits. so it is a significant issue that should be addressed.

the sooner we address it, the better. but i do want to make it clear that the social security trust fund as of now is solvent, projected to be solvent but the trustees 100% until that point. >> without addressing social security, though, what -- why should anyone really look at any of the budgets that are at play right now, as anything more than just political documents? >> well, unfortunately, for the purposes of this year, in other words, for action in congress through the remainder of this year, i think the parts of the budget tha potentially acted upon are really -- are the portions that deal with discretionary spending. through the appropriations committee process. and as i think a lot of people in this room now, part of the budget control act that we passed last year, which has $1 trillion over ten years in discretionary savings established these budget levels.

including for this current fiscal year. at $1 trillion 47 billion for all the discretionary spending, spending on ongoing operations of government. unfortunately, the republican budget violates that agreement. they came in at a lower number. and that could create complications down the road, because i think the senate is stick with the, you know, agreed upon levels. i hope that doesn't lead to threats of government shutdown in the fall. we had hoped that by getting that agreement, we would have some stability in the process. but as to the other big pieces of the budget -- so taxes, tax reform, how are you going to move forward on some of the bigger health programs, medicare, medicaid, these other are going to be dealt with in the campaign. i mean, these are issues for the

presidential election. there are major differences of opinion. the real issue is, after that election is over, are we going to be able to reach some compromise? there's some people that say, well, look, these elections are going to send the -- the public is going to send such a huge an going to point the way in just one direction or another. it's going to be crystal-clear. my view is that the election, while it's going to -- all these issues are going to be debated, at the end of the day, you're not going to have sort of one answer from the public. you're going to have to compromise. and at the end of the day, while people have strong feelings about what they believe is the best way forward on each of these issues, you're not going to get a solution without genuine compromise. people just can't get it, things 100% their way. which is why we believe the approach we have taken, at least as a step, in that direction, by taking a morel baaed approach -- >> we'll come back to the post election period in a minute.

but let's stick with one area of commonality among the budgets we have seen. that is this frenzied popularity of closing loopholes. >> yes. >> you don't get a lot of money out of closing loopholes. but we can come back to that. mr. ryan wouldn't answer the question about what loopholes he thinks. what loopholes he has in mind for ways and means to deal with. will you? >> well, there are a couple areas we believe -- excuse me -- on the corporate tax side that we need to address. and there are some incentives in the tax code that we think -- provision tax code that we think provide some incentives for people to move capital and jobs overseas, simply because of the tax code. for example, the fact that you can deduct your interest on investments overseas here at home in real-time, even though you're not taxed on the proceeds of those investments. so there are things -- and

they're in the presidents 's budget, actually. and we adopt many in our budget, which we would do right away. in terms of comprehensive tax reform that lowers rates and broadens the base, this is -- you're right. everybody says they're for tax reform. the issue is, how you do it. and, you know, my view is, people should not race to declare that they're going to get the tax rates down to a certain level. because we have to see which -- which of the tax preferences, tax expenditures, can be eliminated, and in what -- in what way. now, one of the things i proposed early on, you begin with higher income individuals, and you can begin to lower some of their tax use that to lower the rates a little bit, and take some of that revenue for the purpose of deficit reduction. but you've raised a really

important point, and one of the republican budget is they say they're going to drop the top tax rate from 35% to 25%. we have challenged them to show us how you do that without actually increasing the tax burden on middle income americans. you -- every analysis i've seen, you cannot do that in a revenue-neutral manner without raising the tax burden on middle income taxpayers. because when you drop the top rate from 35% to 25%, according to the tax policy center and the joint tax committee analysis, as i've seen attract this, that's $4.6 trillion in lost revenue. now, if you say you're going to make up $4.6 trillion in lost revenue, through getting rid of tax

out the whole mortgage deduction, and you still don't get close to $4.6 million. you can take on top of that and get rid of all of the health -- the health -- employer health exclusion. you don't get -- you add that. you still don't get close. so our view is that in saying that they're going to drop that top tax rate to 25%, they are essentially prescribing an increase in the tax burden for middle income americans. now maybe you can get the taxerate down a little bit. now, again, it depends on what your baseline is, not to get too much in the weeds. but under current law, the top tax rate goes from 35 to 39. so maybe under tax reform, you end up getting it to 36. maybe depending on how you do it, 35. but talking about getting it down to 25%, not only do you in burden on middle income americans, but you're not going to have any of that money available to go for the purpose of deficit.

reduction. and everybody bipartisan group that has looked at this has taken a sizeable portion of that revenue from tax reform for the purpose of deficit reduction to get a balanced plan. >> all right. the 4.6 is correct. it's 5.4 for the bush tax cuts. all together, the house budget would require $10 billion, and you would only get 1.1 out of loopholes. but he did raise an interesting point. we should be talking about who, not what, we're affecting when we are elimiti expenditures. so let's look at it this way. the five biggest individual tax expenditures are the exclusion of employer health insurance, as you mentioned, the exclusion of employer pensions. then the mortgage interest deduction. then the medicare exclusion. and then the capital gains rate. beyond -- i know where you stand on the capital gains rate. are those other forefour things something you're prepared to negotiate on? >> look, as part of a comprehensive tax reform plan, i

would be willing to look at all those things. the issue is, after you deal with the interactions, what's the -- what's the consequence? one of the principles that i would insist on is that we adhere to at least the current progressivety in the tax code. so as we deal with these different preferences, my view is we should not raise the burden on middle income tax payers relative to higher end taxpayers, which is why when our republican colleagues take capital gains off table, which, you know, mitt romney and actually the house republicans have, you're taking off the table the one -- one of the major tax preferences that definitely benefits the wealthiest taxpayers. and so if you're then looking at mortgage interest deduction and the health exclusion, those are -- those are tax preferences that help middle income

taxpayers, which is why, again, we've made the point that by dropping the top rate from 35% to 25%, and saying you're going to do it in a revenue-neutral manner, you're going to squeeze middle income taxpayers. so, again, i support the notion of looking at ways to get rid of some of these -- to get rid of some of the preferences in the tax code do them carefully. you can't do everything all at once, because that would be a shock to parts of the economy. you would need phase-in. but the essential principle is also that it in a way that just increases the relative burden on middle income taxpayers. >> i just want to be clear about this one thing. the mortgage interest deduction is one of the most popular parts of the tax code. is that fair game? is that -- is this something that you're willing to say, okay, if we're talking about tax reform overall, then this is on

the table. >> right. well, two things. number one, as i said, you don't want to do any of these things abruptly and in a economy. so with respect to the mortgage interest deduction, if you do anything in this area, you've got to make sure that you don't shock a very fragile housing industry. because a lot of the prices built into homes right now, take into account the fact that, you know, a buyer cane home mortgage interest deduction. so my view on tax reform is that we should look at all these things. i'm not saying we don't -- you know, we can look at all of thesesee we can do it in a way where the burden on middle income taxpayers is not increased. that is the -- that is the sort of underlying principle i bring to it. whatever we do with respect to tax reform, let's maintain at

least the current progressivetym i've got with their proposal that just says let's drop it to 25% is we i think i'vknseen, t will do the opposite, and i would point out that the tax policy center also concluded that in addition to an average tax break for millionaires of about $130,000 from locking in just the top -- that the current tax rates for the folks at the very top, you would get another 250 -- $250,000 average tax break from this drop from 35% to 25%, if it you're making over $1 million. that is a big tax think it's totally unjustified. >> okay. there's one more question from me before we go to the audience. i want to turn to defense. the democratic amendment, the alternative to ryan, assumes even more savings from the iraq

and afghanistan wars than the obama budget does. but it's savings that wouldn't be there anyway, because the spending won't there anyway bec spending won't be there at that time. why rely on something that everyone in the expert community just sees as an accounting gimmick? >> well, that's what some people say. but if you look at what is happening right now with overseas contingency fund monies, they're already being used today for things that are not directly related to the operations overseas. so those monies are already being poached, so to speak, to add to the baseline defense budget. >> but it goes beyond the overseas contingency fund. >> i'm sorry? >> it goes beyond the overseas contingency fund. i mean, the savings that we're talking about in here is far beyond even what the obama plan put forward. >> the reason we decided to take the additional savings is

we're -- we support the idea the president has put forward, that all u.s. troops should be out of afghanistan by the end of 2014. so we have the full funding for all the overseas contingency account through the year 2014. at the end of 2014, we say our troops are going to be out of afghanistan. . we're not going to need those monies anymore. some people are saying you've got to keep those funds there because we may still be engaged in combat operations overseas. that's very different from saying those aren't real savings. that makes those real savings. what we're saying is if you still have combat operations going on beyond 2014, you've got to find a way to deal with this in your baseline budget. you don't get this extra sort of, you know, what would then become more of an extra fund to dip into.

and so to say that those aren't real savings when there are people talk about right now about using that money beyond 2014, i don't think that's accurate. >> okay. let's go to the audience. i can't really see you guys. soopho i'm g people. >> hi, this is gretchen young. i have a question about the employee exclusion from employer provided health care. i hear what your saying in terms of not increasing the burden on middle income taxpayers. do you also see a role -- the value of preserving a role for employers -- i'm sorry. do you also see the value of preserving the role for employers in providing health care to their employees? >> i'm sorry, i didn't hear the last part. >> do you also see the value of preserving a role for employers providing health care for employees? >> yes, i do see a continued role for employers providing health care to employees.

as you probably remember, as part of the affordable care act, we actually did address a piece of this issue with what were called the so-called cadillac plans. some of the health plans that were considered to be -- have extra benefits, above average benefits. and there are provisions in the affordable care act that in about four or five years will begin to tax a portion of the employer-provided health benefits. but this is an area, as i said, you've just got to be really careful as part of tax reform because i don't think it should be used as a way to increase the burden on middle income taxpayers relative to higher income taxpayers. that exclusion disproportionately in this case

benefits the middle income taxpayers. now you may wantto piece, again, as part of health care, as part of future health reform in savings. but you've got to be very careful about it. finally, as you know on the affordable care act, there is a role, of course, for employers would create the ovide coverage. exchanges for people whose employers don't provide that health coverage. that's a very important piece. it's obviously subject of a debate that was going on for the last three days at the supreme i hope they will uphold that law, because if they don't, they undo the individualthat would undermine these exchanges. >> next one. got a question back here?

>> edward roeder, sunshine press. we've seen that the greek model sort of doesn't work, and greece is now largely governed by financial dictates from abroad that are telling them how they must run their country. to what extent does the model with its congress financed by campaign contributions largely from the wealthy approach a system that doesn't work given that the wealthy don't want to be taxed? to what extent does our present system of democracy as interpreted by the supreme court allowing money in politics make? >> well, i don't think it makes it impossible to governor. clearly eve that if you look at there is a high degree of

dysfunction. i would point out that just a few years ago, many people were complaining that congress was doing too much, not too little. whether you love what we did or hated what we did, passing affordable care act, the wall street reform bill, the recovery bill, those were all major actions taken by congress. in fact, it was one of the most productive legislative periods in decades. now especially as it relates to the budget, we have a lot of gridlock. and we talked about how we -- certainly i hope that after thelections, there are some action-forcing events that could help us resolve some of those issues. now with respect to the role of money in campaigns, i do believe we need significant reform sponsoring many bills to try and reform the process. a series of supreme court decisions have made the problem even worse. we're seeing that every day right now.

through not just super pacs, but the continuation of secret money. now one of the things the supreme court has been clear is legislation that we can still do is to shine a little sunshine on some of the expenditures that are being made. that's why i introduced the disclose act, because much of the money being funneled into some of these organizations, so-called ions is secret money. it doesn't have to be disclosed. and our view is voters have a right to know. it's an important part of the political process that we have transparency, that the transparency helps bring more accountability to the process. we passed the disclose act two years ago in the house.got 59 v. couldn't break a filibuster.

if senator kennedy hadn't passed away, the disclose act would be the law of the land. but while that doesn't -- wouldn't solve the problem of the huge volume of additional funding flowing into campaigns, it would at least address this question of secret money going into campaigns. and i would hope that everybody would support that. i mean republicans used to say they don't like some of the campaign finance reform laws, but they support disclosure. well, this is an opportunity to support disclosure. it's as simple as that. this is a voter right to know bill. >> let's have one more from the audience, please. no more? one over here. >> i'm just curious. you were talking about certain ways we could find a middle ground such as the top income bracket, maybe bring it to 56 or 35. do you see any other inroads

koko take towards bringing these two plans together, other practical steps that would help us form maybe a middle ground in this? >> well, if you're going to address the revenue part through tax reform, that's the direction that you've got to head. you've got to head in a direction where you try and either reduce, rein in om of the preferences as part of reducing the rates. and then the question is, you know, what is the income effect, the distributional effect, and how much revenue you generate as part of a balanced approach. now one of the big challenges you face is that when you see these lists of how much revenue it contained -- well, let me rephrase this. how much is