bipartisan policy center here in washington, where senate finance committee chair max baucus is about to outline his plan for changing the u.s. tax code. we are also expecting to hear remarks from the co-chairs of the center's debt reduction task force, former senate budget committee chair pete domenici and alice rivlin. their recommendations propose just two tax brackets for individuals and a lower corporate income tax rate of 28%. live coverage now here on c-span 3. >> good morning. welcome to the bipartisan policy center. i'm michele stockwell, vice president of public policy. for those of you not familiar with the bipartisan policy center, we are a think tank and advocacy organization that works

with both republicans and democrats to develop solutions to the key problems facing our country. we have some packets of information out front that hopefully you guys can take a look that include our most recent proposals, including our tax reform proposal and a recent report that we did on the sequester. we were founded in 2007 by the former senate majority leaders, howard baker, tom daschle, bob dole and george mitchell. the bpc brings together all sides regardless of political affiliation or position when tackling a problem and certainly our federal debt is one of the most pressing issues facing our nation today. for the past two years, our bipartisan debt reduction task force led by senator domenici and dr. alice rivlin has been calling upon congress and the president to come together and enact a comprehensive bipartisan debt reduction plan such as the one developed by the debt reduction task force that would reduce our federal debt to 60% of gdp by 2020. clearly, tax reform is the other key piece of the debt reduction

puzzle in addition to entitlement reform, and we are pleased to be joined today by senate finance committee chairman baucus and this distinguished panel to discuss tax policy. here to introduce senator baucus is senator domenici, the former senate budget committee chairman and current senior fellow at the bipartisan policy center. thank you. [ applause ] >> i knew it would take a house member to recognize my prowess. bob packwood, i don't know whether he would applaud for pete domenici or not but there's no reason you shouldn't. i just want to say that for a long time now, we have been talking about our national debt. it's not getting any better. there are some cynics around who continue to think it's not very

serious. we've had this problem before, don't worry. i'm not one of those. i think we've never had this problem before except once when we were in a big war. we fixed that rather quickly and we spent whatever had to be spent for the second world war regardless of how much we overspent, because we had to win. once we won, it took about three, four years to get it back in balance. we have no such intent right now. nobody seems to be willing to see that that's done. but in trying to educate the public as best we can, with a president who doesn't seem to want to educate the public on this issue, we try hard but we are making the point, many others are making the point that the debt is too big and maybe it might be in some profound way affecting our life now and in the future. in the promoting of this problem to our people, we've talked

greatly and incessantly about reforming entitlements, no question about it. it's there all the time. but today, we say that the tax piece of the debt puzzle is going to be discussed, the tax piece of the debt puzzle is going to be given equal prowess with entitlement reform. anybody that looks at the entitlement package and the tax package, the tax laws of america, knows that you can't have one without the other. they're both in desperate need of reform. today we're very fortunate under the auspices of the bipartisan policy committee to have a number of superb speakers, experienced, knowledgeable in this problem, who will offer in their own regard and in answer to questions their ideas about this enormous problem.

our first speaker is a westerner like i am, max baucus. max baucus comes from the great state of montana and believe it or not, in his campaigning back home in the west, he has walked the longest distance of that state, he's walked it as part of his campaign. he's never forgotten that you have to get to the small people to talk with them so he has, annually he has a series of events which brings the people to him to talk about the problems and he gets a pretty good idea of how his constituents feel before he goes to work on problems here in the united states congress and as chairman of one of the most powerful united states senate committees, if not the most powerful and he as chairman is a quiet, determined man, and i'm very pleased that he agreed to come and share -- i don't think he's done this before in this

crisis, come and share his thoughts as i said awhile ago about the tax piece of the debt puzzle. so with that, let me thank max for coming and once again, introduce him to you so he can address us. max, thank you very much. [ applause ] >> thank you very much. it's a real honor to be here and i mean that. that's not to be said lightly. first, with colleagues of mine who i worked with over the years and who i think just did a super job representing their states and working to help solve the nation's problems. they're true public servants. pete domenici is certainly one and add to bob packwood,

another, and also my good friend, bill thomas. let's give a big round of applause to those former members of congress who are here, they really worked hard and still are working very hard. thank you all so very, very much. as well as to the bipartisan policy center, truly formed for the right reasons, bring us together. i've often thought nothing of consequence is ever accomplished by doing something alone. you got to work with people. it's a partnership. it's working together and certainly the bipartisan policy center has done that. i want to thank them, too, for getting together and helping advance the ball here. winston churchill once said however beautiful the strategy, you should occasionally look at the results. the need to overhaul the u.s. tax code seems obvious. today, the code is certainly not beautiful.

instead, it reminds me of hydra, the mythical greek beast with hundreds of heads. each time you cut one off, two more grow back. like hydra, our tax code is growing out of control. since 1986, congress has made 15,000 changes to the code. everyone agrees we need to get rid of the dead wood and simplify the code, and we should. but tax reform can't be an abstract academic exercise. we need to heed churchill's advice. we should start with a clear understanding of results we want to achieve. a 21st century tax code i think must promote four goals. these i believe are keys to america's future and securing our lead in the global economy. jobs from broad-based growth,

competitiveness, innovation, and opportunity. these four goals will be the heart of my tax reform plan but there are challenges to overcome. we need to get our fiscal house in order. america's deficits and debt are unsustainable. today, the debt to gdp ratio is 73%, the highest it has been since world war ii, as pete referred to. deficits and debt are not just a spending problem. revenues as a share of gross domestic product over the past few years are the lowest they have been since world war ii. we simply don't raise enough revenue. reasonable people disagree about the timeline. but the reality is, we're on a dangerous path. if we don't act, it could lead toward fiscal crisis like some european countries. any tax reform plan must be developed with a sound budget in mind that reduces deficits and

the debt. the deficit is not our only hurdle. not by a long shot. since the last major tax reform in 1986, the world has changed drastically. our tax code hasn't kept up. now it's acting as a brake on our economy. we need to move at full speed. it's time we had a tax code for the 21st century. when we crafted the '86 law, i was a member of the finance committee, granted a young buck, young junior member. it was in many ways a different world. back then, cell phones were bigger than your head. finding something online only meant you pulled a rainbow trout out of the blackfoot river. madonna topped the charts. i guess some things don't change.

the world has also changed in more profound ways. since '86, the u.s. economy has grown by 88%, but this rising tide has not lifted all boats. after benefits and taxes, the income of the top 1% of taxpayers has grown almost eight times faster than the middle over the past 30 years. and it's grown 15 times faster than the poorest 20%. tax policy can play a role solving this but it can't do it alone. we do not educate our children to become competitive in today's technology and information-based technology. over the past 15 years, the percentage of young americans with a college degree increased by only 15%. meanwhile, among our foreign competitors, that percentage increased by 90%. we are also in danger of no longer being seen as the land of opportunity. an american child's future earnings depend more on his

parents' income than they do in other countries. this lack of opportunity undermines the american dream. it hurts growth. it means we're not capitalizing on all our citizens' talents. family structure today are also different than they were in '86. there are fewer traditional married couples with one bread winner and more single parents and working couples. this means more families need to pay for child care but the code hasn't taken these changes into account. the makeup of the u.s. economy is also different than it was in '86. the number of americans in manufacturing jobs has dropped by a third. services like consulting, information technology, make up a bigger part of our economy. our exports as a share of gdp have nearly doubled and we're exporting different kinds of products. the united states used to mainly export goods like tv sets and clothing. today, we export financial

services, software and engineering. the global economy has become more interconnected. america's lead in the world has narrowed. our share of world gdp has fallen by nearly a quarter. competition has intensified. other countries have responded by making investments in education and infrastructure and by modernizing their tax codes to be more competitive. they have lowered corporate rates to attract businesses. they have shifted to territorial systems to keep their companies from moving overseas and they have tougher rules against shifting profits to tax havens. these tax games are easier in today's world, where a company's most valuable assets are patents instead of factories. in contrast, the u.s. has one of the highest statutory corporate tax rates in the world. we give countless tax breaks to businesses but many don't attract and retain investment. it's a waste.

we have stuck with the worldwide system but in some ways, we have weakened protections against shifting income to tax havens. as a result, the u.s. loses billions of revenue every year to tax havens and we also lose jobs to foreign companies acquiring u.s. firms. in the past two decades, the number of u.s. based companies in the fortune global 500 list has declined by 20%. foreign companies increasingly acquire u.s. companies. american jobs are often lost in the process. two years ago, a european company, unilever, acquired alberto culver, a u.s. company based in chicago. they closed down the illinois production facility. hundreds of americans lost their jobs. there are many examples of this, where a foreign company acquires a domestic because of the comparative difference in tax codes. when it comes to international tax rules, we seem to have the worst of all worlds.

we haven't kept up. it's time to change. how do we do that? we use tax deferral to get the results our economy needs, jobs, more jobs, greater competitiveness, more innovation and clearly, more opportunity. first and foremost, we need to create jobs. jobs come from broad-based growth. we can do this in part by trimming the fat from the code. most economists agree that lowering rates and paying for it by getting rid of tax expenditures generates growth. tax breaks have doubled since 1986. they now cost as much in revenue as the entire income tax brings in. some are worthwhile but many fail to create jobs or growth. and the uncertainty in the code. uncertainty impedes growth. there were only 14 expiring tax provisions after the '86 act.

today, there are 132. that makes it tough for families and businesses to plan or invest in their futures. we need to take a hard look at each and every expiring provision, decide which to make permanent and which to eliminate. we need to get out of the way of the market unless there is clear evidence that a tax expenditure spurs growth and creates jobs. every tax provision needs to prove it has a tangible benefit to our economy and society. if not, it doesn't belong in the code. second, we need to support american competitiveness. the tax code must adapt to the changes in the global economy since 1986. we need to update our corporate tax rules to prevent companies from shifting profits to tax havens where they haven't earned any income. we need to reduce u.s. companies' incentive to move overseas. many of the u.s. companies are choosing to keep jobs here at home and we need to encourage

it. third, we must support innovation here at home. microsoft and apple both started as smart ideas born in american garages. there's a reason why silicon valley and silicon alley are in america. it's because we're innovators. the tax code needs to bolster this innovation. innovative companies create jobs. today's economy depends more on innovative fields like high tech manufacturing and intellectual property. we can use tax measures to put research and new technologies on a more level playing field with existing technologies especially in the energy sector. finally we need to promote opportunity. tax deferment can boost sustained growth and make our society more of a meritocracy. many tax benefits including education currently give the most help to those who already have the most opportunities.

tax reform should refocus these benefits to help those who started out with fewer opportunities. we shouldn ensure more students get more education, not just college but vo-tech and community colleges and special training. americans are the most creative and the most driven people in the world. education is the key to unlocking our potential. it's one of the best investments we can make as a nation. a college graduate working full-time earns nearly $1 million more over his lifetime than a high school graduate, promoting education and opportunity will pay dividends. we can accomplish all this with tax reform. we can get results. jobs through broad-based growth. it puts america and our businesses in the best position to compete in our global economy. more home-grown innovation and opportunity so all our citizens have a chance at the american dream.

much of the talk in washington these days is focused on the so-called fiscal cliff. we need to address those crucial spending and tax decisions by the end of this year. but we must reach agreement on a long-term balanced deficit and debt reduction plan. as the bipartisan policy center's plan recognizes, everyone needs to contribute. deficit reduction must include both spending and revenues. it needs to ramp up over time to avoid slowing down economic recovery. but as we address the deficit, we must look a couple steps ahead to the next great challenge on the horizon. that is tax reform. tax reform is a once in a generation opportunity. we can celebrate america's preeminence. the work has begun. last year the committee began a comprehensive review of our tax system. we've held numerous roundtable

discussions. we've reached out to businesses, labor groups, tax experts and many others for input. we have held hearings to study the specifics. i'm making progress on a detailed tax reform proposal that will attract bipartisan support. we know tax reform won't be easy. we will need to slay sacred cows. when favorite tax breaks disappear, someone will always be unhappy but that's the wrong way to look at it. the right way i think is to remember that tax reform should focus on the results that we want. it can create jobs. it can spark innovation. it can expand opportunity. it can guarantee our competitiveness. it can put america back on top. thank you very much. [ applause ] >> i'm the senior director of economic policy here.

two or three questions from the media, senator has to get back to work, so if somebody's got a question, fire away. nancy? >> -- international tax system differs -- >> speak up? >> i'm nancy cook from national journal. senator baucus, i wonder how what you're proposing in terms of an international tax system differs from what the chairman proposed last fall. >> well, i'm not sure what he proposed, frankly. none of us know precisely. the main thing is this. i believe too often in this town we're focusing on mechanics, broaden the base and lower the rates. should we have a territorial or worldwide system at that. rather, we should figure what we want to accomplish with tax reform. what's the real reason for tax reform, why are we doing this?

sure, it's complicated, not very simple. we know all that. i don't know that we should make the changes simply for the sake of simplicity or simply for the sake of broad base and rate reduction, which i agree with. i think it brings certain benefits but while doing so, let's figure out what we want for our country. that i think is slightly different from chairman camp. i think if he and i were to sit down and talk about all these points, i think he would agree. we've had several meetings already. but my main point is let's focus on the results we want. the world's changed so much. there is so much at stake. it is partly the fiscal cliff that has to be addressed, clear, no debate there. but here's an opportunity to sort of refocus our direction so our kids and our grandkids are much more likely to be better

off than we are. we all have a moral obligation, we leave this place, to leave it in as good or better shape than we found it. here's an opportunity, especially since there's not been a major change in the code since '86. >> yes, ma'am. >> kim dixon with reuters. what do you think the most likely scenario is for an end of the year deal dealing with the fiscal cliff, the sequester? some people think one year extension and some kind of trigger or fast track to get tax reform going and to force the issue, and then can you talk about how you see -- how you divide the bush era tax cuts in terms of the wealthy? nancy pelosi has called for a vote on earners with a million or more in income. do you think that's the way to go, or stick with the 250 metric? >> with due respect to all of those specific suggestions, i again think that the better

approach at this point in june, june 11th, is to do what many of us are doing, namely, engage in a lot of discussions, republicans and democrats. i have attended many such meetings in the last several weeks. by and large, keying off of rivlin and domenici, keying off bowles-simpson. they tend to be rough starting points that people agree with. to be candid, i don't think many members of congress have drilled down the details of bowles-simpson and rivlin-domenici. that's part of the exercise here. i'm going to hold hearings on each one, on bowles-simpson and rivlin-domenici. that's an opportunity for senators to better understand what is included in each and better understand the trade-offs that are needed in order to reach a solution. starting say with entitlements. people talk about entitlement

reform. well, what is meant by that? let's take medicare. various actions one can take under medicare. senators and the country frankly need to know what the trade-offs are and what each change actually costs or what the consequences are. same thing on the revenue side. i'm a firm -- i firmly believe where there are facts, people tend to focus more on facts and less on rhetoric. i'm trying to get away from the rhetoric and get people to think about the facts. in these hearings, we work and we work together to get tax reform and deficit/debt reduction. my view is everything's on the table. that's a psychology which i think is very important to keep people talking, keep people working. i'm going to be having a meeting of the finance committee next week with members of the finance committee. it's probably the first step

members only. but we're going to talk about the traditional extenders only, and is there a way to get traditional extenders passed and down the road, extending some, repealing others, without any games. by that i mean democrats don't offer buffet tax and republicans don't offer repeal of estate tax. that's a chunk we can maybe deal with. then my hope is that senators start talking among each other, it develops more trust, we start to figure out better what to deal with with the cliff, but the precise questions you asked i think are questions which we have to put off. we're going to get this solved one way or another. the better way it's resolved if there's more agreement is what it should be, is also my view which not everyone subscribes

to. we should try to avoid divisive votes prior to the election because i don't want members of the house and senate too locked in, making difficult lame duck to do what's correct, the right thing to do. we all know what's the right thing to do. it's just a matter of politically getting there. >> would you support some kind of mechanism in place, an end of the year deal, that would force tax reform? >> that should certainly be on the table. i know chairman camp talks about that and i think it's an idea that has to be fully explored because otherwise, you're begging another big issue, should the tax cuts be extended or should they expire and which one's extended, which ones expire. chairman camp talks about extending them all for six months or so, then doing tax reform. the danger there is congress won't act, won't address the deficit, and i think that's a

big danger. his answer to that is -- i'm sorry, i'm speaking too long, his answer to that is a trigger. well, we looked at triggers in super committee. we might be able to find a trigger. we'll see. >> could you address a little bit the issue, senator, of how flat the code should be? it's in vogue right now that there should be just a few rates and basically all kinds of tax incentives and tax expenditures should be eliminated. can you accomplish the kinds of goals that you're talking about with that kind of flat code? >> well, all things being equal, the flatter, the better. but all things are never equal. there are so many other considerations. let me just put it this way. remember some time ago when mr. forbes ran for president, he

advocated flat tax and it was supposed to be revenue-neutral. as i recall, that would be about 18%, 19%, a flat tax, everyone would pay it. i may be wrong on the precise rate but it was close to that. and the thing is, when people start realizing the actual effect of that, they backed off. under that proposal, that flat tax proposal, those with incomes above 200 get big windfall and those -- back then, and those under would have to pay a lot more in taxes and a lot more people would have to pay more taxes than get the windfall. but you have to be very careful and i must say, too, that some of the flat rate proposals also suggest major tax expenditure eliminations to get there. i think some of that's a little