provide insight to the american public and journalists and the decision made to threats in somalia and yemen. as it relates to isil more generally, we are concerned about the threat that is posed by these foreign fighters. it is believed my biso ed by so that there are dozens of individuals with american passports who have traveled to the region to fight. there are some reports that indicate that there is a risk that those individuals could return to the west whether it's the united states or one of our allies, using a western american passport to travel, you know, either completely unimpeded or relatively unimpeded in a way that poses a threat to the american people and the president will not hesitate to

take the actions needed to protect the american people. >> there's political action on capitol hill -- americans who are serving, fighting along isil. is that the measure we expect to hear more from the president about on wednesday? is that something he would support? >> i've read about some of those pro pose sales, but the administration is interested in working in a partnership with members of congress, democrats and republicans, as we confront this threat. >> american combats boots on the ground -- yesterday in response to chuck todd of nbc news. >> i've heard of that guy. >> president chuck asked him who's going to go into syria and the president said syrians like the free syrian army, are going

to occupy that space assuming that the president is successful in pushing isil back. the free syrian army, the administration has been reduck tant, to send them shoulder launch ground-to-air missiles and man pads. some of the equipment has shown up in isis hands. why is the free syrian army now a more viable and trustworthy fighting force than it was just q: >> we have for more than a year now, been providing nonmilitary and military support. providing military support is the term of art. >> so now, with lethal military support if they're going to be carrying a fight as a proxy for these coalitions. >> it's important for people to understand that support from the obama administration has been

flowing to the moderate syrian opposition for more than a year now, and that includes military support. the president has sought and this was in the context of the west point speech, that the administration has sought additional resources using our title ten authority to ramp up that assistance to the syrian opposition. that certainly would improve their capacity and success in taking the fight to the assad regime and to isil to essentially or to effective ly wage that battle, so there is an effort that has been underway for some time. we have as you point out, sought to increase that assistance. now, the question you're asking though is a more complicated one, why them. right? >> why them.

and who else? >> it's complicated, but not illegitimate. why them. it's their country. again, the president is, i think the president again in the interview described it as a profound mistake to commit american combat boots to being on the ground in syria. this is not a fight that the united states can take on for them. the united states is willing to be supportive as they try to put

in place a government and we're going to continue to support them! their country three years later, 162,000 people are dead. millions of refugees all over the region. again, why not them? why didn't this plan -- >> i would say a couple of things about that. the first is, the united states has been engaged in an effort to support them and we have been for some time. for more than a year at least. separately, the concern that was expressed by the administration at the time and has been is something that's been offered repeated is often a concern we didn't want to provide assistance to every individual who said they were fighting. had we done that without thoroughly vetting them and building the relationship necessary to understand who we're providing weapons to, we would have provided weapons to the people we are now fighting in iraq. so, there was a question of who exactly was included in the syrian opposition and which of those elements were interested in putting in place a government

that reflected the will and diversity of the syrian people and which were members of the opposition who were extremists hoping to use the power vacuum that's been created by this civil war in syria, to try to carry out their own vision in this region. so, the reason that the administration was interested in carefully vetting the individuals who are part of the is syrian opposition is because we wanted to make sure our stance was landing in the hands of the people who were trying to that -- carrying out acts of violence throughout the region. so, this challenge certainly contributed to the policy to

ramp up our assistance after we had vetted these individuals and get a better understanding of their intentions. >> very direct questions and i didn't hear a direct answer, so, can you -- >> i'll try. >> with a yes or no. >> i'll try. >> does the president intend to ask congress for authorization to expand his campaign against isil. just a yes or no. >> the president was asked this question -- >> didn't give a direct answer either. i covered congress for years and i don't know what you mean by buy in. that seems to me to imply a

vote. is that what you want from congress? >> if you want to get insight into the president's current thinking about this, then i would refer you to the answer he gave to chuck in the interview 48 hours ago, but the other thing i would point out that's also part of your question, if the president decides to expand the operation and these are the kinds of questions that are best answered after the president's made fundamental decisions about what he wants to do there, that you know, that if there is an expansion in the operation that takes place, what consequences are there for a whole range of things. for diplomatic relationships, what kind of assistance are we going to seek for our partners, for our governments in terms of the role we can play here and what role does congress have. so, it's hard to unless we're talking about a specific order from the president, it's hard to talk in very specific terms of what we want congress to do, but

as a general matter, what i can say is that the president is is interested in their buy in, in a congressional debate and is interested in consulting closely with leaders in congress so they feel bought into this process and they feel like the partners that they are as the elected representatives in the american people. >> the president did make a decision on air strikes of syria under different circumstances previously and his decision at that point was he need ed congressional authorization or wanted it. if he were going in that direction again and wanted an air campaign in syria were necessary, safe to assume he would have the same he would ne need. >> the situation -- related to

the protection of american citizens, the president believes that he has all of the authority necessary at commander in chief of the united states. all the military action necessary to protect american citize citizens. >> including strikes in syria. if there is an expansion, the president's military orders or if there is an expansion of the scope of operations the president's willing to consider, at the point the president's made that decision, they can make decisions about what sort of role is require d if any. >> give you a sense on the timeline? something the president's -- >> when you say this? well, the president has been regularly consulting with his national security team for weeks now.

when they are confronting these meetings -- iraqis trying to form a central government. they've made tremendous progress -- in a cabinet. there are, there's important work being done by the secretary of state. he's traveling to the region this week where he's going to be consulting with regional governments. i think the president was pretty powerful in explaining the role that these governments have and the stake they have in resolve ing this conflict. the president highlighted that so often these sunni dominated governments perceive shia led governments as the principle threat the to their able ility lead their country and to remain in power.

takes a greater threat for more extremist sunni elements that have demonstrated significant capacities to wreakty. there are a number of -- priority, talked quite a bit about the beginning of this situation ordered an increase in intelligence as;çxisets to get better sense of what sort of what was happening on the ground and to better assess the capability of the isil and iraqi security forces. there are other elements, theqs use of military force. the reason i'm running through this long list here is to illustrate to you that this broad strategy is president has put in place is regularly discussed and they're discussed every element in each

meetinging. >> on wednesday, first of all, is this a prime time address, daytime speech? >> we're still working through the lodgistics of the speech. we have more details, we'll let you know. >> is the purpose to announce a new phase in this military operation or outline what he has already outlined? the interview over the weekend, the press conferences, what his strategy is? >> the speech isn't written yet, so i don't want to get ahead of describing a speech that hasn't been written. i wouldn't rule that there might be something new, fwu principle goal here is to make sure that people understand what the clear stake is for the american people in our nation in this ongoing violence we're seeing in iraq and syria. he wants to describe what sort of tools are at the disposal at

the american government as they try to protect our people in the region and the president wants to have, wants to lay that out clearly. does that mean the president may have something new to say? he might. but i'll wait until the speech is written before i start guessing about where he's going to end up. >> asked a moment ago, has the president decided to expand the war to syria. you said the president will go where necessary. that sounded like a very near confirmation. do you interpret it that way? >> no, because the president's made a decision like this to expand our military operations, you can expect the president himself would announce a decision like that, not just little old me. that is the statement of the president's view, in terms of what soort of authority he has as commander in chief to confront these challenges and he's determined to act where necessary to protect american citizens, both in the region and

homeland. and that principle, that principle continues to apply in this situation as well. >> it's not a matter of whether, just a matter of time. >> if and when the president's made a decision along these lines, it will be something the president wants. >> wednesday's speech? >> no, the purpose of the speech on wednesday is broader than that. again, military action is one element of our strategy and the president has this integrated strategy that relies heavily on american's forceful diplomatic mite and a range of other assets that we have in our disposal and the president's going to use all of them. >> would you say for the sake of argument, i was an american who watched the president's press conference at the nato summit and watched the interview yesterday. after seeing wednesday's speech, i say to myself, wow, it's like 70% brand new or like -- >> that is a a particularly creative way to ask that question? i think what i would say if, i

would encourage that american citizen that you're describing to tune in to the speech and evaluate for themselves just how surprised they are. >> give us something better than that. >> at this point, i can't. >> it's mostly going to be what we've heard before. there might be something new. is it to try to gather the american people's attention and say, in case you haven't heard, here's what i'm thinking, but it isn't the declarative speech on how i'm going to wrap et this up to a higher military level and here's how much it's going cost and here's the timeline i've put together to envision goals x, y and z. >> we're still a couple of days away in the speech, so i'm not in the position to provide guidance on what the president may or may not say. we'll have to opportunity to try this again tomorrow.

the president and his team are working on the speech as we speak. so as question get more details locked down, i will try, i probably overcommitting myself now, but i will try to provide at least a little bit greater insight for you and your viewers about what the president intended to talk about on wednesday. >> i want to follow up on immigration. i want to be clear, what the president decided saturday was that he wouldn't take executive action until after the november election. decided to revisit the entire question of taking executive action until after the election because my mind and many advocates who have been pushing for this are different things. >> i appreciate you giving me the opportunity to clarify. the president has decided he will will take executive action within the confines of the law to fix those aspects within the

end of the year. that is something that will occur. now, some of the static you might say in the media over the weekend was related to the president's earlier commitment to acting before the end of the summer. what the president has decided is that he will act now before the end of the year. the president has not altered his commitment or interest in taking executive action within the confines of the law to solve to act where congress hasn't. more specifically, to act where congressional republicans have blocked congressional action and the president's commitment to acting on this before the end of the year has not changed. >> he said yesterday is that he needs to explain to the american people. why does he need until the end of the year to explain something? isn't it true that the dominant factor you want to call it static, was static from senate democrats saying this is a maybe a good idea, maybe you think it's a good idea, but it's

terrible politics for us and we want you to wait until after the election. the president clearly doesn't need nine weeks to explain this to the american people. if he wanted to explain it, he could, just like he's going to try to explain the strategy on wednesday. seems to me the only rational explanation for this is an intervening midterm election and fears from nat democrats that they did not want to take this on in the teeth of an already tough environment. >> the reason the president has made the decision to delay his announcement about executive anchors that he's going to take is specifically because he is concerned mostly about ensuring the solution he offers is both sustainable and enduring. >> but if it's executive action, it is sustainable, by definition, until the end of his presidency. he doesn't have to worry b about congress. >> he wants to ensure that all of the work that has been done over the last several years to build this powerful bipartisan coalition in support of immigration reform is sustained and by injecting an executive

action in the midst of this hyper partisan political environment shortly before the midterms, that will have a negative impact on the broader public support and sustainability of immigration reform, so i guess the short answer to your question is the president's willing to take a little political heat from the pup edits, from some of the advocates and hispanic community in particular. in order to ensure the policy he puts forward is one that can be sustained and the fact is we haven't seen a similar willingness from congressional republicans to take a little heat to do what's in the best sbrens of the country. we've seen them do the opposite. they don't want to take any political heat even though they know that acting on bipartisan immigration reform would create jobs, expand economic growth,

reduce the deficit. that's why it's strongly supported by the faith community. by the law enforcement community. the business community. the labor community. these are all reasons why comprehensive immigration reform should move forward. that's why it passed in the senate, but there is a small but vocal group among congressional republicans who are blocking this kind of reform and that's the only reason we're having this question. >> what he said he was going to do on the timeline, he said he was going to do as an act of courage. >> what the president has done, look, major, it's not a surprise to anybody at the white house, it's not a surprise to me there are some people in the newspaper who were critical over the president's decision to announce these executive actions between before the end of the year as opposed to the end of the summer. that's not surprising. it was anticipated. but the president is willing to take on that criticism so that

we can ensure that the executive action the president takes is enduring and that we continue to have public support for it. for all of the disagreement there may be around this one issue, there should be no disputing the fact that injecting this issue into the current political environment would be really bad for the issue. there's some disagreement about whether or not, well, maybe it would help some democrats, hurt some others, maybe it would galvanize base democratic voters. maybe it would provoke republican candidates into doing outrageous things like shutting down the government in a way that would benefit democrats. there are a lot of people with different views, but there's no arguing about the fact that injecting this issue into this sharply political polarized environment would be bad for the issue.

and the president believes tha the most important thing. no where you knone in washingto invested more in this than president obama. if that means the president has to take more heat in the next few weeks in order to make it more likely that these solutions will be enduring and sustained and successful, the president's happy to take on that heat in order to get that done. >> mo justin. >> i guess i wanted to just follow on that. and maybe argue with the idea that -- >> that's why we're here. >> that injecting it into the current political climate is bad for the issue. we just went through a year of saying time again that house republicans haven't moved on the issue, seems dead in every way so, the only x factor seems to be control the senate. i'm wondering if you can maybe explain explicitly why an

executive action would make, if it were to come this week, would be less enduring than one that happens five weeks from now. if it's not what i think we're all dancesinging around, it helps senate democrats to help retain control. >> the reason that immigration reform over the last five years has made so much progress -- >> has it made progress? >> it passed the senate with bipartisan support. had 14 republicans to vote for it and every democrat in the senate voted for it. we know but haven't tested the proposition, but i think everybody in here is willing to stipulate that if this legislature that passed the senate if bipartisan fashion was put on the floor, it would also pass in bipartisan support with the majority. the president would certainly sign it. that is, that's evidence of significant progress. it's not ancient history to cite the experience of 2006 where you had democrats and republicans on

both sides of the issue redu reluctant to engage and vote for it. so, we have made a lot of progress over the last five years. the reason for that is twofold. the first is it's become clear what the facts are. the facts are that it would be good for job creation, for economic growth, to reduce the deficit, so the facts are clear about why congress should take action on this. the second thing is a lot of very difficult work was done between democrats and republicans to try to find some common ground. it's harder than it's ever been in this town, but thanks to the dutiful efforts of members of this administration, democrats and republicans in the senate, they've brokered some common sense common ground and coupled together a proposal that would do a lot of good for the country. it meant neither side did everything they could and a peaceful legislature that would be good for the country. there was pain staking work that was put into striking that comp mice.

now, what we have also seen in the context of these midterm elections is a pretty gross distortion about the facts of our, of our immigration system. well, what will change is that we'll be passed it. i don't think any of the republican candidates, think about it, justin. i don't think any of the republican candidates right now are contemplating a six-figure ad buy in the third week of november. are they? if they are, i hope they'll spend their money that way, but they're not going to. the tone and heightened nature of the debate will be different. will they be in less of a position to distort the facts? yeah, i think they will. >> because the reason that the

president feels confident about well, two ways. the first is we want to preserve the strong public support that exists for immigration reform. that we've workeded hard to cobble together this coalition, democrats in washington, d.c., faith leaders, leaders in the law enforcement community across the country in support of this proposal, but by injecting it into the highly charged political debate, six or eight weeks before the midterm elections, is to subject this issue to gross distortion and and we don't want to do that. that means the president's willing to take on a little heat and be criticized by certain republicans and members of his own part in order to protect the issue because that is the goal. we've said for some time that the president's goal here is

solving problems and not playing politics. >> just to scare the last circle on this maybe, why is this diffuse an issue as you just said, you were pledging to take this executive action by the end of the year. why aren't we going to see six-figure ad buy from republicans against democrats saying the president not only is still going to do this, but now, he's playing politics with the issue. have you really diffused this or taken this out of the political discussion or just kind of punted it and kept it alive as an issue, but now trying to get the relief they would have. >> i think there is a difference between the president indicating a willingness to act or commitment to act even and actually announcing what that action is. i think there's a tangible difference there in a way that

will reduce the amount of incoming, if you will, this the issue will take. and i think that's ultimately what's driving this decision. >> the last sentence in the latest war powers letter that the congress says i appreciate the support of the congress on this action. where was the support expressed? >> well, i think we've seen a number of political comments from democrats and republicans indicating they support the decisions the president has made to protect american citizens there. >> congress speaking as i mean, he didn't say i thank some republicaning and democrats. he's assuming full congressional support. right? >> again, i don't have the war powers report in front of me. if you want to read it -- >> support of the congress on this action? does he consider the leadership to be sufficient? get back to this whole notion of a vote. >> we've seen public comments from rank and file democrats and republicans that would indicate

their support for the president's decision to order military action, protect american citizens in iraq. but yeah, i am willing to stipulate that yes, we have they have not voted on this at this point and that's voting on it is different than them talking about it, but in terms of them articulating support that the president appreciates, we've seen many democrats and republicans do that. >> so, the past couple of weeks, we've had senior officials say one on cnn and elsey, that this is conflict to destroy the islamic state could run three years or more. we have news over the weekend of air strikes on targets. i don't understand how this is a mission of safeguarding. it seems like the president's through his public comments, is overseeing a steady expansion of

a conflict in scope and now duration as well. is that an incorrect assessment? >> it is. the reason for that is that there is a direct threat that's posed by isil taking control of the dam to american personal in iraq. there also is this broader effort to support the iraqi security forces as they are engaged in taking the fight to isil. that's an example of you know, of our efforts to try to support them in a way that again, safeguards the american citizens who are already there. the way it's been described to me is there is a threat and if isil decided to destroy the dam, it could threaten or would threaten the airport downstream from the dam.

i'm told that was true of mosul dam as well and in this case. okay. jared. >> when you're talking about the, i want to follow up, it sounds like you're going to give congress js enough authority to agree with the administration's position, but not enough to say no. does the administration intend to give congress a role to shape policy about isis? to shape policy and action or is it just to buy into the administration's position? >> i would say that the level of consultation indicates or general interest.

that is, i think this is evidenced by the fact we're having continuous conversations. some of the conversations have occurred before the president has made important decisions. there has been regular consultation from the department of defense and department of state. other senior members of the president's team here at the white house, so there has been intensive conversations and that is evidence of our genuine interest in members of congress partnering with this administration as we develop a policy to degrade and ultimately destroy isil and to protect american citizens in iraq. >> it kind of exists in this rhetorical gray area where it's not quite a vote, so you don't have them shaping policy. doesn't seem like it's quite so far as negotiating on policy, negotiating on strategy and voting on it. so, it's just enough

responsibility for congress to maybe share some of the blame if something were to go wrong or happen, but not enough to say no to the president's policies. is any member of congress going to get the ability to say no to the president's policy to fight isis in syria? >> it's the responsibility of the commander in chief to make decisions about the use of our military to protect the american citizens. the president believes he has all the authorization required to make those decisions. that said, we welcome congress as a partner as we confront some of these difficult and high stakes national security issues and if congress wants to participate in this process, we would you know, welcome their participation in a constructive way.

demonstrates our interest in congressional consultation and congressional action that is contributing to this broader effort. >> if congress wants to do this, it's not like there's a sign up board. they have a constitutional role here and obviously, depending on whether it's authorization or appropriatio appropriations, there are different rule for each aspect of this. you're talking about something that sounds volitional. is the congress trying to limit their duties as it goes against authorization or proep ration? >> of course not. i'm merely stating the fact that the president is the commander in chief and that means he is the one ultimately responsible for making decisions about ordering military action, but you are right. this is, you're saying sm something that i said early on in this briefing, which is there is a role for congress to play here and they, you know, how they choose to play that role is obviously up to them.

they are a separate branch of government. the president doesn't make decisions about what pieces of legislation find their way to the floor of the house of representatives. it would be a good thing in our view if the president did have authority over that, but he doesn't. it would allow us to confront some of the other problems that house republicans refused to vote on, but we are interested in careful and close consultation with members of congress in both parties. and we are interested in their buy in as the president described. >> but there's no ksh to buy. there's no way for them to say no. >> again, if members of congress want to put forward a piece of legislature saying the president should not act or order military force to protect american citizens in iraq and syria, they're welcome to vote on that. again, the president won't have

a vote and the president doesn't determine whether or not that goes on to the house of representatives. so, congress does have some volitional aspect to this. we've been clear about what we would like for them to do. at least a little clear, but ultimately, they're allowed there are a variety of ways for them to demonstrate their support. that can range from an interview or a piece of legislature they vote on and arran range of thin they vote on. we are interest ed in members o congress and congress as an institution. working closely with the president as he confronts these difficult challenges. the reason is the president believes that our foreign policy is more forceful. it's more impactful when we can demonstrate to the world that the united states of america is united in support of this priority. >> quick side bar issue.

baltimore ravens announced they have terminated the contract of ray rice. i realize you did not know that, but probably have seen about this dramatic, horrific video of him beating us his wife. the vice president today an issue about the event passage of the violence against women act. what kind of comment could the white house offer about this situation sm. >> well, i haven't seen the news because of what you swrus said, but let me say it this way. this administration, this president do believe strongly that the scourge of violence against women is is something that needs to be aggressively combatted. and i don't want to comment on the individual decisions that are made by this case, an individual nfl team, but you have seen the president and vice president make very forceful public comments in talking about how important it is for men to

step up and step forward and make clear that violence against women is something that is not and cannot be tolerated. and that the most important thing or one of the most important things that we can do to try to end the scourge of violence against women is for men to band together and to send a clear signal that it is unacceptable for men to perpetrate acts of violence against women and we certainly welcome any strong signals -- >> rather than trying to -- get ahead of the president, what he specifically like to say. will he make decisions by tuesday or wednesday about expanding that campaign so that

he could present -- -- >> the president is interested in having a genuine consultation with the leaders who will be here tomorrow about what he believes is is the best path for word for confronting the threat posed by isil. the president is interested in having a conversation with the american public about what sort of tools are at the disposal of the united states of america. those include intelligence tools. the powerful diplomacy of the united states of america. those tools also include the potent arsonal of the united states military and those things can be brought to bear the confront the situation. what's most important for people to understand both d american people and congressal leaders is the president is steadfastly committed to ensuring that the united states is not taking this on alone. and the president is going to use all of the tools of our

diplomacy to ensure we have a central iraqi government standing open unit iing the country to take the fikt to isil, that we're engaging the sunni nations who have a clear stake in this outcome. and the president spent a lot f time at the nato summit at the end of last week talking to our allies about what role the international community can play to support this broader effort to confront degrade and destroy isil. >> couple of weeks ago, peter asking you a question and you said the president was not referring to isis when he dismissed some terrorists in "the new yorker" magazine as the jv squad. "the washington post," the president yesterday -- >> i saw that. >> went ahead and doled out on it and said i was not referring to i srksisil. why do you and the president

continue to say something that's been proven to be false? >> it's not proven to be false. the president was drawing a distinction between core al al-qaeda and a range of local groups. he said there's a distinction between the capacity and reach of a bin laden and network that is planning major terrorist plots against the homeland versus jihadists who are engaged in various local power struggles and disputes, often sectarian. the point is, the president was describing the wide variety of extremi extremists groups that have sprouted up over the last several years in this region of the world. capabilities than others. some do not pose a threat to the homeland or don't have the capacity to plan what the president described as major terrorist plots against the homeland. >> the interview took place on january 7th, that the president

was referencing a specific event that had happened just days before. january 3rd, when islamic state raised this flag, took over flu falluja. in that interview, the president was referring to something -- was saying he was referring in the interview to something that specifically happened four days before islamic state taking over falluja. so, that sounds like a direct, whether he used the name isis, isil, he was referring to an event from four days before where islamic state took over falluja. >> he was referring to jihadists who are engaged in various local power struggles and disputes, often sectarian. he was not singling out a single group. that's why he described jihadists, power struggles, plural, disputes, plural. he's talking about the wide variety of groups and indicating that we don't have to be worried about every group. many aren't sophisticated, don't have designs or the capability

of attacking the united states homeland. some are more inflein shl. some have greater capacity and some have built up and demonstrated that over the last several months, but the fact is that the time the president was talking about was drawing a clear distinction between core al-qaeda and organizations operating in this area. even isil, which has demonstrated military capacity, there are not indications right now that they are actively planning or that they have the capacity to carry out a widespread conspiracy along the lines of the plot that was organized by osama bin laden about 13 years ago this week. the capacities are different and that's the point the president was trying to make. it means our policy for dealing with them needs to be different and the president is put ng place a strategy to deal with the threat posed by isil before they can find the kind of safe

haven that would allow them to eventually build the capacity. >> the president, janet napolitano, the president's former homeland security secretary said this morning when she was in office, isis was on everybody's radar screen. she left office a year ago this month. september 2013. so, was isis on the president's screen at least a year ago and if so, why is he giving a big speech this week? why didn't we get a strategy a year ago? >> isis is essentially the inter tor of al-qaeda in iraq. and these extremists have been reeking havoc in this region of the world for a long time. they certainly have been on the radar screen of the national security, professionals, national security leadership of this administration for five years.

>> was right, they've been on the -- >> they were also on the radar screen of the officials in the previous administration because there was concern about the threat that al-qaeda and iraq posed to americans in the region. now, this is an organization that has e involved, but that is essentially where they evolved from. the reason the president is giving this speech now is that over the last couple of months, we have seen this organization make substantial gains in iraq and threaten americans in iraq. the reason is that the iraqi government was governing along sectarian lines in a way that ruptured what had been a united country, so what we had actively engaged in for some time is encouraging iraq's political leaders to unit that country behind a central government that demonstrates they are committed to advancing the interests of every citizen of the nation of

iraq. that's a diverse country and they need a central dwovt that reflects that diversity and d demonstrates a commitment to the interests of that diverse population. okay? april. >> josh, i want to ask you a couple of questions. diane and also partnerships, would you say that if you're saying my partnerships, you mean that executive white house and congress will either succeed or fail together? no matter what happens. >> what we would like to see the see congress be united and be a partner with this administration. for all the differences that i do not want to be in a position of papering over, there are differences between democrats and republicans, particularly the republicans on capitol hill and democrats in the administration are substantial. we have a difference of opinion

about a range of things, but when it comes to protecting the american people and putting in place a strategy that makes good use of our intelligence capability, our diplomatic authority and our military mite, that we should be able to unite across partisan lines in support of that policy and in support of that strategy and we seek that kind of cooperation consultation and partnership with everybody in congress. >> no matter what happens, success is going to be shared -- >> the president is undertaking this effort with the intention to succeed and is willing to share credit with those who are going to help accomplish these goals. >> also, the ramp up to 9/11 as we're looking to this next anniversary, there are concerns by many in national security feel that with the threats of

isil, that something could possibly happen here. what is the mind set of this administration and the lead up to 9/11 and is there a possibility of increase iing th threat level in this country? >> decisions about increasing the threat level are made by the secretary of homeland security, so you should consult with them. i'm not currently aware of any plans to increase the threat level. the second thing that's important for people to understand is the intelligence community continues access there is no active plotting under way against the united states of america. the third thing, we are concerned and remain concerned about the threat of violence that is posed by foreign fighters and again, they're ironically named foreign fighters because we're principally talking about americans who have traveled to syria and taken up arms along isil and there is a threat those individuals pose because they

have an american passport. they can freely travel back to the united states and would therefore be this aing position to potentially carry out acts of violence in this country. that is something we're concerned about and monitoring international community to try to monitor the travel of those individuals so that we can try to limit the threat that they pose. >> how concern, the several dozen of those americans, that doesn't make you think about increasing the threat level here at all? >> well, again, i'll say a couple things about that. the first is we're constantly recalibrating our security posture here in this country to try to meet the threats that we perceive. and some of the changes to that security architecture are perceptible, and some of them aren't, but we are constantly making sure that we have in place a strategy for protecting the american citizens, protecting american citizens and protecting the homeland.

couple more. michelle? >> do you feel hike ylike you h handle on who all these foreign fighters are? we've heard a number of 100 and200. what can the white house say about how closely you are now able to track the foreign fighters? >> the effort to monitor these foreign fighters is something that is the responsibility of the intelligence community. and it's difficult from this vantage point for me to spend a lot of time talking in detail about the actions of the intelligence community. but what i can tell you is the united states and this administration are very aware of the threat that is posed by these individuals. we have been engaged in an effort both at a diplomatic level, at a law enforcement level and also at an intelligence level to mitigate this threat. and that means working closely with our partners in the region, but also with our allies in western europe. we talked a little bit earlier last week about how there are, there's an even larger number of

so called foreign fighters that have originated from western europe. so the threats from these western countries, if you look they numbers are even larger than the threat facing the united states. but we're going to work in united fashion, in a coordinated fashion and with our allies to confront this threat. i also would say something i have been meaning to say but i haven't. the president is going to convene a meeting of the national security counsel to discuss what role our partners can play. >> is there a confidence that we generally know who all these people are at this point and where they are? >> well, there are significant resources that have been dedicated to this effort. i don't think that i would be in a position to say a whole lot more about this, but other than to say we recognize the severity and the seriousness of this threat. and we have responded accordingly by putting in place the kinds of policies and procedures that we feel mitigate

this threat, but it remains something that we're concerned about. >> when you say strategy and then that strategy is being formed and an integrated strategy. but then if it expands and what role will everybody play, so it seems like right now the strategy is to lay the ground work for making those decisions, right? because whenever we hear an explanation of what the strategy is, it's a lot of coalition building and putting something together to make those decisions in the future. is that how you would define the strategy right now? >> i would define the strategy in a couple of pretty clear ways. the first priority is the president's laid out is supporting inclusive government. that would be to unite the country to face down the threat that is posed by isil and to take the fight to isil in this country. after all, we need to start from the place where the iraqi people and iraqi government are responsible for the security of their own country. the united states stands ready and will continue to support the

iraqi government and iraqi people as they continue to secure their own country. the second thing is engaging regional governments. these, and when i'm saying regional governments, i'm principally talking about the sunni led governments in the region. these are individuals who for two reasons should be involved. the first is, they can play an important role in coordinating with the sunni tribes in western iraq. they can also take the fight to isil. the second is they have a larger stake in this, even than the united states does. so many of these countries actually are threatened by sunni extremists that are wreaking havoc in some cases on their border or very near it. so they have an interest in committing to this broader effort to degrade and ultimately destroy isil. the third aspect of the tranl is engaging the intermagnificental community. that there are resources that can be brought to bear by our nato allies and other allies. we've already seen the u.k. and

others commit resources to providing humanitarian relief to the ethnic minorities in iraq. and yes, there is a role for the u.s. military. but it's important for people to understand that does not include sending combat troops onto the ground in syria or iraq. it does involve coordinating with our allies in support of iraqi and peshmerga fighters that can take the fight to isil. let me finish with this one last thing. the thing that's important for people to understand is this is a different strategy than what was previously done in iraq. ultimately what we learned is that the united states military for all its prowess and all of the bravery that was exhibited over the course of years by our service men and women cannot solve this problem for the iraqi people. ultimately, it's going to be up to the iraqi people and iraqi

government and security forces to secure their own country. and the failure to learn that lesson would be a profound mistake. and i, it's easy to, and i think it's understandable that people pay more attention to what the military component of our strategy is than they do to the diplomatic element of our strategy. but it is critically important that we ensure that the international community and that regional governments are invested in this effort so that the united states of america and our military are not bearing this weight alone. >> so, last one. okay. so all of this is ground work laying, basically, and it's hard to imagine what the president's going to do on wednesday besides lay it all out again and we've heard it before. so what are you expecting concretely by the u.n. security council meeting from the coalition that's been formed? i mean, do you have a time frame for some kind of progress on that? because for weeks now, you know, it's been about building these coalitions. so what's the next kind of

benchmark for seeing something from that coalition in. >> well, the president spent a hot of time, when he was at the nato summit, talking to our allies in nato about this issue. the president also met with the prime minister and incoming president of turkey to discuss this issue among other things. he also talked to the king of jordan about this issue. the secretary of defense and secretary of state were there to participate in these conversations. as we speak, the secretary of defense is in turkey talking about these issues with his counterparts there. over the course of the next week, the secretary of state will be traveling to this region. the president's counter terrorism adviser here at the traveled to yemen and has trips to saudi arabia and at least one other country planned while she is in the region this week. so these conversations are ongoing and they will continue. you heard from the president himself indicate that he was encouraged by the reaction he

got from our partners and allies about their willingness to support a broader international effort to confront isil and degrade and ultimately destroy them. >> thanks, josh. >> can you talk a bit more about the tangible things you've gotten from our international allies? have think committed any specific resources? >> they have. and there's a long fact sheet here that i won't read from, because we've all been here a while. but yeah, there are, you know, i'll just go to the first three. albania's first. they provided military equipment to the kurds. australia participated in mt. sinjar and amerli. they pledged $4.6 million to the u.n. to address the situation and they agrowed to accept 4400 refugees from iraq and syria. but it's lengthy, and it's an indication that canada, denmark,

hungary. >> a bill is being introduced that would authorize air strikes in syria. is that something that the white house would, could support? >> i haven't seen his legislative proposal, but i am confident that somebody will be in touch with him about his proposal. and we're certainly interested in getting some buy in from congress and are open to considering the kinds of things that they want to move forward to demonstrate the type of partnership that we'd like to see between the administration and congress. >> has the president seen or heard the ray rice video? >> i don't know. i've not talked to him about it. he's an avid sports fan, and this is something that's been covered extensively in sports journalism. so i do know that the president is aware of the situation as it relates to the ravens' running back. i don't know if he has seen the

video that was just released in the last 12 hours or so. i don't know if he's seen the e-mail. >> three more. five? five quick questions? five hard questions. coming up tonight on c-span 3, treasury secretary jack lew talking about corporate taxes and u.s. business investment. and then a look at how the u.s. military's rules of engagement are affecting soldiers on the battlefield. and then ralph nader and grover nordquist discuss asks the state of bipartisanship in government. treasury secretary jack lew spoke about actions his department could take to bolster corporate tax accountability and make the u.s. a more attractive place to invest. he weighs speaking at the tax

policy center in washington, d.c. his remarks are followed by tax law experts discussing the issue of corporate inversions, which is when a company tries to ease its tax burden by rye incorporating its affairs from one country to another. this is just under two hours. there's some standing room in the front there on the left, if there are people feeling a hill crowded back there. you can come on over here. yes. okay. good morning, everyone. i am sarah rosen moretell.

and i have the opportunity for welcoming everyone here, including those of you standing in the back to, for joining us, a special welcome, of course, to our guest of honor, secretary jack lew. it's an enormous honor for us to have you here. also welcome the audience on the web. for those of you watching live let me indicate that you are welcomed and encouraged to send us e-mails to events @urban.org. we can at that point talk about your questions and comments on the entire program. and if you are following this discussion on line or in person, let me encourage you to tag your social media posts with #live at urban. the prognosis for business tax

reform and controversies will be our subject. there is too little agreement, yet, on solutions. most say we should start by lowering the rate and eliminating preferences, as if that were, itself, a simple task. but there's also an even bigger challenge with our international rules. specifically, a major concern with how the current tax system treats cross-border, income of multi national corporations. these problems have grown as companies have become more globalized. and it's the share of returns that has increased. this morning we will hear first from secretary lew who will start us offer with a broader context and speak on the importance of tax reform and describe the administration's goals to level the playing field and make the united states a more attractive place to invest. the secretary does not have time this morning to take questions, but a terrific panel will take your questions later, and we can

reflect there on his remarks. specifically, i'll lead an armchair discussion on one current manifestation of the challenges we face -- corporate inversions, and discuss whether there's any way in which this discussion can help us drive towards solutions to the larger issues. we hope to add some clarity to the public debate about what these transactions are and how they reflect the larger challenges in the taxation of international business. and we hope to clarify the alternative fast forward. comprehensive tax reform by congress does not seem imminent. so what are the alternatives. we want to explore the questions raised in july by steven shay about whether congress should use its regulatory authority. we hope the discussion will shed light on differing views of what

authority treasury does or does not have under you current law. more over, what might be the consequences for treasury to use this authority. what impact would they have on business planning practices, what consequences would such action have on business tax reform, and how might use of this authority fit within the larger debate about the appropriate use of executive action. today's discussion will fit squarely in the mission of the urban institute and our tax policy center. a joint venture with our partners at brookings. that mission is to elevate the debate. so when clarity is lacking and rigorous analysis can help shape better policy we try to be there. of course even our own experts don't always agree. but as a think tank without our own agenda, that's something we embrace at urban. a healthy debate can contribute to better policy results when

views, even different views are grounded in evidence and analysis. the center led by lynn burrman have produced a wealth of resources on business tax reform and inversions. copy of many of these are outside the room and you can find them on the tax policy website. taxpolicycenter.org. it is grounded in the work of a well-rounded model. today, tpc is deepening its analytic look. i bring your attention to a structural reform of the tax. but before we get there, let's start with our star attraction, and it's my pleasure to

introduce the secretary. when the secretary lew left the job of white house chief of staff, having earlier served in this administration at the state department and omb and in a host of other administrations as well, and arrived at the treasury department, even a seasoned cabinet pro such as himself could not have anticipated the enormous slate of international issues that he would find awaiting him at treasury, from developing new sanctions regimes emerging from the crisis in ukraine to the ongoing battles of international terrorism, trade and other challenges. in the midst of all of these, however, the secretary has remained focus on the u.s. economy and moving forward on domestic priorities like tax reform. those were laid out in february 2012 when the framework was laid out for business tax reform. the tax reform outlined there provided their description of

the problem facing the businesses, both corporate and non-corporate and offered a framework for reform which would include lower tax ractes, a broader tax base and simplification in a revenue-neutral package. there has been significant bipartisan interest in tax reform. and secretary lew's the reform holds out that hope. and perhaps today's discussions help moving forward. on a personal note, let me just add that i was privileged to work with secretary lew as was another one of other panelists. he never forget fundamentally what it's all about. he has a remarkable ability,

deep in a conversation, whether it be about global capital flows, international trade, federal revenues or complex corporate structures to retain a focus on the shareholders, the employees, the small firms on main street and ultimately the families and individuals who make up our economy. he balances this clear sense of mission with a deeply pragmatic approach to problems. and we are lucky to have him in this post and lucky to have him here today at the urban institute, please join me in welcoming secretary jack lew. [ applause ] >> thank you, sarah for that introduction, and thank you to the urban institute for having me here this morning. for nearly half a century, the urban institute has applied rigorous research and analysis to help advance our understanding of the public policy challenges facing our nation. and we'll keep looking to your work and to the work of the tax

policy center as we continue to move forward and make progress on behalf of the american people. let me tart by talking about the economy, which continues to strengthen, thanks to the incredible resilience of the american people, our unique capacity to innovate and the bold and effective policies put in place by the president to bolster our response to the financial crisis and lay a foundation for the future. gdp posts a robust gain. and our economy is 6.6% larger than the recession began in 2000en 7. private sector economists expect this to grow. in addition, the private sector has created over 10 million new jobs in 52 months. the auto industry is thriving. manufacturing is rebounding, and the housing market has recovered. we sell more goods around the world than ever before. we produce more oil at home than

we import, and we're now the world's leading producer of petroleum and natural gas. household wealth is at an all-time high. with the affordable care act in place, millions of americans no longer have to worry that health care crisis can land them in bankruptcy. financial reform has not only made our financial system stronger and more resilient, but consumers have a watch dog in place looking out just for them. on top of that, over the last four years, the government's finances have improved. and our budget deficit has been cut by more than half. we have more work to do to keep this going and make sure the benefits of growth are broadly shared. and the president's strategies are developed to grow our economy even more. one important strategy is business tax reform. it's clear that our business tax code has become more and more distorted. the united states is an

attractive lace to do business in spite of our tax code, and that's something we know how to fix. today the united states has the highest corporate tax rate in the developed world, but because of special interests and roop holes, some businesses pay the full rate and others nothing at all. more than two years ago, the president put forward his framework for business tax reform to level the playing field and he's consistently called on congress to get this done. we want to eliminate wasteful expenditures and establish a top rate of 28%. this will make the united states a more attractive place to invest. when we reform our broken tax code, there will be one time transition savings. the president's plan+oq?rçwh w these savings to invest in america. we want to make critical repairs and upgrades to you are o country's roads, bridges, tunnels and airports. we can compel our country far

into the future. the need for infrastructure improvements has never been greater. we will host a summit with business officials and government officials to help infrastructure and expand private/public partnerships so we can clear out the backlog of work needed to keep our economy competitive in the future. the guiding incentive is to make decisions for business reasons not for tax purposes. the ultimate goal of reform should be to increase america's competitiveness. and the path to getting there is to close unfair loopholes and loopholes which are not even helping our economy. earlier this year chairen in camp put out a tax reform proposal, and there are key areas of overlap with our business tax man, including using one-time savings from tax reform to invest in infrastructure. the administration is committed to completing pro-growth

business tax reform. and there is strong support across the business community for getting this done. still, it's going to take more time for congress and the administration to compete tax reform. and while that happens, there's one loophole that should be shut town immediately. right now, our tax system rewards u.s. corporations when they buy foreign companies and then declare that they're based overseas. this practice of corporations acquiring foreign businesses and then switching their citizenship outside the united states is known as inversions. and the pace of these deals has accelerated in recent months, with an increasing number of corporations on the verge of completing such mergers, and many more across a variety of industries in the works. make no mistake, there's nothing wrong with genuine cross-border mergers. our country is better off when companies can invest overseas and when foreign investment flows into the united states. but these transactions should be driven by genuine business

strategies and economic efficiencies. the problem is, with many inversions, the change in residence is ton primarily for tax purposes, and the new entity is for all effect and purposes effectively just changing their address. this practice allows the corporation to avoid their civic responsibilities while continuing to benefit from everything that makes america the best place in the world to do business. our rule of law, our intellectual property rights, our support for research and development, our universities, our innovative and entrepreneurial culture and our skilled workforce. this may be legal, but it's wrong, and our laws should change. by effectively renouncing their citizenship but remaining here, these companies are eroding america's corporate tax base. that means that all other taxpayers, including small businesses and hardworking americans will have to shoulder more of their sonbility of maintaining core public functions that. we're talking about defense,

education, medical research, courts and vital infrastructure such as roads, bridges and airports. and if we allow the incentives to pursue these deals to remain in place we run the risk of undoing the progress we've made to lower the deficit. these provisions will need to be in place even after we move to a reformed business tax system because there will always be countries with rates lower than ours where companies can establish residence for tax purposes. at the same time, we cannot wait to complete business tax reform before taking action to fix this problem. that's why the president laid out a legislative plan to end the inversions. under his proposal, a company would not be able to claim foreign residence if it is still managed and controlled in the united states, does a significant amount of its

business here and does not do a significant amount of its business in the country it claims as its new home. on top of that, to make sure the country is truly a foreign-based entity, the original shareholders of the foreign firm would now have to own at least 50% of the country rather than just 20% which is the current legal standard. now i've been urging congress to move forward with legislation to rein in these transactions. congressman levin and van holland have put forward strong legislation. lawmakers on both sides of the aisle have expressed their dissatisfaction. so it should have bipartisan support. keep in mine, it was president george w. bush who tined the first anti-inversion law into effect in 2004 to keep companies

from setting up business in the cayman islands for tax reasons. mother over, when this 2004 law established the current anti-inversion regime, it also worked retroactively. in order, the law was signed into law in october of 2004 but had an effective date of march 2003. and this is a critical point. the same principle's same today. to prey vent a rush of corporate inversions to get in under the wire it should work retroactively applying to any deal back to may of this year. i want to emphasize how important it is for congress to solve this problem. it's imperative the ha makers get this done. still, the administration is clear-eyed about the possibility that congress may not move as quickly as necessary to respond to the growing wave of inversions.

given that, the treasury department is completing an evaluation of what we can do to make these deals less economically appealing, and we plan to make a decision in the very near future. any action we take will have a strong legal and policy basis. but will not be a substitute for meaningful legislation. it can only affect part of the economics. only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that lead to inversions. he in closing, let me thank everyone for being here. tax policy has serious consequences, and it highlights the important choices we face as a nation. that is when we have the resources to make the investments that will make our economy more competitive. whether we make it possible for more businesses to grow, innovate and hire. and whether we make sure everyone has a fair shot at suck sis -- success. but if we move in the right

direction, i'm confident that we can make enormous progress. thank you very much. [ applause ] as we say thank you and express our appreciation to the secretary, let me encourage our panelists to m could on up and take their seats. give us 30 seconds please. in the meantime, there are now a few seats in the front. again, there's a little more wall space for those who need a little support for their back over there. so let me encourage people.

looking at what is possible

within their current authorities. we'd like to explore with an amazing panel about what that might mean and the reactions might be. let me take a moment to introduce our participants. i believe each of you have their bios in more detail. i won't spend too much time. but let me give you a quick idea of who we have here. to my right is john samuels. he is a vice president in ge. the international tax business once described john as the most influential person in the tax world. no offense intended to anyone else in the room. the new york times once called the ge tax department the best tax law firm in america. he is an expert in the field and explicitly not talking on behalf of his firm or any other firm.

and let me say that applies to all of our panelists here who are not only not speaking for their employers, but also not for any other affiliations that all of them may have. they're speaking on their own views alone. next to john we have steve shay, a professor of practice at harvard law school. steve is one of our country's leading tax authorities, serving at the highest levels of government and academia as well. he recently shook up the corporate world with his article "mr. secretary, take the juice out of expatriation." to his right is sally catsen. she is a leading expert on executive branch authority, having advised three presidents on the use of executive power and testifying before congress more than 70 times.

i also had the privilege to have sally as a mentor and adviser when i was in the white house a decade and a half ago, and i am much the richer for that experience. finally, we have the senior fellow, steve roysenthal. he spent 25 years practicing tax law in washington, d.c., and he also had a stint in developing tax information. i'm going to pose questions to the speakers and try to get them to pose some questions to each other and we'll bring all of you in after that. if you are online, submit your questions to events @urban.org. and i think each of you may have had or picked up, if not on your chair, what i hope is a simple

description of what we're talking about. and remember that while we have some of the world's leading experts in this room, we probably have a few people for whom this is a new topic. so, john, can you just start us with a very simple description of what is an inversion and what we're talking about today? >> thank you, and i can try. but let me first say that thank you for your kind introduction and note that the nyu magazine that called me the most influential tax person in the world, i'm an alumni of nyu. they're in a fund-raising mode, so take that with a grain of salt. i want to put the issue of inversions in perspective. and i want to do that by quoting some testimony before the house ways and means committee. i'd like to start with that. so here's the quote, first paragraph. my name is john lafrido.

the merger of chrysler and dangler benz, it puts u.s. companies at a decisive disadvantage that became a major challenge. management chose a company organized under the laws of germany. now the testimony goes on to explain that the principle reason was that it had been formed in the unit, all of the new daimler-chrysler would have been subject to the u.s. corporate rate regardless of where it had been formed. where if it had been formed in germany, germany has a territorial system and the only tax imposed by germany would be

german tax. now this testimony was given in 1997. 15 years ago. more than 15 years ago. and i wanted to call it to your attention to show there's nothing new about u.s. companies being acquired by companies based in foreign jurisdictions with territorial systems so that the new companies, worldwide income will be subject to u.s. tax. daimler is not an isolated event. the data shows that company-based interterritorial systems are much likely to be acquirers than the targets. the data shows that from the 22 years fromús> xqx sorry -- to 2012, 57% of the cross border acquisitionis were foreign companies acquiring u.s.

companies. and the academic literature supports this. there's a recent study showing that in japan, japan changed its system from a worldwide system to a territorial system. this study concludes that in cross border mergers, after they dropped their worldwide system, japanese companies were the acquirers in 31% more transactions than they were before. and the study also estimates that if u.s. were to adopt a territorial system, u.s. companies would be the acquirers in 17% more of the transactions, cross-border transactions. and of course none of this is surprising to even the most junior tax lawyer. you know if you're structuring a deal involving a u.s. company and a cross-border merger, you want to do whatever you can to make sure the acquirer is a foreign company not a u.s. company to avoid having

worldwide income caught up in the u.s. tax net and subject to the u.s. tax rate, the highest corporate tax rate in the world. i type of a class at yale law school. and often on my exams i give students a question, asking which one should be the acquirer and ultimate parent. which would be the most tax efficient way to do the trans-a. the ones who conclude that the u.s. companies are to be acquirer generally don't do well. so while foreign acquisitions, there's clearly been a dramatic increase in the size and number of these transactions recently. and i think this trend is only likely to continue. and maybe accelerate, at least until the u.s. reforms our international tax system it to bring it more in line with the rest of the world. so what's going on?

how can we explain this recent wave of foreign acquisitions or so-called inversions. in my opinion there are two things driving this increased activity, and maybe a third factor as well. the first factor driving i believe, is virtually every major developed country in the world has dramatically reformed its tax system to make it more business friendly, and they've done so with the explicit goal of attracting and retaining headquarters in jobs. the u.k. abandoned its worldwide system for a territorial system, reduced its corporate tax rate to 21%, soon to be 20%. and adopted a patent box. and the u.k. government was unabashedly explicit as to why it was making these changes to its corporate tax system. in announcing these changes, u.k. government said the government wants to send out the

signal loud and clear that britain is open for business. and then the u.k. government went on to say we want our tax system to be considered an asset, not a liability in retaining u.s. companies, because companies had begun to leave the u.k. and attracting new ones to set up their businesses here. some do decry the fact that these countries are designing their tax systems to attract companies and jobs. saying it is a race. i suppose it is if you define the goal of the race to attract as much revenue as possible. something that's very difficult to accomplish in today's global integrated economy where capital flows across borders like liquid mercury. but what if these countries don't view the goal of the race as trying to extract as much revenue as possible from global

revenue capital, something they might consider to be a fool's errand. but what if they think the goal of the race is to maximize -- >> i want to bring in everybody else if i could. one more comment. >> i have a lot more to say. >> i know. you'll have a lot more chances, i promise. >> this is a fact, my oiled boss used to like to say whatever you think about this, you have to take the world the way it is, not the way you want it to be. so i think the first factor contributing to these new inversions is u.s. companies have many more countries to choose from into which to relocate their head quarters, and they're attractive countries. countries with stable governments, rule of law, major universities and research centers, great the workhorses, terrific infrastructure. so the whole world now is open for relocation and really aggressively trying to court

u.s. firms. the second factor, major factor is the percentage of income of u.s. companies that are outside the united states has increased dramatically. in 1982, 23% of the u.s. profits of u.s. firms were outside the u.s. today more than half are. so the stakes are higher. u.s. companies have a lot more to gain by moving to a, relocating hid quarters to a foreign country and a lot more to lose, conversely by staying in the unit. and this is a trend that's only going to continue because 95% of the world's population and 72% of the world's purchasing power are outside of the u.s. so it's combination of these two factors. many more places to move and together with an increasing portion of your income outside the u.s. that are really almost

secular droivers that are going to keep this trend moving. one more possibility pushing this trend is tax reform. it may be that some companies have lost hope that tax reform is going to come, and they've decided to take matters into their own hands and adopt self-help tax reform by reh relocating to a country that has already reformed its tax system. that's one possibility. and another is, perhaps more importantly, some companies have got and glimpse of what u.s. tax reform might look like, particularly as how it will affect their international operations, and they don't like what they see, because under every proposal that's been proposed so far, the u.s. system would still be far from being aligned with international systems. so these companies may well have concluded, it's a lot better, even after tax reform, it's going to be better to be in a foreign country, so we might as well get out of dodge now before

the new sheriff comes to town. now what's important about this as the sent noted, if and when we get to tax reform, the tax reform doesn't align our system with the rest of the world, inversions are going to continue. and i don't think -- and we'll talk more about this later -- any anti-inversion activity can be effective in a global economy where capital is quite mobile. so let me jump in to what inversion is or let steve or -- >> why don't we turn, steve, can i ask you? i want to make sure we'll give everybody a chance. steve, do you want to take a crack at first just the description and then, if you would, offer your perspective on this question, whether this is a symptom of a large erycette of problems and is this troubling or not, or is this something that we should be tackling. >> sure, can we have the diagram

put back up on the screen? so i guess the first question you're asking is what is an inversion. and for purposes of today's discussion i think we can keep it very simple. and by the way, for my students who might be watching, i'm not going to signal the answer to my exam questions or even give you what my exam questions will be. all of that would increase the viewership perhaps. so what happens with respect to an inversion is if you look at the diagram, there's a u.s. parent, a u.s. parent group. we've kept it simple. there's a foreign business. tax lawyers call them foreign targets. and you acquire a foreign target. and in this case, in recent deals and in some very large deals, special efforts have been made to try and have the acquisition vehicle be a foreign

vehicle so that a number of tax benefits can be achieved. so this is, since 2004, all of these inversions have involved the acquisition of a sub stantive foreign business. these have been what you might think of as real deals. they involve something a quarter the size of the u.s. company. so the question is, what's wrong with that? and i think, at secretary said before, there's nothing wrong with the business deal. there's nothing wrong with the business acquisition. where the tax policy issue arises is when the transaction is driven by tax avoidance. so the question, what's been pretty prominently displayed in the press and some of the disclosures of recent deals is the extent to which the objective of these deals is not to have a simple business transaction but to take a u.s. company out of the united

states. and so that's that careful line that the treasury, i think, is working on. what are things that can be done and should be done that would, as i put it if my article, take the juice out of tax inversions, but i don't think anybody's saying take away all cross-border acquisitions. so what is troubling about tax inversio inversions? they're troubling to the effect that they're tax motivated and the result is a loss of income tax base. there are essentially try tax benefits of substantial amount from inverting a u.s. company to combining with a smaller company, which is what these deals have been. find a smaller company that gives you the act to avoid some restrictions on turning into a foreign parent, acquire it in a way so you can have a foreign parent, and then what are the benefits from doing that? first benefit is the ability to

exert excessive debt to reduce the u.s. tax base. you can use intangibles and rela realties. in 2007, a treasury study found that for the year study which involved inversions before 2004, u.s. subsidiaries that were owned by inverted companies had higher levels of debt than other foreign-controlled u.s. companies. and that rules were not effective. natural naturally what spawned the budget proposals to change the earning stripping rules. the second benefit is a little more complicated. if you look at the screen, the foreign subsidiary, which is the little parenthesis cfc controlled foreign corporation. foreign sub sid yare eyes of u.s. companies do not have to

pay tax on their active business earnings until they have di dividends. as long as they're under a u.s. parent they cannot be used for the u.s. parent, so the u.s. parent can pay dividends or stock buybacks without it being treated as a dividend. the ability to use the offshore earnings for which the unit tax has been deferred is the second major benefit of these transactions. it's not quite as simple as what's been discussed in the press but we're not going to get into the weeds as to the different issues that aride. we'll come back later to some enforcement tools under existing regulations that could stop some of the simple use of those offshore earnings, but the

reason i think regulations are needed is because it's needed for decontrol that could end run even that anti-abuse rule. what's the third benefit? the third benefit is to be able to earn foreign income that is totally outside the u.s. tax net and as a result to encourage even more shifting of income and investment from the united states. in my article, where i was talking about regulatory as opposed to statutory changes, i only suggested taking on the first two issues. my thinking about the third issue has been limited so far to tax reform proposals, but with respect to the first two issues, i believe there's regulatory authority to take steps that would reduce the tax benefits that are indeed consistent with each of the major potential tax reform proposals for reasons we can talk about as we go along. >> that's very helpful, and i'm going to give everyone a moment

before we move on. we're going to come back -- i promise -- to a conversation about whether or not taking on these tax advantages in the regulatory manner makes sense. but let me just ask, is there anyone who wants to add to the description of the transaction itself and what the benefits, the tax benefits are that people are pursuing? and these are comments are going to be 60-second limited comes. anyone add anything to steve's description? >> i agree with what steve said, but i would emphasize that the second tax advantage is bringing capital back to the united states. ibo back to the united states. and these have been described as capital flowing to the u.s. so i think the advantages are potentially to strip the tax base the same way other foreign

companies are doing, not just inverted companies and also to bring cash back to the united states. >> so we're going to spend a couple minutes talking about the tools, if you describe those, and we're going to take for the employment the assumption that the treasury secretary laid on the table, which is that it is in the interest of the united states to try to stem these transactions. let's just describe, take that as a given for the next period, and we're going to come back and question that proposition. but for the moment, if you assume that, let's talk about what tools the treasury might have. and to give us a backdrop to that conversation, i'm going to turn to sally first, to talk more generally about the authority that executive agencies have when statutes have been on the books for a long time and practices arise that, or questions or issues arise that may mott have been on the

table in the current form at the time the statute was enacted. and agencies have a variety of regulatory tools to act in those cases. some of them are given more credibility and have more legal authority than others. can you kind of give us an administrative law overview? >> administrative law in two minutes. >> only sally could do that. >> well, i was die heighted to be invited, and i felt a tad like an outlier, because there's all this substantive expertise, and i'm kind of a process kind of gal. and going with the administrative law. but in the general administrative state, agencies have a whole variety of things that they can do to confront what they perceive to be a problem. from the very soft jawboning or lifted eyebrow to encouraging

private/public partnerships to talk in round tables or to have some sort of voluntary standards. to a little harder things like enforcement actions or other adjudications that will lead to precedent setting provisions. but the preferred route for almost all of this, for most executive branch agencies, and independent regulatory commissions is the old-fashioned rule making, the rule making that also notice, where the agency says what it's thinking about doing and why. and opportunity for comment. public participation to help educate the agency, to think about things that the agency may not have been thinking about. and to get the buy in that is often critical for subsequent compliance.

and the agency considers these comments, issues a final rule, and it becomes effective 30 or 60 days thereafter. now, for the tax practitioners here, you may think, hmm, that's not quite the world in tax law, in tax land, where sometimes there's temporary regulations that are issued, simultaneously with a notice of proposed rule making. and then think become final later. or the whole issue of retro activity, which we can come back to at some point as to when the law jack spoke about with legislation, you can make it retroactive under certain circumstances. and the regulatory world, ordinarily it's perspective only. there are certain provisions in the tax code, however, that

allow the final regulation to be made effective as of the date of the notice. or even an announcement, if it has sufficient specificity, and we can talk about those. the underlying proposition is that the more process that is given the more deference a court will ultimately give. and we found this recently in a case, for those of you who are not lawyers, the supreme court a couple years ago basically said that there are general principles of administrative law, and they pertain to the tax world. they did not want to have a carve out, i think it was called tax exceptionalism by some. they didn't want to have a carve out for different administrative processes. if that's the wave of the future, i belong here, i mean, this sh good. i'm part and parcel. the key issue in the rule

making, though, which i think would be the step that we have to talk about, is what the agent s sy wants to do. and we'll come back to the what, but there has to be authority to do it in the tax code, in the underlying statute. there has to be authority. an agency can't just do whatever it wants. it can only do that which it has been delegated to do. and so what it is doing is critically important. there are, we will talk about what the tax code provides, but there are a couple of markers. one, the agency can't re-write the statute. i heard this morning about the 80%, 50%. that would have to be done legislatively. that cannot be done throughout a regulation. you can't re-write. you can flesh out the statute. you can elaborate on the statute. you can fill in gaps in the

statute. you can't re-write it. that's kind of a given. another consideration is that you can change your mind. the agency might have said, yes, yes, yes and now saying no. that's okay. you're allowed to change your mine. you have to explain why you're changing your mind. you have to provide information that justifies that change in position. but changing minds does not disqualify any kind of regulatory action. and the third marker that i want to lay down, that i hope we'll come back to, is just because you have the authority doesn't mean you have to use it. and one of the issues that was discussed continuously within the executive branch is, yeah, you can do it. do you want to? what are the consequences? what are the intended

consequences and the unintended consequences. forgive me, but what are the costs as well as the benefits of proceeding. i say forgive my, because i come from a administrator of the office of information and regulatory affairs and we routinely would think, cost benefit analysis. so i slip into the jargon from time to time. and one of the interesting issues on process is that tax regulations often do not go through oira. we can talk about that later because that is also a departure from the typical administrative practices. >> all right. great, so within that broad context of administrative flaw, steve rosenthal, steve shea has written an article that suggests -- and he gave us a preview of it, that the treasury actually has authority to take the juice out and i think some of the conclusions there have been contested by some.

but first, why don't you just describe what those are. >> sure, happy to do that. could i slip in a quick question to sally. secretary lew told us that he thought any legislation tackling inversion should be retroactive to early may. was that sufficient pronouncement by the secretary that if he wanted to issue regulations to take the juice out of inversions that he could yet write regulations retroactive to may? was that clear enough in terms of the information provided or is that still to be determined? >> um, not willing to give a legal opinion here, but i would say that specification of a date without the accompanying what it is that he wants to be made retroactive would somehow fail to be sufficient notice. >> okay. thank you, sally. >> but i didn't say that.

well, i did say it. yes. >> let's talk about what treasury can do once they're ready to do something. as sara mentioned, professor shea wrote a nice article about a month ago on this topic. if you forgive me, i'm reminded of the annie hall movie in which woody allen is standing in a theater line describing and listening to someone pontificate about what the director might have intended and then woody allen pulls marshall there. i'm going to make a few observations about professor shea's article, but he's right here to speak for himself. so professor shea highlighted for us a couple of the key problems, stresses on the tax system that inversions present. after an inversion, an inverted

company has been documented to increase the leverage that it has, loading up with debt. so that there's in effect many more interest deductions out of the u.s. tax base, what's known as earnings stripping. sort of like if you take your left hand and put your right hand, deducting your payments in your left hand and because your right hand happens to be across the border, excluding the interest income. and so that's one key problem that professor shea highlighted. the second problem was the whole notion of companies fleeing america before they repatriot the earnings that have accrued offshore. again, sort of like you contributing to your i.r.a. and before you start withdrawing funds from your i.r.a. and including those funds as income, you move to bermuda or cay mens,

as a caution, you cannot do that as an individual, this is not legal advice, corporations can do that. most directly tackling those economic aspects of inversion, there are a couple of easy tools that you might yet use out of the tax code. i work for the joint committee on taxation for six years. we regularly granted authority to treasury to write regulations, sometimes to interpret a word, sometimes to prevent abuse, sometimes to fill legislative gaps because we viewed treasury with the great expertise it has and the process that they have available to themselves notice comment in a transparent fashion as a useful tool to develop legislation. that's been going on the 100 years the code has been in place. there are over 500 specific

grants of authority and one general grant of authority. let me just mention too that professor shea noted in his article that address most directly the economics here. first, what can be done about this loading up of debt that u.s. companies undertake once they've created a foreign parent for which they can borrow money? well, professor shea observed -- and i think correctly -- that there is a code section that was enacted by congress in 1969 -- i'm a tax lawyer so i'll sneak in the site -- section 385. at the time in '69, congress thought about how do we distinguish debt from equity, debt from stock because in mergers and takeover situations companies were often loading up with debt. deducting a lot of interest and reducing their corporate taxes.

so congress enacted this code section that gave treasury extensive authority to write regulations as treasury deemed necessary or appropriate to determine whether an interest should be treated as debt with payments deductible or stock with payments not deductible. congress has revisited that code section three or four times since original enactment and never once has it reduced or taken back any of the authority that it granted. this code section is rather unique. it's only purpose was to grant authority to treasury to think about when an instrument should be allowed as a debt instrument to facilitate deductions, including factors that treasury could think about but need not think about, one of which was whether the payments on the debt instrument or whether the debt instrument paralleled the instruments paralleled the ownership of the stock or things

of that sort akin to the kinds of circumstances we have here. second, another piece of authority that professor shea highlighted in his article was something known as code section 956, which, as professor shea described, when these earnings accrue over seas and are used in the u.s., sort of akin to withdrawing from your i.r.a., used in the u.s. in a variety of ways, whether they're paid back to the u.s. company or the u.s. shareholders, whether they're loaned back to the u.s. company, or in a number of different other circumstances guaranteed debts and alike. inclusion of these deferred income that's been allowed to accrue tax free just like your i.r.a. has been allowed to accrue tax free. and in code section 956, congress authorized treasury to write regulations to prevent the avoidance of the provisions of

the section through reorganizations or otherwise. so, again, treasury has been given authority under this code section to tackle the kinds of problems, economic challenges that the inversion phenomena exists. as i mentioned, there are over 500 specific grants of authority. i'm only highlighting two here. i could speak to many more, but i'll let the discussion continue. >> thanks. so i'm going to return back to steve again. steve, i want to ask if there's any other tools you want to add to that list and then we'll spend a few minutes talking about first the impact of using those tools and then secondly how we think that would -- the wisdom of doing so. go ahead, steve, if you will. >> i just wanted to mention that one of the tools an agency always has is enforcement of the law as it is. and my article was directed at

going -- expanding regulations to address issues that might not be able to reached under current law. but i didn't discuss in that article an anti-abuse regulation under section 956 that as i read it, on its terms and because of some peculiar aspects that are quite expansive could actually be used to treat what is called a hopscotch loan from a controlled foreign subsidiary. if we had the picture back up -- i don't know if that's possible -- up to the new foreign parent as in many cases, not every case, but in many cases as a deemed dividend to the u.s. company. so, the real need for regulations, in my view, is cases where that regulation with respect to using the offshore earnings would be cases like

that regulation would not reach or that the i.r.s. which has great discretion under that regulation chooses not to apply it and in particular cases where there's post inversion planning, that would without triggering a u.s. tax, allow those old earnings to no longer be subject to u.s. tax jurisdiction. i've been called professor a lot today. i've been a professor -- this is my fourth year. i spent 30-plus years advising companies, so i really -- my dna is much more in the tax planner mode than it is in the professorial mode, just for what that's worth. and i see lots of tax-planning opportunities. as to any of the transactions that are out there, that have been proposed, i would be happy to discuss things that i would do as a tax planner that would allow post-er