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 cva]inx-ants of authority. i'm only highlighting two here. i could speak to many more, but i'll let the discussion >> 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 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 multi-national 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-conversion effective tax rate of those companies to be reduced. and that's why we're talking about this subject. >> so it appears that having a bow tie is not an indication of professorial stature, but instead tax planning advice. i didn't realize it came with the job description. john, you started us off by talking about the fact that your view, this set of practices were a symptom of a larger set of drivers in the corporate tax structure and that ultimately -- and i think you wouldn't get any disagreement with anyone here -- we need to be addressing those larger drivers. but in the context of the current debate, first of all, can i ask you to ask would the measures that steve and steve have put on the table be

effective and then we can go beyond that to say should treasury take it. let's start with the effective. >> so the answer is i don't think so. but there's an overarching point before i get back into the weeds which is why are we trying to raise the bar so it will be harder for companies to leave the united states. why aren't we trying to do something to make it more attractive for them to stay here. it's just -- we are really losing our focus. but coming back to whether there should be targeted regulatory action, the first suggestion steve and steve made is to use a code section called 385 to characterize debt as equity to limit the ability of these companies to reduce their tax with interest deductions. that isn't why companies are doing these inversions. if you look at the administration's proposal, the camp proposal, that's chairman camp, senator baucus' proposal,

they all propose to tighten 163j. that's a targeted section limited interest deductions. companies can read the tea leave. they won't make a big deal into what is likely coming down the pipe.s. they won't make a big deal into what is likely coming down the pip. they won't make a big deal into what is likely coming down the pips. they won't make a big deal into what is likely coming down the pipe. i don't think they have the legislative authority under 385 and i will admit, i was at the treasury and put out the first 385 regs which were ultimately withdrawn. but there's nothing in the statute or legislative history that says you can target 385 to a subclass of transactions involving foreign lenders and borrowers. when we put out the regs, we were even sure they applied to foreign transactions. when you read the preamble to the regs, they did not apply to foreign transactions. they said there is no applicati application treasury will consider this.

that was 34 years ago. 1980. lot of time has gone by, treasury has been thinking about it, they obviously haven't thought up until now they should use this tool. >> so let me just -- i want to get you to your second point. >> let me just stop on that point. i turn to sally to make an observation here. it strikes me the plain reading of the statute of this code section 385 is so directive and so broad -- and i've read the legislative history of 385, other provisions, i've gone through everything for the last 40 years, i don't think -- i this is an easy question that of course treasury has the authority here. but here is the question which i would like to pose to sally. in 1969, there was no notion of inversions. i agree completely with john on that. and so when congress delegated broad authority for treasury to tackle what -- when should instruments be treated as debts

so payments are deductible and when as stock payments are not deductible. congress, yes, did not have inversions in mind. sally, what happens in these circumstances? does congress need to have a crystal ball when it writes authorizing legislation so that it needs to expressly anticipate marked developments and what happens with other agencies? this can't be unique to treasury. >> i want to make it easier for sally to answer the question. >> it's really easy right now. >> okay. harder. >> you want to make it harder? i'll speak first. why should i let you do that to me. the answer is, no, congress doesn't have to have a crystal ball. if i could refer to climate change, for example. when they wrote the clean air act, they weren't thinking greenhouse gases, and yet the supreme court has said there is the authority there. things will change.

and one of the markers i laid down earlier in my overview, my two-minute overview of administrative law is an agency can change its mind. it could say 35 years ago, we're not sure this covers foreign corporations and now it can be damn sure it does. it can change its mind and that won't impair its credibility and that won't cut into the amount of deference that it might receive. i don't know what would happen in this particular instance because the tax mavens know the code, not me. but as a general proposition, the answer would be no, congress does not. >> why do you think that is? >> i think we have an incomplete record because 385 was enacted in 1969. in 1989, congress enacted a specific code section aimed at related foreign related party debt to limit interest deductions. very targeted to this particular

perceived abuse. not aimed at inverted companies across the board. treasury did a study in 2007 and thought, gee, inverted companies -- 163j is not tough enough on inverted companies and recommended and therefore in the last two budgets the administration has recommended that legislation be enacted to restrict interest interest deductibility by inverted companies. i'll read here, the treasury explanation, the administration explanation say it is necessary to amend section 163j to fix this problem and they score revenue of $4.6 billion, which i think the convention is you can't raise revenue unless you're changing current law. so, against the record of treasury saying we need -- asking congress twice, we need to change the law to address

interest-stripping on inverted parties, how can they then go back and say@a ah, i didn't really need to change the law, i could have done it all along using 385. there's a very recent case, the most recent case striking down an i.r.s. regulation in the d.c. circuit said administration can always change its mind if it goes a very long time and indicates it doesn't have the authority and then all of a sudden decides that it does, it's at least a telling factor. >> john had a second point on the question. i want us to get past all of the statutory interpretations so we come back to the policy. >> but the larger point here is i actually don't think -- we'll get into whether treasury should. i don't think the authority exists under 385, most tax lawyers think 385 was aimed at something different. if treasury wanted to put out -- >> second point. >> -- a broad 385 rule on all related parties, not just

foreign, but to all, then maybe. but not a targeted sub-class. >> you had one other question on whether it would work. and then we'll get steve in here. >> i don't think it would work because i don't think it is what is driving these transactions because companies aren't counting on this benefit going forward. >> okay. steve? >> i think we have two threads and i think i want to stick with the authority thread so we finish that. i'm happy to defer to steve first. >> short points. short points. one of the interesting things is administrative law in the tax area is quite settled. areas quite settled. and especially now that we've imported sally into the tax world, we've got it made. the mayo case said it didn't matter how long a statute sat out there. it can change its mind. so the point of length really is irrelevant. second, yes, there is a specific regime to address earnings stripping by foreign companies

generally. and there's a specific regime to address a variety of issues dealing with u.s. companies that invert. but the 385 debt regime was left in place throughout. in 1989 when the specific regime was added for interest stripping, congress also amended 385 and left in place the full authority. indeed, if you look to the legislative history of 163j they elude when they grant treasury authority to address guaranteed debt as a means of a u.s. company withdrawing foreign earnings, they say in passing, of course, we're not changing treasuries' authority to figure out what is debt and equity. so i'll leave it at that. john and i will disagree and i'm happy to -- >> let me ask a question. >> certainly. >> do you think treasury was then wrong in its budget proposal saying it is necessary to amend section 163j to address

earnings stripping by inverted companies? because that is the language, it's necessary. >> i'll defer to steve this time. >> if you classify debt as equity under 385, you are not doing what 163j does. you are saying an instrument to the extent that you're reclassifying it, should be treated as equity for purposes of the code. one effect of that is to transform a payment on that instrument from interest to dividend to the extent of earnings or profit or other outcomes of payment on stock. the other is it has an effect on with holding taxes. the other is it's interested differently under the nondiscrimination article of treaties. the whole argument that's being to 163 j therefore you can't use 385, then there are several major problems with that argument. first, congress didn't say that

when they enacted 163j and we can turn to sally what the implications of that might be without getting her into the tax weeds. second, there is evidence that steve has deduced and referred to on his blog that history suggests they didn't intend to restrict treasury's ability to use 385. third, 385 is different. it does different things. and in some respects it's actually a better tool than 163j and in some respects it's less flexible. but in terms of authority, to my mind there's no doubt. for that, i just turn to the statute itself which in 385b says among the factors taken into account in determining with respect to a particular, a particular factual situation, whether a debt or creditor relationship exists. a particular factual situation. that gives treasury the clear authority to distinguish inverted from non-inverted

cases. having said that, john and i actually agree on something. >> bow ties. >> in addition to the bow ties. i think that if we get into debt equity rules with respect to inverted companies, i think the better answer over time -- and i said this in my article -- they should apply to all foreign control companies. but -- and here is the problem, )jp' artery is open, you put on a tourniquet and then you have to have time to come back. now, the u.s. tax system falling apart because of inversions? no. but the corporate tax base is risking an irreversible decrease by reason of companies taking assets out from the reach of the corporate tax face if they both invert and then decontrol their foreign corporations and take assets that have been earned while in the u.s. corporate tax base as to which the united

states reasonably was expecting to -- a tax to be paid ultimately and denying that ultimate conclusion. that is why acting now is important. it's important to the corporate tax base and the things i've suggested i would argue are consistent with good policy and future tax reform. >> so let me use that as a way to move us to -- i want to make sure we get the audience in here in a few minutes. let me use that to align -- use that to move to a line i heard in the treasury secretary's remarks. he said, i thought, clearly, that -- i'm trying to find exactly in my notes. but he said that we wanted to act in a way that was clearly within the realm of sort of undisputable authority of the treasury department. and i apologize that's not a direct quote, but that was clearly -- he is saying that

there's a difference as to what we don't know for sure how treasury will interpret it's own authority. he said he wants to take an action that he thinks will be carefully within indisputably within treasury's authorities. so let's take that as an assumption for the moment. let's assume that whatever action he takes will be one that he feels and perhaps even john will feel is consistent with his authority. question is, if that action is one that is sufficient to reduce the level of economic incentive for inversions, to make it perhaps can't prevent them certainly and i don't think he would want to, but to make it less economically attractive to do this for purposes of reducing your u.s. tax burden. is that a good policy to take? and this is what i think steve you were starting to get at. in an ideal world we would have a tax law that's not designed to be aimed particularly at this transaction. we would have our interest provisions and others be more

universally applicable. john, you said we all think we should be dealing with the incentive issue, not the deterrent, not the punishment issue for people that move overseas. but congress does not seem likely to be comprehensive tax reform in the near term. so each of you, if you would, give me your views on the merits, the policy merits of acting now and let me just ask the second question so you can choose which one you want to answer, the political merits. does moving forward with a provision to address inversions now make it more or less likely that the change that everyone up here believes is a good idea, which is to deal with comprehensive business tax reform, does it more or less likely to happen if the administration uses its executive authority in this way? john, first we'll go down the row. >> you ask a number of questions there, but -- >> three-minute answers. >> the answer is i do not think regulations would be effective,

which is really important because the transactions would just morph into another form. i think to the -- i think they would make tax reform -- i am more optimistic than you on comprehensive tax reform sooner rather than later. i think the president wants to do it. >> how soon is soon? >> the next two years. i think the administration wants to do it. i know the republicans in the house want to do it and i'm sure ron wyden i know wants to do it, and certainly orrin hatch does. and the business community does. i want to be very clear on that. so i do think -- i'm not a pessimist. i'm an optimist. i think regulations would make tax reform more difficult, not less difficult because, a, to the extent they were effective, and i'm not sure they would be. transaction would morph into another form, they would antagonize the congress. the political comity would be destroyed.

speaker boehner has written an op ed saying, please, mr. president, don't rewrite the tax code yourself around inversions. so i think it would be a bad idea in terms of moving us to where we need to be as a country. i also think it would be bad -- this is in the long run maybe the most important factor -- create a dangerous precedent and damage the institutional integrity of the office of tax policy at the treasury. there was a letter written to tax notes by dennis ross a former tax official, expressing dismay over the use -- potential regulatory use of 385 to stop inversion. as dennis pointed out, there's enormous value in the policy and technical integrity of the office of tax policy calling it the way it sees it. and anybody who has served in

that -- and not interpreting the tax laws to advance whatever the political or policy issue du jour is. anybody who served in that office knows the importance of that mission. there's been pressure, for example, to index capital gains through regulation. there's been pressure to call an unborn child a dependent. office of tax policy has always resisted that. and i think to twist the tax regulation process to attempt to stop and i don't think you would stop these transactions puts our tax system over the long term at greater risk than inversions do in the short term because i'm confident inversions will be dealt with in tax reform by the congress. sally? >> he's yielding to me. >> only temporarily. >> i guess i have three

reactions. if john is right that doing any of the things that have been suggested will not decrease the amount of inversions and so it will have no practical effect, then a regulation, such as this, would not have any benefit. it would have some transaction costs and other down sides and in a cost/benefit analysis, one would say don't go ahead. i don't know whether he is correct that it would not work, but that is the issue that would have to be addressed. in terms of the regs, issuance of the regs antagonizing the congress, which otherwise loves to work hand in glove with the administration, i have to say that that is not very persuasive as i look at the grand scheme. again, i'll return to the epa,

which is the poster child for the hatred of the congress and their work on greenhouse gases, for example. climate change. they begged the administration begged the congress to enact climate change legislation. they were passionate on the subject. they said, as secretary lew said today about tax reform, much better if congress does it than if we have to do it. but congress didn't do it, wouldn't do it, couldn't do it, you supply the verb in there, but in any event, epa felt it had to go ahead. did it alienate the congress? yes. is that the reason we don't have climate change regulation? i would submit, no, you wouldn't have it even if they had not gone ahead. what it does show is what the administration is prepared to do, so you know the other marker. so you know that if we don't do

something, this is what is likely to be occupying the field. that's helpful for analyzing whether or not you want to go ahead. and in terms of the authority, the appropriate authority for executive action, secretary boehner -- secretary boehner, excuse me. speaker boehner has authorized a lawsuit against the president for using undue executive action. now, that's in the field of health care. but you could substitute immigration reform or you could substitute climate change. looking larger at the administrative stake, there's any number of areas where congress not acting has led to the executive branch acting and in its actions i don't think the marginal further antagonism of congress is something that would be remarkable.

finally, you spoke about the damage to the institutional integrity of the tax policy. i care fervently about that even though i'm not a tax lawyer. i believe -- no, i believe that government employees try to do the right thing. i believe they are committed public servants and tax policy does have a reputation, even to non-tax people, as a home for such high integrity. but your assumption is that they're not calling it as they see it. >> no, no, excuse me. i never said that. i said they're being urged. >> they may be -- >> they haven't done anything yet. >> they are facing very different circumstances. secretary lew, i've got the right secretary this time, secretary lew provided a lot of data showing a remarkable increase in inversions in recent times and potentially the consequences to the tax base.

under those circumstances careful, thoughtful, rational examination of the data could lead one independent of being told to do so to the decision that this is the right thing to do. and so i wouldn't sell out -- and you weren't selling out but i'm using a little hyperbole here, the integrity of the tax policy people. >> i want to get the audience in, so steve, share if you will. >> i just want to say, first question you had is will it work? and i also agree with john. if you adopt regulations in the two areas that i've discussed, some deals will still go forward. and that is fine in my judgment to the extent that those are good business deals and are not being driven by tax savings. so, that part of the careful, thoughtful analysis a treasury has to reach.

the second is will it hurt tax reform. in my judgment, it hurts tax reform for some companies to be able to put themselves in a different position as foreign parent companies from other companies. those are where some of the dividing lines are that create differences in approach within the business community. and so i don't think it helps tax reform to allow this to happen. you create more differences in winners and losers. so i think that acting regul regulatorily now. that brings me to the last comment. i don't know if there's going to be tax reform. i'm a huge skeptic because i don't see the political dynamics to bring about tax reform. i don't see the consensus. look, if you take regulatory action and tax reform happens in the next two years, you can correct any errors that are made. and if it doesn't happen for four or five years, then you

have stopped the bleeding. to me, it is a no-brainer. if you think you can come up with a rule that is responsible, that affects good tax policy and you have authority, which in my view you have all three, the argument of waiting for tax refom carries no weight with me at all. >> so steve, let me ask everyone and then i'm going to turn to the audience, let's assume for the moment that john is right, the two years is too long to waste. the secretary himself said he himself had changed his thinking about this issue because the pace at which inversions had been accelerating. is two years -- what kind of -- give the public who is not following this as closely some sense of scale in order of magnitude here. at the rate of acceleration of pace of change of these transactions, are we going to see our tax corporate tax base in two years disappear? where is the sense of urgency

from? let me ask steve to answer and then i'll come back to you, john and then we'll turn to the audience. steve, where is -- it's in the headlines a lot, it's embarrassing if we talk about the burger king going overseas. but is this a very significant shift in the location of the u.s. tax base? >> well, it can be. let's keep all this in perspective. the corporate tax base is only 10% in a good year of our total federal revenues. some of this isn't just about the corporate tax base. it's about americans seeing taxpayers be able to do things they cannot do. it's about protecting the integrity of the tax system as a whole. but just to be more specific, i think what attracted secretary lew's attention, almost certainly was first the pfizer deal which did not go forward, which was not quite $100 billion deal, two announced deals are each over $50 billion.

all those occurred in the last several months. there are deals waiting in the wings of size we don't know. when i looked at walgreen's, which did not go forward, i pointed out in my article that if they can what the barclays analysts suggested they should do, they are talking about $980 million a year, one company, of tax savings, not all of which would be eliminated by the proposals. they would be reduced. let's say it's a couple of hundred dollar million. for the federal government. >> i think that's a great question. are we on a burning platform? is our hair on fire? the joint committee, who is the arbiter of these matters, has an answer to that question. and the administration has a proposal to address -- a legislative proposal to address inversion. a joint committee said that proposal. if enacted, would raise $20 billion over ten years.

$20 billion sound like a lot of money, is a lot of money, but it's not a lot of money in the context of the projected corporate tax receipts over the next ten years, in fact, it is less than one half of 1% of the projected tax and that's over 10 years. so congress has time to deal with this. this notion of -- or the burning concern about interest stripping by inverted companies? there's a revenue estimate on that proposal by the joint committee that says it will raise over ten years $4.6 billion, which is less than one-tenth of 1% of corporate tax receipts. the house isn't on fire. these are not -- i'm not defending inversion. i'm not defending interest stripping. i'm just telling you there aren't a reason for us to run helter-skelter and do -- and screw up the administration of our tax system. they are symptoms of a fundamentally badly broken corporate tax system, something i think we all agree needs to

and should be fixed. but this is not an emergency. now, i agree with steve it is bad for the tax system, for people in the general public to see companies leaving our country. that's a terrible thing. and we ought to address that. but any short-term ad hoc measures aren't going to stop that. and we really need to get to the same. >> steve, i'm sure you'll find a way to answer the question as part of a comment in response to the audience. so let me make sure we get them in. thank you very much. so, i would ask if anyone has a question please raise your hand. as you ask your question or if you would please identify yourself and your name and where you're from. all right. in the first row up here, please. if you could wait for the mike, please. thank you. here it comes. >> question for john and the other panelists, i guess.

when i served at treasury between 2001 and 2003, we described in congressional testimony the u.s. tax system as america's berlin wall and said really the only way to stop companies from wanting to leave, if it's in their economic interest to leave is to tear down that wall and go to a territorial system and you can still raise 10% of the u.s. revenue from the corporate base and no one will need to leave. any comments on that. >> steve, do you want to start? >> sure, i can address that. >> i do not think shifting to a territorial system is a pan that see ya, jeff. the two problems that we've highlighted here are earning stripping and the deferred accumulated earnings of these controlled foreign corporations. if we shift to a territorial system in which a u.s. company is only taxed on its u.s. source income, and not taxed on its foreign income, there will be

all the more incentive for multi-nationals to strip income from the u.s. base and shift it abroad. >> isn't that the first step and then you deal with all those issues -- >> let me finish my answer. so as part of any consideration of territorial, we need to address the earnings stripping issues that we're discussing here. one of the observations professor shay made in his article, he wanted treasury to adopt regulations that could fold into tax reform and we've got to address earning stripping and we have to do it sensibly and i think we could fold that in. second, the other problem that we've highlighted here is the large stock of accumulated earnings offshore, the huge i.r.a.s that have not been subject to u.s. tax. i disagree with john. i think the problem of inverted companies is serious and pressing. there is a $2 trillion stock of deferred earnings abroad.

and whether we go to territorial tax reform in any particular fashion, the deal is, under our worldwide system today, that u.s. companies are expected to pay tax on their worldwide income. we granted them relief by allowing them to park their earnings abroad with the expectation that they would be returned and subject to tax. we granted one holiday in 2004 and promised never to grant a holiday again. so we've got to deal with that issue as we shift to reform as well. so i don't think there's a panacea let's just tackle all this in reform and leave the rest for later. >> i think the deal was that if they brought the money back it would be subject to u.s. taxations. if it's offshore and stays offshore and you're going to a territorial system, is there really a disconnect there? >> john, you wanted to answer. >> let me try to respond. steve again said a lot on this

issue of transition to a territorial system. it's a question of what do you do with historic earnings of u.s. companies. at least the bills that have been put forth -- i'll say when japan and the uk moved to territorial systems, they just left the companies bring it back. no toll charge. the u.s. -- all the bills that have been introduced impose a total charge of 5%, 8%, depends on the proposal. none of this inversion activity changes that. steve didn't get this quite right in his article. the u.s. company after an inversion is still a u.s. company, still owns cfcs and those will still be subject to the toll tax. they would be very happy to find out they aren't, but they will be. so i think that's a red herring. i don't think there's any panaceas. this question of moving to a territorial system and will that

exacerbate earning stripping. maybe. if it does, then we should address that earning stripping issue directly. i will point out the rest of the world have moved to territorial systems. the rest of the world do not seem to be having earnings stripping problems that we're conjuring up today. the uk, it's not a problem with the uk. it's not a problem in japan. and if it's a problem here, we can deal with that problem. >> sir, can i continue to address -- i just -- >> go ahead. >> john, i'm not recalling saying what you said in the article, but -- >> it's in a footnote. >> but if a company is under a u.s. company, those earnings still remain subject to u.s. tax jurisdiction. i think i said that before here. but it is possible through a post inversion planning transaction to decontrol that company in a range of circumstances, sometimes it won't be practical but sometimes it's practical and it can be done without triggering a u.s. tax.

if that is done, then those earnings are no longer subject. that's the concern. again, guiding us into the weeds and we can talk about that later. >> i agree with what you said. >> okay. >> let me just say, i will note to the audience that we're going to try to avoid detailed statutory interpretation in q&a as best we can. i have a number of comments. they're really terrific comments. i'll shame them with folks and there will be a side bar here after the panel for people what want to press those.bar here after the panel for people what want to press those. i want to keep it broader for all of the audience. let me mention two questions i will ask any who wants to respond and take another question from the room. one question is i think there's a general confusion about whether or not inversions result in employment in the united states shifting or not. so i'm going to ask folks to address that. the second -- and that was from jennifer. sam sabo from online asks us also about the decision made by

walgreen's when they purchased boots and chose not to invert. and they said that at the time that if they chose to invert they would be subject to intense scrutiny from the irs for many years to come and the impact of that uncertainty was sufficient to deter them from inverting. specifically, they said, a protracted controversy with the irs including litigation that could go on for years, almost a direct quote, would complicate and impede everyday tax and business planning so that with the implicit threat of such uncertainty, et cetera, et cetera. if you would comment, please, on maybe -- are there some firms who will not undertake this direction simply because of the sort of heightened scrutiny it will subject them to? >> so let me take the first question first because i think it's really important. are any jobs leaving the u.s. because of these inversions. the answer, can you put the chart back up, the picture -- do we still have that available?

the u.s. company after the transaction still exists. it's just owned by a foreign company. no jobs leave the united states. no real assets leave the united states. no capital leaves the united states. all that's happened is the shareholders of the former u.s. company are now shareholders of a foreign parent. capital isn't leaving the united states. jobs aren't leaving the united states. capital is actually coming back to the united states through the techniques that steve would like to stop through regulation, the self-help territory yol territoriality. it is true -- and if the u.s. e. it is true -- and if the u.syer. it is true -- and if the u.s. e. it is true -- and if the u.ster. it is true -- and if the u.s. company is larger than the foreign company, so the foreign company still can't be -- it has to be 25% the size of the u.s. company the management of the combined company will be a u.s. company. does that mean they have to move

overseas? no. management can still stay in milwaukee or in -- whatever city they're in, will there be board meetings in the uk? sure. but a board meeting is hardly a major loss of jobs or capital. and that is really confused in the public discussion on these transactions. people think we're hollowing out real asset, real investment. we are not. >> steve, how big a deterrent is the heightened scrutiny that any company would get from treasury if they inverted? >> to talk specifically about walgreen's to put that in perspective, walgreen's was -- had already acquired 55% of its target and an activist investor came in and said we want you to turn the rest of your acquisition into an inversion. in order to do that, they would have had to restructure the transaction in a way that would have raised a number of issues under existing law that would properly have attracted scrutiny by the irs. so that is a special case.

and i think for those of us who served in the tax functioning government either treasury or the irs know, a, how incredibly important the integrity of treasury and irs are -- is to our government. and, b, that the irs really plays it straight and looks for where there are tax issues for which there is a real potential adjustment. and i don't think -- just because they're inverted, it depends how you do it, how clean it is, what issues will be raised. there certainly could be a transaction like that that would not attract material scrutiny. all depends on the facts of transactions. walgreens is actually an example of that. >> okay, great. other comments in the room here? you have a question right here and then we'll go back to the back of the room. so right here and then back there. we're waiting for a mike to get

to in the second row, please. thank you. >> thank you. my name is buck chapten. john, i just get to the point when you just said there's nothing -- there's no "there" there in the transaction. capital comes this way, jobs stay here.[vé i worry about the point i guess steve made that that really speaks to the integrity of the tax system, doesn't it? people read about it in the paper, it happening and nothing really changes. they just avoid a tax.

them as inversions. the original inversion transaction is when a company merged into its own subsidiary. it was an artificial transaction, nothing did happen there and they did it to get their money back. congress didn't like that so in 2004 they enacted a statute to stop that but they wanted legitimate mergers to continue. and indeed secretary lew said he wants legitimate mergers to continue. congress defined a legitimate merger as one where the foreign company was at least worth 25% of the u.s. company. so there is a legitimate transaction going on here. and i do not think companies by and large are doing this just to get -- these are business combinations. you don't take your company and merge it with another company that's 25% your size just for tax reasons. you find a real business combination to be sure you have

the foreign company be the parent for tax reasons, just like happened in chrysler daimler. >> well, but the point is, is it not, that the acquired company, will you will, the former u.s. company, it doesn't change anything, may call its address there, but the people are managed here. >> no. what's changed is it's now got -- it's combined with a foreign business. look, i do not think companies should have to do this and i don't want to defend these transactions. i think we need to change our tax code so they don't have to do them. i can't believe you think we should force companies to keep their cash outside the united states. >> if you could just add to -- look. folks who do acquisitions look at the discounted cash flow and say, am i richer afterwards or not? and part of that discounted cash

flow are tax savings. and you weight them differently depending on your management frankly. it varies from company to company. what he is referring to is the fact that in contemplating the inverse in the walgreens transaction, a very substantial amount of the potential discounted cash flow benefit came from tax savings. that is all we're trying to deal with. we're trying to say get the law, whether by regulation or law, to a situation where deals are done on pretax economics, if they work, they work, if they don't work they don't work. and so part of the reason why i'm more sanguine than a lot of people about putting in regulations if they're well designed and fair is because if a transaction -- a transaction will still go forward if they can do it by the rules that are properly designed, okay. the fact is that the current rules -- we've said since 2007

in ooh treasury report issued by the bush administration are not working. and that is why there have been budget proposals almost since and now we're paying a cost of having done nothing on this subject. >> but i haven't heard you or steve -- i agree with you address the fact that therefore treasury said to the congress, please change the law. we need the law changed, amend section 163j. congress hasn't for inverted companies, congress hasn't gotten around to doing that yet, but that's congress's decision. once treasury decides congress isn't going to do it, they say well we're going to act on your own. we'll issue some regulation. >> i think there's a subtle difference here in that it would be more desirable for congress to do it and secretary lew said that. the best practice is for congress to do it. now, you're saying the word "necessary" -- >> that's what the treasury says. >> i understand. they're saying the use of that word connotes that they are

otherwise impotent. until there's a change in the regulation they can do nothing. i'm not sure that necessarily follows. it is better for congress -- >> no, i'm not. let me respond. i think what i'm saying is when they say it's necessary, they're implicitly saying i don't have the authority under these other code sections. >> that statement was made in budget documents that were issued before the pfizer deal, certainly drafted before the pfizer deal, before $100 billion more and now more than that in issue deals. there is a saying that when the facts change you should change your thinking. and i think what we heard from secretary lew this morning was his thinking has changed. and it's clear that it's changed because of those developments. and we can disagree with whether it's right and that's perfectly fine. i happen to agree with the secretary. this is important. these facts, these change in facts are important and the treasury needs to act. >> so i agree when the facts change you should change your opinion. i don't think when the facts

change it changes your authority to act. i think it makes it more important for congress to act, much more important. i think congress should act. i hope they do act. but i don't think because facts change it changes the law. >> sally said before just because you have the authority doesn't mean you have to use it. it's clear the treasury didn't. i disagree with your reading of the budget statement as saying they can't. and it seems to me evident on reading a statute and all the analysis we've gone through today with the great patience of this audience that they have the authority. >> all right. let's see. i had promised in the back on the left there. could you stand so we could see you, please. >> mindy hertzville with tech analyst. part of my question was answered by the previous question, but professor shay -- >> stand up first, please. >> professor, maybe you could clarify what you meant when you were saying that your proposal

was the tart target expay theated companies. so i think what you meant maybe was that it would target all y companies. so i think what you meant maybe was that it would target all th companies. so i think what you meant maybe was that it would target all e expatriate -- companies that were expatriating in order to push that down? >> what my article actually said was essentially good policy would be to cover all foreign controlled companies. but that there's authority, which i read earlier from the statute, to take on particular factual cases. there's data supporting looking at inverted companies differently and in order to act quickly and to deal with the immediate problem, the tourniquet so to speak, in my article i actually recommended only address -- only applying the heightened standards to inverted companies. that's a decision treasury could easily not follow. they could say, no, let's do it

for everybody. i mention in a footnote in that article that there are political economy reason to not target everybody was just basically to reduce the number of lobbyists you have to deal with in the short term while you're trying to get this done. but i'm glad you laugh because it was facetious. >> okay. could i get a microphone down here? thank you. thank you very much. >> tig -- >> could you stand up for the benefit of those in the back. thank you. >> i guess my question there's been a lot of questions about the regulatory authority, sally, you talked about what the due process was. that seems to be one of the things that's really absent if the administration just makes unilateral changes and in particular, some of the things that professor shay talks about on 385 seems arbitrary in determining what is or isn't. so i'm curious, how is due process carried out if in a

matter of weeks the rules are changed? >> due process is normally carried out in rule making through the notice and comment process. it takes more than a few weeks, i will grant you that. but it can be done in fairly quick time frame. i'm reminded of a regulation that was done by the department of treasury, department of transportation that had to do with car seats in the front because the air bags were exploding. and were smothering children and women of short stature. and to 1207 that d.o.t. put out a notice called for comments in 30 or 40 days and were able to turn it around in about five days so that the total lapsed

period was about two months. that's fast. that's fast but it can be done. if there is a need, and i can't speak to that, if we do have this tourniquet issue, you could do the notice, you could get the comments. it sounds to me like most of you are pretty up to speed. so that if noticed of proposed rulemaking were to issue you might be able to get those comments in very quickly. the treasury people could review them very quickly or the irs people could review them very quickly and a final rule without going through i.r.a. could issue in a matter of months, not a matter of weeks. the courts have consistently held that where the public participation follows the rules of the apa, section 553, since you're pulling out section numbers, 553 of the apa that that does satisfy the

requirement and provide the public the opportunity. there is in addition a weird provision in the congressional review act that any regulation that is issued could conceivably be set aside through a motion of disproval if both houses of congress and the president sign off on it, it is pure majority. if it happens during this administration, presumably the president would veto that, even if both houses of congress chose to disapprove it. but it is -- there is a clawback provision. this is more than you ever wanted to know, i'm sure. but it enables the congress to look back, to claw back, to appear if there were, for example, a republican president in 2016 in both houses were held

by the republicans in 2016, they could claw back as far as may or june of 2015. that should set treasury thinking. we don't have until next november or the following year, there is a time frame that they would want to get their reg finished so it can't be clawed back. and if you really care about this, look up the history of the ergonomics rule during the clinton administration where in 2000, they clawed back to a june or july rule and disproved it. very rare, very, very rare. but it is out there. and it is part of the due process scheme. >> so, steve, you wanted to comment. treasury often acts to interpret the rules -- are you okay? >> i just -- >> steve needs to make a plane back to boston to teach a class today, so we're going to let him out at precisely in time.

so we have time for a very short final comment and then we'll close this panel. is there any other comments, a hand back there if you would, please. >> if you would target to one of the panelists. >> another question for sally. my name is jeff. on this issue of whether we can afford to wait for tax reform and the issues of retro activity we have been talking about, would congress have greater ability to act retroactively than the treasury department and the administrative setting? >> i haven't gone into all of the tax code provisions, but it strikes me from what i have seen that treasury has a great deal of authority here. it is always better to have congress act. they should make the law. that's their job. and therefore it is usually less suspicious and less contested. but treasury does have some authority here and i can't really opine on a relative merits.

>> all right, with that, thank you. i'm going to also say to david and ryan who sent comments in that we're very thoughtful but also precise that we will share them with the panelists and encourage you to follow up by e-mail if you have questions. could i ask everyone here to please join me. this was probably for those of you who are not lawyers a bill bit of a return to some statutory interpretation that we don't always get to do, but the courts may well find these very questions in front of them. i know treasury is wrestling with them now and it is great to have this really extraordinary group of people here to help us all understand and get a flavor of what that is. thank you. [ applause ] >> thank you very much. i'm going to run for my plane.

the c-span cities tour takes book tv and american history tv on the road. traveling to u.s. cities to learn about their history and literary life. this weekend we partnered with comcast for a visit to st. paul, minnesota. >> st. paul in the 1930s, i wouldn't call it las vegas. but it was a very lively city. because the gangsters brought their guns. during prohibition you had the biggest jazz artists of the decades here in st. paul. place, partially because the gangsters were welcome here. virtually every major gangster, kidnapper and bank robber in america lived and worked within

a three-block radius of where we're standing today. john dillinger, babyface nelson, alvin creepy carpas. all were here. people don't know that. there's no statues of theseñii gangsters. but this was the epicenter of 1930s crime in the era of john dillinger. the fbi, the federal bureau of investigation, with j. egg garr hoover, had this as their headquarters. this is also the building where all of those bootleggers and bank robbers were tried and sent to alcatraz, leavenworth prison, and other prisons across america. it's where it began, and where it ended. we're standing here at historic fort snelling and looking over the junction of the minnesota and mississippi rivers. st. paul is located up the mississippi river from fort snelling and the fort was here before the city was. but the fort is intimately connected in the creation of st. pa paul.

in the 1830s, there were groups of settlers that were living on the military's property. finally the army had had enough of competing with them for resources, and they felt that they should be removed officially from the military property. the settlers then moved across the river to the other side, and they formed what became the nucleus of the city of st. paul. when you think about the story and the history of this region that you think beyond the walling of fort snelling. and that's what we try to do here at fort snelling is really push people to think more about what does it mean when all these cultures came together? what perspectives do toy have on these historic events? >> watch all of our events from st. paul at noon eastern and sunday afternoon at 2:00 on american history tv on c-span3. >> the defense department tweeted out this picture this morning. it's from nato exercises in ukraine called rapid trident. more than 1,000 troops from 15 nato and non-nato countries are

taking part. the pentagon says this is a picture of a u.s. soldier in the foreground, assisting italian paratroopers before an air assault. moscow has protested the exercises calling it a nato expansion in eastern europe. hillary clinton is going to speak today at the democratic national committee's women's leadership forum. c-span will have live coverage at 12:05 eastern. secretary of state john kerry will chair a debate of the u.n. security council on the situation in iraq this afternoon. c-span will have live coverage from u.n. headquarters in new york city. it begins this afternoon at 2:00 eastern. two former members of congress are running for governor in arkansas. c-span will have live coverage of the debate between democrat mike ross, and republican asa hutchinson tonight.

here's a look at some of the ads that voters are seeing up until that debate. >> the democrat gasate says the attacks on mike ross roo not true and the smear on his family business. there was never a justice department investigation and the house ethics committee approved the sale. so why is hutchinson attacking ross' family for building their smalltown business into a success? to cover up the fact that he got caught cheating on his taxes and the fact hutchinson was a d.c. lobbyist who has a record of putting millionaires before arkansas' middle class. sore ra asa, this cover-up won't work. >> for our schools, a choice for governor. there's asa hutchinson, he voted to cut college loans. >> and pre-k programs. >> and he opposes mike ross' plan to expand pre-k. >> i think it's the wrong direction. >> but mike ross says education must be a priority. >> a pre-k plan that works for arkansas. >> a focus on career tech training and college opportunities.

>> under mike's plan i know my kids will have what it takes to get ahead. >> that's why teachers have endorsed mike ross for governor. >> mike has a record i can trust. >> have you seen this latest smear piece paid for by allies of barack obama? here's what they don't want you to know. asa hutchinson found a mistake in his taxes and reported the mistake himself and paid his bill in full. many of us have made mistakes on taxes, asa was honest enough to admit it, but that doesn't stop team obama. they hope it works for mike ross, as well. fortunately, arkansas knows better. it's a $16 billion industry and arkansas' largest. and with 97% of our farms family owned, our next governor must fight on their side. so when some criticize free trade, it only hurts our farmers. whether it is rice, wheat or poultry, i want to keep arkansas business open to the world.

it's the best way to grow our economy and create jobs. i'm asa hutchinson, as governor, we'll hit the ground running and never look back. >> mr. ross served as a u.s. congressman for 12 years in arkansas' fourth district. mr. hutchinson is a former u.s. congressman in arkansas' third district. he's also served as the administrator of the u.s. drug enforcement administration, the dea. the two will debate in little rock, arkansas, tonight and you can see live coverage on c-span starting at 8:00 p.m. eastern. former virginia governor jim gilmore says that we're at war with terrorists and defends the government's ability to track information. charlie kirk the founder of turning point usa took the opposite view about government intrusion eroding our civil liberties. over the next 50 minutes they debate national security choices during this event from the steamboat institute's annual

freedom conference in colorado. >> good afternoon. as you know, the purpose of government is to protect the life, liberty, and property of its citizens, but what happens when criminals and terrorists leave electronic footprints instead of real footprints? what does a government do then and how does it protect our privacy while simultaneously protecting our life and our liberty? to discuss that we have governor gilmore, and also charlie kirk. >> crist. >> kirk. >> okay i'd like a perfect opening and i just completely fudged it. there you go. in order to discuss these issues i have these two fine gentlemen. i will have them each give a 10-minute openers then a series of questions, they'll have two minutes to answer those questions and a one-minute rebuttal. and then we'll have the chance for you to give questions to them and then we'll have a

chance to close. with that i welcome governor james gilmore. >> thank you. thank you very much. i've seen a lot of you already. [applause] >> thank you. charlie and i did something like this at cpac, the conservative political action conference, several months ago, and it was so flamboyant. they decided to invite us back. we'll see if we can't not disappoint. i don't know what biography was given because i was sequestered at the back. i might as well be a congressman, i guess. so i'm not sure what that is.afl but you probably know i was elected prosecutor the commonwealth's attorney in my local county.

west germany in the 1970's as an army veteran during the cold war and i was the chairman of the advisory panel on homeland security for the united states at the request of the congress for five years from 1997 to 2002. and that was over the time of the 9/11 attack and i was governor of virginia during the 9/11 attack. the 9/11 attack was a watershed. we all know that. it was a very serious issue. i will keep as close why can't a 10 minutes but this is a very complex subject. during the 9/11 attack, i was very concerned about the

reaction to the 9/11 attack in the united states. the bush administration, the congress of the united states, and the people of the united states, were all calling out for security. and the demand for security. and frankly i was pretty nervous about it, to be honest with you, at that time. i was trying to give a bit of a counterpose. if you looked at, would ever look at the letter that i wrote to the congress that year, i basically said that one of the principle things we needed to do was to protect democracy and individual liberties, it's paramount to achieving the ultimate victory. and the protection of individual liberties was the entire game. i don't feel any differently about that today. but i will tell you that my concerns are even greater today, as far as the safety of this country goes than they were then. it is a very serious issue, the threat is more serious than at the time of the 9/11 attack in

2001. you can't go into your hotel room and turn on the television, can you, without looking at what is going on with the james foley beheading, with isis going on right now. the threat now is much more dangerous than the cold war. now you have state threats and nonstate threats. a dual problem we have to confront is the united dates of america. iran wants to have a nuclear bomb and seems determined to get it. and i for one do not want to see the united states at war with iran. but what are our choices if they insist on getting a nuclear bomb? are we going to get iran have a nuclear bomb and end up with egypt getting one and saudi arabia getting one and then all these nukes, not to mention israel, all sitting there in the middle of this volatile area. the chinese arrested. they want to change the status quo. they consider the south china sea now a core interest.

the russians are all very familiar with that. my old friend the russians. they have marshalling 18,000 troops on the ukrainian border this instance. what happens if they decide they can invade the ukraine and take it over in order to protect russians and decide a year from now that the baltics might want to be their next victim? members of nato. and there are others. that's not the principle problem. it's one of the two principle problems we're facing. the other is the nonstate actors against us. we see this most famously in al qaeda and the rise of isis. and don't forget the criminal drug cartels on the southern border. these are people that belong to no nation, observe no rules, except they have certain asymmetrical rules of their own. they can attack this country and spend almost nothing and cause us to spend trillions of dollars in response. have we not been doing that?

how long can that go on to the democracy of the united dates collapses? what about the fact their primary mission is to attack civilians. why do they do that? they want to undermine the people of 9 united states' confidence in their own country and in their own government. united states confidence in their own country and in their own government. what little confidence the people of the united states have, the enemy seeks to dissipate even further so we will turn to other forms or isolationism. which, by the way, we have people in our own republican party that advocate this kind of drawback and pullback right now. at the center of the potential attack against this country is clandestine operations. the danger an attack that can happen in this country from secret cells and people in this country who might come to this country, or even attack our allies, we have seen it in this nation. we saw it in a first trade center attack and another. trade center attack. we have seen it in our allies'

countries and the goal here is to attack civilians and to undermine our confidence in the ability of our state to protect our citizens. when i developed ten points that i believe are a strategy, i'm not going over them. you may be relieved. but i may in the morning. i'm going to speak at the breakfast in the morning for a few minutes. and i want to go over this. but one of those points i will tell you is that we must, as a nation, build upon our advantages. and one of our advantages is a high technological and scientific advantage that we have, particularly with the nsa, the national security agency. that is enormous power. and i think charlie's going to address some of that. we're going to do a little more of that on q&a, as well. i want to tell you that the loss of our technological advantage to be able to understand what the enemy is doing, where they are, what they are thinking, what their plans are, the loss would be catastrophic. that is the danger that we face.

i think the arguments being made that say that the nsa has to be drawn back in the name of privacy presents us, in my view, with a false choice. our goal in this country is not to be driven to the choice of freedom or security. our job as americans and the challenge of leadership is to achieve both. not false choices. that is not easy to do. the simple procedure is to go all security, expound everybody, or simply to have total liberty. that is a false choice and i say that we don't do that. i think there are ways that we can reform our plans and our nsa-type of operations in order to protect the privacy of american people and at the same time, maintain our advantage, because ladies and gentlemen, i

close with this comment. we are at war. a long, long war. make no mistake about it. and i say to you that we need presidential leadership right now that understands the dangers that we face, the challenges that we have. how to thwart these false challenges, and the ability to save our country in the long war ahead. we need that kind of presidential leadership, which means we need a change in the white house. thank you very much. [ applause ] >> thank you, governor. charlie kirk? >> thank you. i'm very excited to be here in steamboat. i got to travel to colorado every so often to the denver area and visit some of our campus and college groups throughout the greater denver area. but it's nice to come out to steamboat and hike a little bit and meet all these wonderful people. i want to congratulate everyone here today.

by attending this conference you earned yourself an irs audit. so congratulations. you can be expecting that early next year. the governor and i had a wonderful discussion back from washington, d.c. and i look forward to continuing that dialogue and diving into the nsa. i'm not going to pretend to know everything and every inch of that monolith of the agency nor do people working in it know all about it. it's so complex and there are so many unknowns that we have to go in understanding that this agency -- we have to take a step back and talk about the philosophical beliefs behind it and have a discussion about that. i'm going to ask everyone a question here, and i think you're going to maybe reconsider some of the thoughts of the nsa. imagine lois lerner running the nsa. i want you to imagine that for a second. i bring that up intentionally. we're living in a climate and a culture with an administration and a government that uses agencies like the irs, weaponized against citizens like you.

we're living. that's right. and it's true. i wish i could clap but i've been targeted by the irs and i'm sure many of you have, as well. we are living in a culture and climate where no matter what agency it is, there is evidence of collusion, of interagency conspiracy against citizens. look at catherine engel brecht from true the vote was a citizen from hosten, texas, started a nonprofit agency for election integrity. was visited by five different federal agencies in two months, audited by three of them, taxed by all five and they said oh, we're not talking to each other. really when the atf and the epa and the irs and all these agencies visit you and ask these questions you're trying to tell me they're not colluding? why do i bring this up? we're talking about the nsa which is admittedly probably the most powerful and most intrusive arm of the department of defense. which really, for until edward snowden's actions, has gone relatively unchecked. most americans didn't even know what nsa meant before edward snowden did what he did.

trillions of lines of data have been accumulated and stored in banks in utah, and databanks, about every person in this room. and i would like to venture a guess that with this administration, we have seen the track record of the abuse of power. we all know what's going on there. do you want to wield that kind of unchecked power to bureaucrats like lois lerner or the irs guy that got into a debate with paul ryan? when paul ryan asked him, sir, why didn't you tell us that you deleted the e-mails? he said, well you never asked me. are those the people that you want running federal agencies that are able to collect trillions of lines of data? one other thing i want to mention and the governor said the enemy. and he's exactly right. the enemy is isis. and the enemy is international global islamic jihad. and i will agree with him on that. however, government bureaucrats don't view those as the only enemy. they view the enemy as people that disagree with what they believe in.

we can see what happened in the irs were they thought that conservatives were the enemy, that tea party groups were the enemy, that republicans were the enemy. i think we have to hesitate and say hold on a second if we're going to use that word so loosely, what does the word enemy mean to an unchecked nsa employee who can tap, without warrant, every person in this room? every phone call. every e-mail. every text message. unchecked, without warrant. do we want to give that kind of authority to people that we know have a subversive agenda to overthrow our founding principles? there was a slide playing throughout this conference and it's a wonderful quote by benjamin franklin. he said those who sacrifice liberty for security deserve neither. and i truly believe that. if we are trying to get back to our founding roots and our founding principles i think we have to, in many different instances, ask ourselves as conservatives, should we give all this authority to an agency that before edward snowden

released it, most of us did not even know existed? now of course governor gilmore did. but he dealt in a lot of these deeper, more complex issues. one last thing. if you look at the mission statement of the steamboat institute and you look at the heritage foundation and cato institute there's two words that are thrown around a lot and that's usually freedom and liberty. and also another phrase, limited government. and i'm going to say this. to the left they have no qualms with growing government. they have no qualms about growing bureaucracies. were they out there complaining when conservatives were weaponized and targeted by the irs? no. we have to, as conservatives, lead the charge against the abuse of power. and we have to. we have to. be the vocal opponents to unchecked federal bureaucrats allowed for the warrantless and illegal and constitutional violatings wiretapping of american citizens. and we as conservatives have to be the vocal opponent. and myself, at 20 years old,

considering how much i tweet and how much i facebook post and all those text messages, boy i'll tell you what, if barack obama wanted to find an enemy and look at the nsa, just has to look at me right here. my finishing note is this. the nsa is probably the most powerful agency we've ever seen. i'm not going to pretend to know every single intricacy, neither is the governor. but we have to ask ourselves one final question, do you trust the federal government? and do you trust the people running it? thank you. [ applause ] >> charlie, i have always loved that quote about people who are willing to exchange security for liberty. but, i also agree with the governor that it's a bit of a false line. it's not a question of liberty or security, it's where we put that line. is there a country out there that's doing it right? that has that balance correct? how would you propose that we balance those two things? >> well, you know, i have --

actually used that same benjamin franklin line at cpac once before as a matter of fact in a debate. you know, i knew ben franklin. ben franklin was a friend of mine. he's no james madison. actually probably was. but the point is that i thought about this question quite a bit before we got here. i don't think that it's really useful for us to examine other countries out there. because, another one of our principles we need to remember is that america is exceptional. we all are. there are people today that say we're not. [ applause ] there are people who say we're not exceptional. we are exceptional. because of exactly the conference that we have this morning with lynne cheney when she talked about this historical founding fathers. these are the touchstones that we americans have that no other country in the world does have. therefore we draw the line differently. and the challenge for us is that much greater.

we are much more careful about what kind of liberties we give up than other people in other countries. so i think the duty is not to worry about what other countries do but to worry about what we do. it seems to me that we have to remember what the nsa is able to do, because it's information technology. it's all been in the newspapers. they at this point know how to intercept al qaeda's movements. their messages. they have already succeeded in intercepting the messages of hezbollah. it's been in the paper. they already succeeded in following the al qaeda leader through africa, and then getting him to the point where he could be arrested. they've already succeeded in listening in on president karzai of afghanistan when he was interacting privately with the representatives from iran, and told them that when the depart your of the americans came that he would be working very well and making sure that there will be no interests against iran. these are useful things for we

to know as we do make policy. these are technological advantages we americans have nobody else in the world has. the enemy would like us to become paranoid. the enemy would like us to become distrustful. the enemy would like us to throw this advantage away so that they can get on a level playing field with us. we have advantages that have been built because of the superior state, the superior economy, the superior system that we have that has enabled us to become more sophisticated and therefore able to defend our people better. i yield to no one on the basis of saying that we have to protect privacy. i believe it can be done. i'll point out several things here. we have had failings of nsa oversight. the congress has miserably failed to oversee the nsa. there are congressmen today who are saying we're looking forward to the day when their authorities expire and time is on our side, and to which i hear al qaeda and isis and russia and

china standing up as one and saying bravo! we're on your side, congress. because we want to bring your country down. it's the duty of us and people like us here, at steamboat, to make sure that that doesn't happen. the fisa courts, who's overseeing them? they don't seem to be doing a very good job. or at least they have lost the confidence of the people of the united states. so we need to find ways to make sure they are properly overseen and we know exactly what they're doing. the criminal law, anyone who goes in as charlie suggestses and uses this conversation to spy upon american citizens inappropriately and to let that information out in any improper way and to look at our pictures, or our private letters and then make that available should be subject to the most stringent criminal penalties. and we need to put people in prison that do that type of thing and let people know that we will actually do it.

finally the executive branch. the president has been woefully inadequate in the oversight of the nsa. and therefore it creates the opportunity for us all to have a debate like this and to be suspicious of our own government, incompetent in our own ability to govern ourselves. i say that that can't last. we have to regain our confidence in ourselves, and we do that through the election process. >> thank you, governor. >> i agree in a large part with that but you said we are in other countries. germany and france don't have a constitution with a fourth amendment that protects privacy and liberty the they that we do. they don't have a provision that disallows unreasonable search and seizures. we're not other countries. we are exceptional and because of that we should focus on our own paradigm. i will say that the conversation that i think we should talk about is not as much spying on hamid karzai or international but should we be spying on northern zit ends? because i think the premise of

the debate is does it matter that the government stores every e-mail and text and phone that we send? now some people in government might call us terrorists but i wouldn't call anyone here terrorists. does it matter that everyone in this room, does it matter the nsa listens to us? i would say absolutely and it goes warrantless, it goes unchecked and i think that i agree with you. that congress has not done a good job of overseeing this agency. i would venture to guess that before what edward snowden did a majority of representatives didn't even know what the nsa was. and that was because it was just kind of this undercurrent agency that just operated and they said oh, they're the agency that keeps us safe. but i think it's very important that we open this dialogue and that we have to hold our elected officials accountability and ask them do you think it's okay for the nsa to go completely unchecked, unwarranted, wiretaps and we need to start that dialogue and conversation. because, if we're going to respect the constitution and be the movement and party of liberty and limited government then we have to go back to our roots and the fourth amendment and there's really no way to say

that the nsa has done has been purely constitution. >> could i add something? this is the reality of what we're looking at right now. the nsa has enormous capacity, through its very sophisticated computers, to be able to get information. what they are getting, not to mention all the overseas information, but they are getting information that says who is calling who. they don't have the ability to look into those phone calls not without a warrant. they can't look at your information but if somebody from let's say yemen telephones in to chicago, they have the ability to know that. and then at that point they are, in fact, looking around at who the other people are that that particular phone number might be talking to. and then they at that point can gather their evidence and say this is an interesting enough to go to the fisa court and see a warrant. i think what we have to guard against, first of all, the

fourth amendment is not just blanket. there are a lot of things that you do that aren't subject to the fourth amendment. but looking at your private conversations and looking at your information in your cell phones and so on like that, that should be protected by 9 fourth amendment. we agree about that. i'm certainly not interested in the government spying on everything that our citizens do. but the reality is, we have a technological advantage over the opposition, and the enemy would love us to throw it away because we're, frankly suspicious and paranoid. >> one last thing. there has been a lot of debate about whether or not these people do store these things for a long-term. between u.s. citizens. edward snowden made a claim that they did, other people said he was mistaken. which is why i have, along with many others, called for a complete, you know, forensic congressional examination of how far have they gone with u.s. citizens? i think we have to do that. i think that you would agree, governor gilmore, that it is necessary for members of both parties to call for the heads of the nsa and do a complete forensic examination of how you

treat u.s. citizens. is this being stored and if it is being stored who has access to it and why? so i would agree with that. we need to get all the facts about that because edward snowden did say that every phone call has been stored between u.s. citizens but there's been a big debate about that amongst the intelligence community. >> a follow-up question with that. we know from the case of james foley that he may have been murdered by a radicalized member of the uk. a british citizen, they're still trying to figure that out. that isn't always the case of bad guys overseas, but for all we know, we may have bad guys here. radicalized elements within our own population. we have no way of knowing. how do we track those individuals without tracking the rest of us. >> how do we track those individuals without tracking the rest of us? it seems to me that you have to have a standard that says that we're going to focus in on people that we have some reason to believe, some reasonable

suspicion, maybe a person that is involved in this kind of conduct. the enemy may -- al qaeda, the isis people, may, it would be to a big advantage if they could put somebody in this country that could do some type of attack. it is not unheard of. is it? take the boston attack, for example. they were not necessarily representatives of anybody, but they were the same ilk. but the significance -- what i want to respond to is the significance of it is very material. if you could just get one guy in here with a bomb, a suitcase bomb, or worse yet, with the rising of nuclear proliferation, if you could get a really serious bomb in to this country, you could change the way americans think about themselves, and then at that point the security state could indeed arise. we have to protect ourselves against that while at the same time protecting, you know, our privacies, as well. this is the challenge of this nonstate asymmetric type of warfare that we're facing here today. they want to attack citizens.

they want to change the way americans think about themselves. they want to change the way americans think about our liberties. these are the kinds of attacks that i think we have to guard against. >> well, and i agree. now every time someone makes a phone call. i can't tell you how many times people said i'dç> but as a matter of fact

you're not going to hear someone saying well we spend too much money on surveillance and so on. you're not going to hear that unless they're talking to somebody in al qaeda. then you're going to hear it. that's the challenge that we need to understand of what's really going on at nsa. we run the risk of taking away one of the principle points that i believe we have to focus on, which is the american -- the enemy has big advantages. they have big advantages. they can get in to this country. they can spend a few dollars, and all of a sudden, all the press is talking all the time about the attack. that's a big advantage that they've got because they're taking advantage of a free society. they can hijack an airplane and drive it into the world trade center. costs them very little. billions of dollars. tens of billions -- hundreds of billions of dollars that we spent since the 9/11 attack which could have been used for the benefit of cutting taxes or adding to the quality of life to

the american people. the enemy has great advantages. we have to make sure that we use ours, too, and we have great advantages. the biggest advantage we have is this point of american exceptionalism. i have supreme confidence in the quality and nature of the american character. that's what we were discussing this morning. the american character. and that's why, this conflict that is here, and it is still coming we're going to prevail because of the nature of americans. >> i know that many of you are coming up with questions as we sit here. if you can write them down on the note cards that have been passed out and someone will be by to pick that up and bringing it up to the stage momentarily. i would like to ask one more question. that is, edward snowden. patriot, traitor, or neither? actually you go first. >> so, we actually had this discussion at cpac. >> we did. >> personally i think he should be held in front of a jury of his peers.

i'm not going to by no means call him a patriot. the government has yet to charge him with treason if i'm not mistaken. but i will say what he revealed has opened a lot of people to understand how complex the data accumulation and overreach of government has been. and i think it's indisputable that through his actions, no matter how controversial that they were, they've really opened a dialogue and discussion about this agency that for so long was unknown. and i think that if he wanted to be truly civil disobedient like henry david thoreau or martin luther king was he would have turned himself in and paid the price for his own crimes, not have been a vigilante internationally and col included with some of our enemies of the state. i don't think by any means that helped his cause. i would totally disagree with him in that manner but i would say that we should all understand and, you know, and in a turn pay tribute to what he did in essence by saying we now have a discussion and have a point of evidence about the nsa

because if it wasn't for him, i can guarantee you that this panel today really would not be here, because american privacy, if you look at in national circles, and national, you know, debate, you know, topics, it's gone up tremendously ever since his actions in may of 2013. >> well, you could tell it to the jury. this is edward snowden. edward snowden is a traitor to the united states of america. i say to you now that edward snowden is a traitor. edward snowden was given the most confidential trust of the people of the united states. he was granted a security clearance so that he could have the availability to get the information. he betrayed that security clearance. he had a job in which he had

trust from his superiors, he betrayed that trust. when the time came for him to light out and take his information and make available and undermine the security of the united states, he told his boss he was going back to california for some kind of medical treatment, got on a plane and went to hong kong. where of course, as we know, he was under the communist jurisdiction at this point and then of course ultimately ended up in russia where he has received now an extended period of time of good treatment and asylum in russia. ladies and gentlemen, i believe that sooner or later, sooner or later, that the russians are going to come to their senses and realize they're not going to be able to put the soviet union back together again. that being a part of the western community of nations is a benefit to the russian people. and they're going to want to return to the concord of western nations. i believe that. and when they do, one condition that the united states should

place is the return of edward snowden to trial. as a traitor of this country. [ applause ] >> i have to admit my absolute favorite question is can the nsa find lois lerner's e-mails or phone calls? that's pretty -- pretty awesome. this is an interesting question. if i telephone someone who calls from yemen, am i guilty of association, albeit unknowingly? that goes to the fact that a lot of people are innocently calling countries where there are, you know, terrorists active but you may just be calling, you know, calling a relative. again how do we separate the bad actors from the good actors, and not intentionally go after people who, you know, are seemingly guilty by association? >> i think that's a great question. and it assumes that you're going to be targeted just as soon as

you get a call from overseas. and there's no evidence that that's -- that that's the case. further more we ought to make it not the case. seems to me that we ought to have protocols for the nsa. they ought to be in a position where they're telling people, even if it's confidentially, what they are doing and make sure that there are people who are responsible with oversight. i said a few minutes ago, i think the congress has been woefully inadequate in their oversight of what people are doing. but, if you get a call from someone in yemen, if there's no other evidence that the person is somehow connected to some conspiracy against the united states, you know, why would the nsa even look at something like that? but if you do, if you're in contact with someone, you know, frankly, your next door neighbor or your girlfriend very well may be looked at in order to determine whether or not there's some kind of cell that's being formed that could put people of the united states in some kind of danger. >> i agree with a large part of that. but i will say, you know, with congress' inaction i think it's been intentional because no one

ever wanted to undo that house of cards. and no one wanted to dive deep into this agency that really would have made them a lot of enemies. so to go back to edward snowden, he did something rather flagrant that has now given an opportunity for congress people to kind of have a political shield and talk about this and go to oversight without seeing any kind of political retribution. thomas jefferson said that when the government fears the people, there is liberty. when the people fear the government, there is tyranny. and i want to reinforce that. because, if we here fear every time we make a phone call or get a phone call from yemen, that's pretty close to tyranny and i don't want to live in that kind of country and i don't want to live in that kind of society. and that's where i -- >> it's not fair to quote thomas jefferson against a virginian. it's not fair to do that. it is not fair to do that. but, i think that we need to recognize that what edward snowden has done -- this was a low-level guy and we do not know the whole story of edward snowden.

hopefully, we will put him on trial and find out more things about edward snowden. but, the fact is, what he has exposed is the superiority of our knowledge and the enemy knows that if they are sloppy in their use of cell phones or if they use cell phones a particular way, they will be tracked. they know that so they will now change their conduct. they know that if they do certain things that give them e-mail information, they know that if they do that, that they will -- that they're capable of being tracked. people in other countries know that if they operate in a particular ways against the interests of the united states that we will find out. and therefore the people who are adversaries to this country, and believe we we're in a war now. they are changing their conduct right now because of edward snowden. if they could get us, citizens of the united states, to be so suspicious of our own country, of our own government, that we

dismantle our advantages, then at that point, that is a giant strategic victory for the enemy of this country. and id promise you, ladies and gentlemen, i want to say this again, if you don't believe me go turn on your television in your room right now and you will see, we are at war. the worst is coming. we have to be as prepared as we can be. we have to be as active as we can be to protect the people of this country. because the challenges, believe me, are not behind us, they are still ahead. >> charlie kirk, would you discontinue monitoring of all electronic correspond? if not, what parameters would you place on monitoring, or what would you replace the system with? >> sure, that's a great question. first we have to find out exactly the extent of what they've been doing. but i will say this. if it's the frequency of every single text or call or e-mail that you make, that is a clear violation of the fourth amendment. we all know that if you think -- the police think there's a crime

happening behind the door they can kick down the door. if there's not reasonable cause they should not be monitoring everyday united states americans, citizens, it's just that simple. i think there has to be reasonable cause. if they have to get a warrant, so be it. and these fisa courts have gone completely underneath and totally unchecked. no i would not immediately cease all this. i'm not saying abolish the nsa. and i've had this discussion with some people and they say oh, charlie you're a terrorist sympathizer and all this crazy stuff. i say no. i'm just interjecting into the discussion that right now we live in a culture in an environment with a government that abuses its power unilaterally every single day and we have to be very careful the way we approach unchecked federal agencies and bureaucracies. so when i talk about, you know, if somebody labels me and says oh, do you want to end all cellular data accumulation, i say no we have to reform it and oversee it correctly because i do agree, there are international threats that are present today that were not there three or four years ago, and there's many different reasons for that. but i will say that if we do not

have a congressional oversight of this agency, you know, we're going to continue to see the quick erosion of our civil liberties. >> thank you. >> i've got a question specifically for you from the audience. these are great questions, by the way, thank you. governor gilmore, corrupt politicians throughout history have justified the removal of citizen liberty by using fear tactics. can you provide a moral justification for fourth amendment violations that does not rely on fear? >> a moral just -- no. i believe in the fourth amendment. i have been a prosecutor. and a trial lawyer. i have tried cases and have defended under the fourth amendment. i've gotten warrants under the fourth amendment, and i've been restrained by the fourth amendment as a potential fros cuter and attorney general. so i understand that. i don't believe there's any excuse for building up fear in the body politic in order to try to undo any part of the bill of

rights or any of our civil freedoms. we agree with that. nor do i believe that we pretend that thinks are worse than they are. i have seen senator paul hold up his cell phone and say the government has no right to know what you're saying on your cell phone. he's right. but he's also exploiding and building up the suspicion and paranoia for his own presidential aspirations which i do not support him and will never support him. and the fact is that we can do these things in a restrained and a reasonable way and we can avoid the false choice. the false choice of saying, if you have a cell phone, you are against the nsa having the capacity to do the things to protect this country. i say nonsense. we can do what is necessary to use the advantage that we have built up as a free society to protect the free society. we do have to throw these things away because of unscrupulous politicians, particularly the ones after 9/11. this was a horrible thing.

and this is what worries me. let me just -- i'll sound one more trumpet call. after 9/11, the congress, they ran like scalded apes they were so scared. they were so afraid that they had been so delinquent and negligent as to allow this 9/11 attack that they raced immediately to do things that may have been reckless. i worry. i worry that we have not had a sufficient conversation. this panel at steamboat is a good panel and charlie is a great advocate in this area. we need to have more of a conversation with the american people to prepare them for the challenges of homeland security and for the adversaries that are determined to bring down the nation. we ought to be having that conversation. because if we don't and the enemy attacks us again, the american people have to be mentally prepared for the fact that we're in it for the long haul and the long haul is not just the safety of this country but as charlie said it's the

liberties of this country as well. >> i see a time in ten years where paper currency is gone and 100% of our transactions are tracked by the nsa or irs. look being in terms of future technologies what kind of parameters do we need to put around both security and liberty. >> what a great question. this kind of premise to the question has come from the rise of bitcoin, which people may or may not be familiar with, which is kind of like an online cryptocurrency. the reason i love this question is, in the next two years, we absolutely drastically need to overhaul the way that interdepartment collusion happens and also the nsa because we're only going to get more toward the technologically advanced society where it becomes easier and easier for unchecked bureaucracy to do what they do. let's say all of our currency is no longer paper and all of it is online. the irs is dealing with the nsa and we have not made reforms.

that's a scary tag team for any kind of federal bureaucracy if you ask me. this is why this discussion needs to happen today. and the action needs to happen almost immediately. and the oversight and the results, and we the american people have to hold them accountable. the people in office. and especially because you know, we can't unelect bureaucrats. that's something that we never are able to do. we just can't say oh, i don't want to have lois lerner be the head of the nsa. that's why we put people in congress. and that's why governor gilmore holds people in congress accountable to do that. and that's why you can either vote them in or out. and that's why it is so important that this is a top five issue heading in the next couple years. >> i am for cash. i just don't have enough of it. none of us do. i think we need to be thoughtful going forward about the rise of technology. paper mail is disappearing and we have heard about these wonderful letters this morning between the founding fathers. letters are not written much anymore.

the world is changing. the technological capacity that we have created through the internet is changing the american society and the world society. it is making things very different. i think that we have to be very thoughtful about this going forward and make sure that, whatever technological changes that we make, we never lose sight of the touchstone, as lynne cheney was talking about. >> thank you. this question says if we start getting suicide bombers here i believe people will drastically overreact and will make this a police state. how do we prevent that? >> yeah, i mean you can kind of see the foreshadowing of what the police state could do. i mean in ferguson, agree or disagree with what's happened, for a local police to have that kind of authoritative force you can kind of say, hold on a second, that's quite overwhelming. i agree, we as americans, as far as in the last 20 years, we have a tendency like in 9/11 as the governor said, something

happens, we completely overreact. right? we have a financial crisis in 2008. let's spend a trillion dollars we don't have. it's just whatever in our tendency as americans in the regular political discourse to do that. i will say this, that the greatest asset that we have as americans, and i will disagree with the governor on this, is not our intelligence. but it's the patriotism, and loyalty of the american people. if we lose that because the government creates paranoia and distrust in the american people, that can never be undone by some sort of supercomputer. the patriotism that lies in every single person in this room and every american, that is our greatest national asset and that is what we must protect. and for lack of a better term, that's really what the constitution was meant to do. to prevent government to come after us so that we, the people, could defend ourselves, and that we the people could thrive. so our greatest national asset is not the nsa. it's not a supercomputer. it lies within ourselves as the people. [ applause ]

>> and i absolutely agree with charlie on that. that's why americans are exceptional. that's one of our basic principles going forward for our national policy and foreign policy. americans are exceptional. we have touchstones that other people around the world don't have. i've lived in foreign countries, travelled to dozens of foreign countries, and each of those countries has their assets as well. but america is a unique experience that charlie refers to is exactly correct. and i think that we need to maintain those touch stones. now i do want to say, once again, though. i think i want to underscore it. i do worry. i do worry about the rise of technology and if we lose this confidence in ourselves, in our ability to govern ourselves,

there is danger. and i think the enemies of this country would like to do that. they would like to drive us to that point where a triggering attack of some kind would cause us to overreact. another principle we have to have, principle of homeland security, is that we have to have more of a conversation with the american people, that we cut into this challenge that we face. have an understanding. and to go back to those that charlie refers to. make sure those are solid in the american people. remember those touch stones and that american exceptionalism. >> i was unable to get to the entire stack of questions so i'll be handing this to the nsa agent outside those doors. he will be getting back with you. i wanted to give a chance for these gentlemen to give a two-minute closing remarks but i

also suggestjls that you talk t them after this panel and visit turning point u.s.a. and free7e congress information as you will find a wealth of information at both places. since the governor started i will allow charlie to give his statement first. >> thank you. we talked about the nsa's unconstitutional behavior. great solution is if we all e-mail the constitution to each other, they would read it finally and maybe understand it. [ laughter ] i hope everyone here is able to learn something and take something away from this panel. i will say this, that right now i do not trust the government. i started my opening remarks with a question. do you trust the government? i want everyone here to ask themselves that. and i can venture a guess what your answer is. what are you going to do to hold

the congress people accountable? the constitution was written for a reason. and it was a timeless document. everyone here, i'm sure, is very well versed into why it was written. it was really written to allow free people to prosper. unlike the french and unlike the germans, our rights come from god. life, liberty and the pursuit of happiness. part of our writes are also the ability to live our life without big brother looking over our shoulder, or the threat of retribution from a rogue irs or nsa agent. i think this discussion to be fruitful in the future is to be able to understand that if we allow government to continue to go unchecked, then the abuse of power will continue. and the greatest national asset, no matter what the issue, it's not the nsa. it's not a super computer. it lies in you and the american people and only the constitution

can allow the american people to the stability in this country, which means we have to have an active foreign policy, not a reckless one, but an active foreign policy. we don't need to be lured into conflicts that dissipate our power, nor should we be

withdrawing and opening up the chances that we see right now for so many dangers, to the world and to this country that we can adjust to and we can, with american leadership, can change. we need a president that understands the nature of american power, nature of american freedom and the opportunities that we have to do the right thing. so, in the end, we have to recognize that it's not a matter of just whether we trust the government -- we can change the government. we can change the government. americans are in a position to do that. at the end of the day, we have to make sure that at the end of this conflict, this long conflict that we're in now, that we remain our belief and our confidence in ourselves. >> thank you, governor. [ applause ] please put your hands together and give a final applause to these two wonderful debaters.

[ applause ] >> thank you. >> thank you. >> well done. >> thank you. >> great job. >> well done, charles. >> thank you. >> the white house has enlisted hollywood stars, including jon hamm of "mad men" to fight campus sexual assault, telling viewers to take responsibility to stop sexual assault. tweeting this public service announcement this morning. vice president joe biden and president obama are unveiling the "it's on us" campaign. one in five college women are attacked. hillary clinton is going to speak today at the democratic national committee's women's leadership forum.

c-span will have live coverage at 12:05 eastern. secretary of state john kerry will chair a debate of the u.n. security council on the situation in iraq this afternoon. c-span will have live coverage from u.n. headquarters in new york city. it begins this afternoon at 2:00 eastern. c-span's campaign 2014 coverage continues tonight at 10:00 eastern with a debate between texas gubernatorial candidates, state senator wendy davis and attorney general greg abbott. here are some of the ads from that campaign. >> when you're battling cancer, you pray for a cure. but greg abbott did his best to keep my prayers from being answered. he was charged with overseeing the state cancer research fund but let his wealthiest donors take tens of millions in

taxpayer dollars without oversight. they made out with money that was meant to find a cure. i pray greg abbott never becomes our governor. >> new allegations against texas democratic governor candidate wendy davis. >> a recent investigation finds democratic candidate wendy davis didn't always recuse herself from city council work when the city was considering projects that affected her business interest. in one instance she voted for $25 million in tax breaks for hotel developers who used her title insurance company in the sale of the building. >> every week, businesses leave california to escape high taxes and strangling regulations. they come to texas because we keep taxes low and regulations reasonable. i'm greg abbott. my jobs plan will build on that.

we'll control state spending, unleash or oil and gas industry and keep taxes low so small business can grow. together, we'll keep texas number one in jobs. in the texas courtroom, greg abbott made the case against our children. he fought for $5 billion in cuts to education made by his insider buddies. and now abbott's proposing giving standardized tests to 4-year-olds. heard enough? wendy davis, she'll reduce the number of standardized tests our kids take across the board. she'll cut bureaucratic waste and davis will use education to build an economy for all hardworking texans. you decide who will be best for texas. >> this is the first time in 14 years that texas will elect a new governor. texas gubernatorial candidates, state senator wendy davis and republican attorney general greg abbott face off in a debate tonight. you can see it at 10:00 eastern

on c-span. >> the c-span cities tour takes book tv and american history tv on the road, traveling to u.s. cities to learn about their history and literary life. we partner with comcast for a visit to st. paul, minnesota. >> i wouldn't call it las vegas, but it was a very lively city, because the gangsteres brought their gun mulls. during prohibition, you had the biggest jazz artists of the decades here in st. paul. so, it was a very, very lively place partially because the gangsteres were welco welcome h. virtually every gangster lived in a three-block radius of where we're standing, john dillinger, baby