federal spend will be less than it was projected to be before the aca passed. the thing that matters is what do households pay. what we have is an incomplete and all we have got picture of how premiums are changing in 2015. now bob was too kind to say in 2014, basically health plan had to make a fairly uneducated guess about the risk pools they would get and had to make the guesses based upon incomplete knowledge of what they were like. we know what they were like and we don't know which will show up. the expectation is of course the sicker ones will show up. the 2014 premiums were probably low given all that backdoor

coverage and risk coverage by the federal government. not on a whim, but optimistic perspective. 2015 is a better indication of how they view in the level of 2014. that's why the average premium change between 2014 and 2015 being negative 0.8% is so amazing. yes, there is variability. nashville has a positive 887 and denver an 18. that's the to which the subsidies are paid. the second lowest is actually stable or going down on average across the country. that's amazing.

what about quality? well, most of you know if you know the quality world, it moves like a glacier. what this shows you is the percentage of recommended care that adults get across the country and researchers got a lot of attention back in the mid-2,000s and we are up to 69. that's impressive. that occurred before the affordable care. quality moves slowly. you cannot claim it has been improved. if you do your power point directly, you can do this. the statistic that has been focused on the most, readmission percentages in the medicare program. you may have known that 19% of beneficiaries admitted for a given problem were readmitted for the same problem within 30 days, 19%. that's gone all the way down to

18.4 and then 18. again, you can make it look good and feel good about yourself, but that's not impressive. what i am worried about is the fines are built in for not doing well on readmissions with all the attentions they have gotten. the fact that the number of hospitals being fined is going up. not good news. quality is not so good. what matters of course is health and there is 10,000 ways to show you this, but i only have 12 minutes. healthy people through 2020. the metrics by which they judge the population and it shows that 10 measures are improving and eight are stuck. so forth. we are not moving very fast. what's worse is depressing. it's suicide. adolescent depression and visits to the dentist and access is a problem. what's not moving is what bothers me the most. what's not moving is obesity. chronic conditions and if that's what we have to move, everything

should be focused on that. as a professor, i have to give a score. the score is on average, coverage. i give it a b plus. actually an a for performance and the roll out was so bad, it made people doubt that government could organize a two-car parade. the point is that there b plus is what i would give it. the question will be how much expansion is there in 2015? cost i would say better than expected. give it a b. but the real question is how the out of pocket changes overtime. a lot of people with the low incomes or slightly above are quite worried about the deductibles they are paying. how the premium is going to move. they haven't moved much.

how deep will the reform last. at the end of the day, if you don't make it work, everything else is commentary. this is how it's doing. it's a b minus. why would you blow this up? what if the wrong arguments prevail. you will see lots of maps. it summarizes everything you need to know. if it's green, it has the exchange and expanded medicaid. if it's gray, only idaho is gray. it has the exchange and did not expand, just to prove they are different. the orange are states that basically have a federal market place or partnership, but did expand medicate.

the blue is nothing across the board. although as bob pointed out, almost a million people in florida have signed up and 600,000 in texas. what's going to happen, if it's made in a certain way. green is going to be fine. green is going to be fine because they have an exchange and they have done medicate. they will move along. the great will be fine enough. leave them alone. they are happier that way. the problem is half the yellow states. arkansas, pennsylvania, iowa. they are trying to link medicaid and exchange. the expansion is through the exchange. through the market place. you take this federal subsitty

away and it blows up everything. i wish them good luck. the point is this. the states where expansion has occurred. these are reports by for profit systems. the negative bar is the reduction and self paid admissions. the reduction in people who could not pay. the red bar is increased and paying admissions. these things are correlated, but not perfect. the hospitals where expansion occurred are happy. the hospitals where expansion has not occurred are not happy.

i want to show you a map when medicaid was created. some of you know medicaid was tacked on to medicare at the very end. mills literally tacked it on there and it passed in july. the program started in january of 66. i can assure you they did not have medicaid regulations in the second half of 65. the first year of medicaid they said whatever you are doing, we will cover half. whatever you are doing for the poor, we will cover half. 26 states took it up. exactly the same number that expanded this time. this color coded map told you what year states decided to create medicaid. dark blue is the first year. light blue is the second year. that sort of floresent blue of virginia and colorado was the fourth. deep south five years in.

my point is this. overtime, the hospitals and the health care system where coverage expansion happens persuaded those who are idea lodgically and opposed to creating the program in the first place. they finally came around because the systems are a lot stronger. why would you be mean to this person? this person calls herself in the "new york times" the reason this law was passed. working at a haircutry and hard time. the affordable care act gave her a way to get health insurance and go to college and improve her life. i submit to you this is the deal. this is the price of insurance, everything but medicare. across the spectrum. the left corner of the origin is where medicaid was before.

you recall they covered half of all costs. you get high income people and a tax exclusion for employer-sponsored insurance where we all live. that is to say our subsydy is proportional to our tax rates. the biggest we get is from bill gates. you are on your. they are the only ones paying retail and full price for health insurance. the affordable care act is all about giving those people first and second sliding scale subsidies up to the world. why would you want to turn 30 million people into opponents of your position? thank you very much.

>> you can answer that question. >> i have to see how to get myself back. i am going ahead and seeing if that will work. here we are. okay. a little lower here. it's good to be back again. we are above ground like when i used to work here. a couple of quick acknowledgements and disclaimer, i like to thank the obama administration for making my work necessary and acknowledge that i got involved in the early launch of these lawsuits because i was a few credits short. opponents of the challenges would have us believe that unbearable disasters will occur

if the exchange tax credits are overturned. you can almost smell the napalm in the morning coming down. in fact it's apocalypse not. one would depict after a supreme court ruling affirming the circuit courts's original opinion that they will have a barren devastated scene similar to the one in the highest rated tv film ever. or there might be alternative scenarios. in this case you have to fill in your own captions. this could be the millions left without any health insurance or health care treatment or in the alternative it could be the potential second wave for the next open enrollment. or it could be republican legislateors in tors about to g they wish for. we also have the fick distress from the health insurance

industry which once upon a time seem to worry about being tied to the aca's regulatory railroad tracks and got stockholm syndrome and a taste for being tied up. this suggested the republicans rushing in to help and factor and are being tangled in a deeper track. the bipolar political world, one side or another is supposed to be at the end of the rope. what does that rope look like? could it be a slip knot where if you pull loose on the subsidies, you begin to unravel the rest of the act quite quickly. in the alternative, maybe it's a noose knot that means upsetting the coverage subsidies and the interests benefiting from them would kill off the political

future of aca opponents. i saved a few minutes. just a little. i will follow the primary rule of public policy predictions which don't include specific numbers or concrete date. the pluses from the viewpoint viewpoints of those you are bringing mean fewer mandates. you will see the end of the mandate. it's on the status as it is and a great weakening of the mandate. a loosening of the boundary lines of the health benefits. what are the approved policies in the market place. more state control and less detailed federal requirements. they would be happy to have anything done at a concern point. in a more positive sense, a more

two-sided renegotiation of what once was in a world that doesn't exist anymore and has never been sustainable or viable. in that sense it's a bit of mutually assures accountability. neither would walk away and hold out for the set of preferences. we would move on to a more grudging, but sustainable accommodation of the views that we need. we do it differently in a health policy world that could begin to work more than it currently does. the short-term effects if the plaintiffs win on the negative side, a good bit of disruption. one is that prices are more transparent. in the short-term, the disruptors would be a bit of a blame magnet. we would have political panic

attacks. the phrase is often used in football, flipping the field. there would be a flipping between the president and the future as opposed to what we experienced a year ago. it used to be that you could see the burdens and hassells of what was supposed to arrive as the benefits. everybody saw the hassells up front. that was a difficult role to be in. now it's a reversal in terms of being a better world once we work our way through it. in the meantime, you can have folks saying i lot of what i have and i'm upset about that. we would have more health industry, but overtime they tune that out. we would have a reload of the medicaid program as the last ship standing and many states trying to expand that more aggressively than they have. because of the loss of the exchange bypass. and the early adopters in the bluest of the blue states would be hanging on.

they have their subsidies and they would be happy with that although it creates tensions in terms of the regional distributions of the money in the pot. what would be the short-term effects if the plaintiffs lose? the pluses. still looking. what it means is back to the harder long-term politics, but a tough climb. minuses. like groundhog day and more years of obamacare improvisation and we will make it up as we go along to change the law as it goes. it would be an encouragement of the overreach we sa you to do that in more areas rather than fewer areas. we would have another entitlement we can't pay for and there would be limited work arounds. the landscape is not bleak. the medicare program we have today is very different than the one launched 50 years ago. things change, but the system

makes it harder to change them quickly in the mass entitlement state. what would some of the key institutional player dos to respond? there is a limit even on the hill to procrastination. when things are really a big mess, they have to respond regardless of what they prefer to do to put it off. you have urgent fixes. some of these might happen depending on how it comes down and when, but things will be done on the regulatory side. the idea that anybody will have the past subsidies grabbed out of their hands. we are almost on the honors system in most of the subsidies already including insurers. we will never figure out what's going on. the premises that somehow people are going to be at risk for what they relied upon. whether or not it was good legal guidance. it's not going to be at risk

there. there might be a bit of a pause with patches where in return for rules of debate for what goes ahead in the future so there ficks put together in the interim. to get folks through the next time. it may depend upon when a decision came down. if it's in between this current open season and the next one, you would have time to adjust. if you are talking about capping, there may be more of a cliff hanger nature to it. what we are likely to see is efforts to expand and liberalize and create a bit of an alternative delivery system. to think of other ways in which with roughly the same commitment of resources towards coverage, it could be done through the means that they provide. what we have for you in any case would be the employer mandate. ultimately the individual mandates.

they never had either the need, the administrative capability or the political support to carry out on a long-term basis. what will be in play is the risk corridors. not all of the others are, but the risk corridors are vulnerable in this environment. particularly in the interim period between 2015 and 2016. after you adjusted for health risk and taken out the claims of the market and it turns out that the insurers are doing well with the current markets, they don't need to tap them in a non-budget neutral manner. that is a proposition before or after the exercise. i think the risk corridors would be quickly at risk of going away. what would happen in the states? we would have more back sliding in the red states and more on the governor's side than in the state legislator's side. we have seen it happen with

medica medicaid. some states are using that as a way to get federal money without having to get their hands dirty on medicaid. this would upset as to how he set up arrangements. it will be harder for state politicians on the republican side to complain, but still get the money. they will have to say that's a longer development, but discomfort for those who are saying it's all your fault. as much as you may say the current boundary lines on what can or cannot qualify might be suggested. that looks like a state exchange

and should not be discounted. i think it will be more fluid and from the federal side, they would be happy to call anything a state exchange. we would have bargaining levers where they say yes, i will consider doing an exchange, but unlike what you told us, we are two parties and what are they doing in return to play ball with you. that's a type of true partnership than the way in which it unfolded. glufs will be cabluffs have to upon. the finger should be pointed at everyone one factor and don't under estimate the fact that you have up to 20 or more still

resisting a medicate expansion. that is the political calculation. not the details and correlation, but it's what it needs for the political systems, hygiene and therapy. we might have a return for disorder as the case may be where we find out that you have to work this out in the political system rather than take a quick bypass. a mutual repdy virendez vous. that will begin to fall and we will get a reshuffling. find out where we turn out on that. think of it as a way to correct

what has been done through the system that happened with the court system in row v wade. you have to work this out on the ground and you can find an accommodation. they can agree and one thing that they will agree to and when it comes to other people's money, it's time to find a way to pass it out. we will continue to pass it out in a different set of arrangements. thank you. >> that was optimistic with the return to order idea. >> thank you for being here. i have two points they want to make. one is that there two ways of

understanding the disruption involved or surrounding this issue. the second point is that no matter how you look at the disruption, the potential for disruption gets worse overtime. the government said that under the plaintiff's interpretation of the statute, there would be disruption and the flfs actually agree and said yes, that's true. as dob detailed for us. they say yes, there would be disruption if the cowers ruled for the plaintiffs in these cases. but the plaintiff's interpretation suggested that the only thing that could be worse is if we stuck with the government's interpretation. the plaintiffs would say these lawsuits don't create disruption at all. the purpose of these lawsuits is to end the massive economic and political disruption that has been caused by the decision to

ignore the language he is to uphold. so let's dive into the two explaining the legal challenges. we are talking about indiana v irs. the government's narrative, we are implementing the law as congress intended. they are coming and trying to gut the law. causing premiums, by blocking an essential piece of the law, that would cause premiums to double by the people. it's important to recognize that when you get rid of a subsidy, that doesn't increase. the subsidy doesn't reduce the cost. it shifts from the premium to the taxpayer. the premium payer would be exposed to the full cost. there would be more

transparency. with some and there is merid to this, they would double for the amount people are paying out of pocket would double for some people. it would go up seven fold and maybe about four million people could see an increase like that. increases like that. as bob said, insurance markets could collapse in 2:3 of the country. congress is not likely to tolerate that and do nothing. that's the framework the media adopted when reporting on the lawsuits. it's the government's narrative. they framed the discussion on the same terms. if the lawsuits prevail, there will be this disruption. two sides to the litigation and it's more ominous. the obama administration is not implementing the law as congress intended. they maintain these lawsuits are not challenges to the ppaca or obamacare at all. they are in court because they argue the law said one thing and

the president is doing something else. that something else is hurting the plaintiffs and they want them to stop. they argue that the patient protect and affordable care act clearly allows them to implement provisions only in states that allow them to implement the law by establishing the exchange. it's just one side of the story. it's important to note that two of the three standing opinions in this these cases. the statute is clear and unambiguousuous. the third opinion said there is merit in what they are saying even though that ruling and opinion sided with the government. interestingly, one more piece of history here. the irs employees are charged with implementing this part of the law.

they confessed that at the time they were developing the regulation, they knew they didn't have the authority and the subsidies. they did it anyway. the administration have been implementing that and outlays in the 36 states did not establish exchanges. those disputed taxes fall on the plaintiffs plus about 57 million other americans are subject to those penalties and they are suing to stop what they think are unauthorized taxes. under the interpretation, the nature is bncht from what the government said. they are not suing to stop the law. as a judge in oklahoma wrote he was not overruling or overturning or gutting the ppaca, but upholding it.

no matter what you think of obamacare, it is far preferable, obamacare itself is far preferable to a system where the president can subsidize favorite groups. which narrative you adopt has a big impact on how you look at and category size. if the obama administration is correct that the law authorizes the spending and the exchanges, it's only the individual insurance market in 2:33 of the country. that's all. i say only because if the plaintiffs are correct, it is far, far greater. that money never should have gone out the door. under this interpretation, every

way the taxes and subsidies and the anticipation of the availability of those taxes and subsidies prior to when they took effect has changed our world and is a disruption compared to what should have happened. those disruptions had been widespread and they have been deep. they disrupted the health care center and the democratic process. including ledgislative votes an elections. let's talk about the economic impact for a second. if the law does not authorize those, ever since the announcement to offer them way back in 2011, insurers have been more enthusiastic than they would have been otherwise if the president had followed the law.

in 2013, more chose to participate and more are participating now than if they followed. employers have reconfigured and cut hours for thousands and perhaps billions of employees and school cafeteria workers. some people's incomes have suffered as a result of the president's decision not to follow the law. millions are paying penalties or purchase coverage to have the mandate from which by law they are exempt. they agreed to enroll in the exchange coverage that the government had no have the next president. they have risen above by law and that's just the economic impact.

what's more troubling is the political impact of these unauthorized taxes and anticipation there of. if the law does not authorize the taxes and subsidiesubsidies as well. if they stuck to the statute and let it be known that stays could effectively block the exchange subsidies and employer mandate and the individual mandate just by refewing to create an exchange, as early as 2011, the debate over exchange would be about those things. and fuelled by opposition to two of those things. opposition to the individual mandate and republican who is wrote opposition to obamacare in 2010 would make that a cause. you will remember a lot of governors and they may have been more vigorous to exchanges.

we may have had more refusing to establish exchanges. they could block parts of the law and would have been an issue with 2011 and congressional and presidential elections in 2012. >> we of course welcome those who join us on the heritage.org website and via c-span on this occasion. we would ask everyone in the house to check that cell phones have been turned off and we remind our internet viewers that questioned can be submitted e-mailing speaker@heritage.org and we will post that on the home page following the presentation for everyone's future reference. hosting our discussion is in our institute for economic freedom and opportunity. he focuses on tax matters and entitlements and regulatory and administrative law issues.

before joining us, his career includes serving his counsel at the national business association and chief financial officer and general council of the retirement prosperity and a partner in the group of virginia based public policy and government relations firm. join me in welcoming david burton. david? >> welcome. conservative principals lead to a number of conclusions about tax policy. first conservative tax system will raise the revenue necessary to finned limited government with the least negative em nomic impact and this is by structuring a tax system that interfears with free markets. they minimize tax administration costs. this will lead to the highest level of economic output and

growth and opportunity and job creation and prosperity. it is possible with a given amount of revenue. second a tax system which shseek to limit the adverse impact on the core institutions including family and volunteer associations such as religious institutions and community organizations. third, a tax system will be just. they protect individual rights to life, liberty and property and adjust taxes to min might the rights by imposing a burden on taxpayers. being general in application with special privileges for non-and respecting taxpayer rights. a system should be visible and understandable so as to convey the true cost of government to the public. this analysis leads to a number

of pacific policy recommendations. the conservative system will impose one flat rate and be neutral fors savings and investment or stated differently, tax consumption. it would exemption the poor, but only the poor from tax. it would not impose a marriage penalty and would not impose on the associations that constitute civil society. there four ways to satisfy these ebb economic criterion. the flat tax, a consumed next taxz and a business transfer or a national sales tax. today we are coming the case for a national sales tax. the first national sales tax was introduced by congressman dan schaefer in 1996. in 1999, representative john

lender introduced a fair tax. the primary difference between the two plans is that the fair tax repeals payroll taxes and accordingly has a somewhat higher tax rate, statutory tax rate to raise the revenue. john lender is retired and the succession is our speaker today. congressman rob woodall is today the lead sponsor of the fair tax. the fair tax said 75 coat sponsors and it is in terms of cosponsor ships. today the representative will speak to us and get back to his work in congress. we will have two excellent panelists. after their remarks, we will

have an additional session. final note. the heritage foundation is doing a series of events. the issues raised by tax reform plans. we have two coming up at 11:00 a.m. >> former director and tax foundation president will discussions how we might improve the tax making process. the speaker represents a seventh district of georgia. and serves on the house rules committee and the committee on oversight and government reform. he also serves as chairman of the study committee. born and raised in georgia and received his under grad degree and law degree from the university of georgia. i do not hold it against

somebody who is a error. he was the chief of staff and elected to congress in 2010. i have known the congressman for a long time and i can say with dwhakz there is no better friend of the american pax mateer than congress. he is the struggle to achieve tax reform. i very much look forward to hearing what he has to say. thank you, congressman. >> please join me in welcoming. >> my mother looked at me and said rob, you have gone from being my favorite son to a lawyer to being a congressman. please don't go to jail. we are sliding down that scale. there is nothing i can do to cheer up a rainy and cold and dreary day that would excite me

more. it is amazing to me that the ability to dream the big dreams seems not to be present in this town anymore. it's hard to get something past that nips around the edges. it actually changes the way you think about our taxes and the relationship with the american tax collector. folks ought to know if they don't. the fair tax didn't come from washington, d.c. it came from civic leader who is had success dealing with texas's tort reform issues. doctors are flocking into the state to practice because they were able to succeed in making medicine work for doctors and patients. they got together and said if we can do that, what can we do for america as it relates to a tax system? how do we keep america competitive in a world?

let's start with a blank sheet of paper and see what happens next. that makes all of the difference. not some of the difference, but all of the difference. that is compared to the american tax ready. in 2010, every tax reform perports to deal with this tremendous disadvantage that america has in a market place. i put this up because it's striking to me. in these past two years, we had a chairman of the ways and means committee that has done more for tax reform than any other chairman my memory.

dave camp is retiring at the end of the year as you know. we will lose a tremendous talent. when he got together to take on the most ambitious reform of the tax code that i have seen in my lifetime, he said let's see if we can get the corporate income tax rate down to kind of that country average. let's see if we can get in there with everybody else. that's striking to me. it is the best effort again that i have seen in my lifetime and it was an effort to see if we can be right there in the middle. if we can be mediocre. when we set our goals on doing something, our goal is to be like everybody else. that's the way they do it in europe. when an american decided when we

want to make a difference, they said let's be the same. i don't want to be the same. i want to lead. what we do with the next tax rate is take it to zero for reason and reason only. there is not a obvious this planet that pays taxes. final consumers pay taxes. wal-mart doesn't pay taxes. they collect the tax from me when i buy and shop at wal-mart. the case for the fair tax is that it is the only tax being discussed that does two things. it is the only tax that completely eliminates hitten taxes in the price of everything that we buy. you know how easy it is to get elected to congress if you take a personal tax rate and make all those bad corporations pay the bill? you know how easy it is?

we will let you off the hook. that's nonsense. we can ride it and we do it day in and day out. it's the only tax that makes trance parent what the burden is. what is the cost of government today. they said it's 23%. it's a big number. scares me when i think about it. i'm not proud about telling people that it will create a 23% consumption tax. the reason we do is that's what it costs to fund the united states government. it is not a bill about clinking the size of government. it's about fixing the tax code so that we can grow. size of the economy. that happens to be what that marker is. if it's too low, we can raise it. if it's too high, let's lower

it. second thing that absolutely no other proposal proposes to do is eliminates the payroll pax. when i go into high schools and talk with eastern classes, they will talk about the part-time jobs. they know all about taxes now. they know all about taxes now. they want to know about fico. what are they getting for that? i don't know if you looked at the numbers, but a ray roll tax is the largest that american paxes pay. how many dinners are going to be interrupted with talk or arguments about income taxes. griping about income taxes. frustration about income taxes. i can't tell you how many there will be, but not one conversation about the payroll

tax even though that's the largest tax that 80% of americans pay. if you want the tax man off of the american families's pack and if you want to create that thirst for production that i think is inherent in the american psyche, you have to eliminate the largest that 80% of americans pay. that is that payroll tax. people think about tales taxes as being regruszive. the only proposal in all of washington, d.c. that proposes to eliminate that tax burden that is the highest for 80% of american families. we tried the income tax route. the top rate going back to the 10 dee administration. he cut that rate from 91% down to 70%. but he didn't bring in any more

money. across the top, across the bottom i grafted individual tax receipts. i need to give credit where credit is due. they understand the impact of washington's decisions on our economy and businesses. this comes from their collection. what you see here is that it does not matter how high or low the next tax rate is. the largest change came not because it changed at all in the clinton administration, but because the economy was on fire during tho during those years and it turns out that folks were making more money and spending more money and paying more taxes. it's a bigger economy and not a tax break. they define that and it

exemplifies that in ways that so many others miss. in the midst of this giant economic explosion, they had a symposium on how to model a consumption tax. it's not just nibbling around the edges, but different than we have done before. they brought in economic analysts from the left and the right. all across the spectrum. eight different groups. they said tell us how you would model a switch in america to a consumption tax. they all went out and came back and they came back with different numbers as you would imagine. the one thing these eight different macro economic analytical groups agreed on is that the american economy would

grow faster under consumption tax than the surnt system. they thought it would go faster and the conservatives thought a lot faster, but the area of agreement is we can do better can do better in the pathway to doing better has to do with gets us out of the business of marginal tax rates. it also has getting us out of the business of tax e expenditures. i said really smart people. the biggest problem we have to getting the tax passed is all the people who are already smart in washington, d.c. if you're really smart, you've got an idea about how we can use the tax code to make somebody else's life better. you do. you look deep into your heart. everyone in this room has an idea of if we manipulated the tax code we can affect the behavior of america and that would make america better. preferential rates for dividends

and capital game gains, exclusion for pension savings and the earned income tax credit. the fair tax goes to zero tax expenditures, zero exceptions, zero exemptions if you don't turn the whole system on its head, it's hard to change the association that folks have in their quality of life. when freedman was asked when testifying before george bush's tax advisory commission, they said away would be the easiest way to make sure we don't have a new tax code littered with all these options and exemptions? he said start out with a tax code that has absolutely none. start with tax code that has no exceptions, deductions, exemptions, special carve outs. if there's a good reason to put one in there, i can probably make a good case to put in two and then three and five and isn't that the way we arrived at the income tax that we have

today? i don't dispute that there is value in each one of these tax expenditures. what i dispute is the tax code is the best place to implement social policy. it's the best place to implement. it's the best place to collect taxes. no deductions, no deductions. folks pay that fair tax on absolutely every new good or service that they buy. eliminating those distortions from the economy, huge, huge difference in terms of utilization of capital. this one u is entitled america the self-destructive. it's put together by the tax foundation. it ranks folks by tax competitiveness. our friends in astonia are at number one on the list. united states is down at number

32. i don't believe there's a worker in the world that works harder than the american worker. i don't believe there's an infrastructure better. i don't think there's a people on the planet that is more committed to economic success and they drive that one family, one worker at the time, i don't think anyone does that better than we do. but we have handicapped ourselves and the fair tax aims to wipe that slate clean. if you've been in this town for a little while, you have watched all the machinations of trying to get a rebatable tax code. many folks in the currency business says we sort that out. it's not that big of deal, but big enough that most countries in the world are focused on succeeding at it. how do we keep our tax consequences from burdening the price of goods we're shipping overseas. the countries that use vat taxes, and those goods come here tax free. for us we have no such

alternative. the fair tax solves that issue, doesn't just remove income taxes from the price of production, but remove payroll taxes from the price of production as well. again, having an honest conversation about what the size and scope of government is and how much that costs the american consumer. i go back to that chart that we looked at on the top marginal tax rates. at its most volatile, at its most volatile, that period of time between 1990 and 2000, because the economy grew so fast, we added 3% to our individual tax receipts. 3%. in the best case scenario of the past 90 years, we added 3%. not because of different rates, but because of a better economy. our economy is out of whack today in a way that 3% won't

do -- our revenues and expenses are out of whack in a way that 3% won't do it. the best solution we have as growing economy and everyone agrees that a consumption tax moves us a little closer in that direction. and i'll close with this. it it's interesting to watch what happens across the treat in the capital with the members voting card in your hand. i should have -- and i didn't. what happens is when things are going well, all those smart people i told you about have lots of places they would like to spend all the extra money that's coming in. good places. spend it on children and daycare, spend it on children and education, spend it on children and higher education, spend it on workers and retraining, the list goes on and on, things that you and i would contribute to out of our own pocket because they are worthy causes. when the economy is going like

gang busters, we are going hand over first because the only who pay taxes, those paychecks get bigger. but when the inevitable cycle comes, and those receipts shrink because paychecks shrink and jobs shrink, we've now become accustomed to a brand new level of spending and we borrow the spread. until we get back into another cycle where our amplitude of tax receipts goes even higher and spend even more money. the amplitude of volatility, of income taxes compared to sales taxes is night and day. the enemy of the federal budgeting process isn't that we don't have enough money one year, it's that we have much, much too much the next. smoothing out that volatility,

having a more predictable revenue stream make. s all the difference in budgeting spoil. fair tax, consumption taxes provide that certainty in ways that income taxes never can. again. you're making my day better by talking about federal tax policy, it would have made my day worse instead of better and i'm here with three of the finest minds you could have on this topic. david was one of the first folks u met when the came to capitol hill. has forgotten more about the machinations of the tax solutions than i will ever know. todd has been leading a group that knows that you make big changes from the grass roots up and has been evolving folks back home in making decisions and

making a difference for as long as i have known him. and karen grinding through numbers after numbers and putting it in terms that the rest of us can understand makes all the difference in the world for. the cause and i'm grateful to her for it. just to be clear, i'm the guy who introduces the fair tax on capitol hill. i'm the guy who adds the new co-sponsors to the tarks, but it's the grass roots organization across the country that's going to pass the fair tax on capitol hill, and every time you see a new member of congress who added their name as a co-sponsor, you know it was not because of my power of persuasion, not my charisma, but because a group of constituents back home said, you know what, there's a better way and it's called the fair tax. let me work with you to get it done. and as david said, we now have more courageous co-sponsors of

the fair tax than any other fundamental tax reform bill on capitol hill. and it matters. anything on anybody's mind? >> any questions that people would like to ask? generally state your name and institution. >> laura truman with the heritage foundation. i wanted to ask about the impact on social security. so one of the things maybe the average joe on the street doesn't know social security is in trouble, but those who watch numbers by having a designated trust fund and a designated tax we can see the imbalance, but if you get rid of the payroll tax and you fund general taxes, then some of that sense of it gobbling up all the tax income or having a shortfall goes away.

so how do you handle that? >> laura, you'll remember that president bush chose in his second term to take on tax reform or social security reform? he chose social security reform and it was so difficult not many folks today could tell you what progress was made in those four years. we didn't want to have to take on both at the same time. both of them are critical. both need to be taken on. we try to just take on tax policy and leave the social security for another day. and to do that then, we locked in based on payroll as it exists and as it changes. we locked in a formula that said social security trust fund will continue to receive exactly the same revenues it would have revved had we continued to fund it under a payroll formula. but again, payroll has proven inadequate to fund the social security system. rather than tying the fitness of the social security trust fund to the payroll pace, i want to

tie it to the size of the economy, which is what we do in a fair tax world. we can grow the receipts that we have preventing bankruptcy would not be the right terminology, but we are options for dealing with social security's fiscal future will be better if we have a wider revenue stream coming in. if i could choose one of the easy things, the low hanging fruit we could do in the next two years, passing tax reform requires a president that believes in tax reform and i hope we can have that. but we all know what it takes to solve the social security problem. you either have to do something with benefits or do something with revenue. and my great hope is that we will take some of the early steps to solve that issue in these next two years, which makes then tying the fair tax into the two even easier. most folks don't understand the progressive nature of social

security payments. if young people today are saying they are more likely to see an ufo in their lifetime than a social security check, as we know that they are, the time to have that honest conversation with folks about what the social security system has become and what its options are for the future is now. >> next question, sir. >> nick farm er, retired citize. you talked about the fair tax being revenue neutral. what about distribution neutral? how does it change distribution of taxes? >> when dave camp set about doing fundamental tax reform, he set about keeping the analysis that we have today. it was incredibly constraining. when the top 1% of income earners are paying the bulk of the taxes today, they won't be doing the bulk of the consuming

tomorrow. rather than target trying to keep the entire distributional table the same, we tried to target improving the distributional table for the lowest income americans. when i think about who needs attention from the tax code, it is often not those folk who is are being. brought down by the tax code. it's the folks the tax code isn't letting get up. when i'm a high income earner, i can adjust my income and bring in the lowest rates possible, which is why even when the top rate is 90%, americans weren't paying anymore than they were when it was 28%. but low income earners don't have any choices. all they can do is go to work for a paycheck every day. eliminating the payroll tax changes the drilksal analysis for them in ways no oh proposal does.

when president bush's advisory panel was looking, they released their july 2005 report and found that no proposal they were examining did more for low income americans than did the fair tax. i can't guarantee what taxes you'll pay under the fair tax. you'll have control over those taxes. by taxing on what you consume rather than on what you produce, it brings your relationship as a funder of the government enterprise into a much more control, we're going to discourage consumption perhaps, but not going to discourage production, which is what we need not just from the top, but from the bottom as well. it will absolutely change the distributional tables, but it will put the outcome of those into individual consumers hands. >> this gentleman.

>> how will the tax deal? >> it's my least favorite part of the tax. i'll just tell you that up front, but it's called the prebait. think about what happens at the tax writing committees. i don't want to tax people for diapers because that's kind of important. i don't want to tax on food they are buying. i hate to tax people on their prescription drugs and the calculator for school shs the list goes on and on. if we let ourselves get into that cycle as so many states do of what is worthy to be taxed and what's not. 12 donuts, you get taxed, 13 is a wholesale so you don't get

taxed. we don't want to be in that business as federal legislate tors. so we created the prebait which takes a look at the poverty line based on family size u and said, listen, nobody should have to pay taxes on the purchase of those essential goods defined in the poverty line. so we'll just give folks a rebate and give it to them early of the taxes they would pay on all of those o goods up to the poverty level. but because we do that for every american, we don't have to find out how much money you make or where you make it, we don't have to track you down. the only thing about this, the only relationship you will have as an individual american citizen with the federal government is it pertains to taxes is filing your postcard that says this is my name and this is how many children i have and here are our social security numbers. that's it. that's it. the involvement of the american tax man in the american

consumers life is over forever. and you can only do that if you find a one-size-fits all kind of process to deal with exemptions and deductions. for us that's called the prebait and based on family size. >> any other questions? >> i'll take that as a wide acclamation and endorsement of everyone in this room for the fair tax. i will carry that proxy back across to the capital now and see what we can do. again, you have made my monday a little bit better by coming over and talking about good news. >> thank you very much for coming. appreciate it. >> thanks, once again, to the congressman. we'll now have our two panel guests, and i will quickly

introduce them and hand it over to them. our first will be the president of the national small business association, which is the oldest and second largest small business advocacy group in the united states. he became president in 1997, previously he joined the association in 1988, previously served as vice president of government affairs. he's testified before congress on numerous occasion, appeared on a wide variety of television shows and published most of the leading newspapers in the country. he is a native of new mexico, and he received his b.a. in economics from trinity university in san antonio, texas. dr. karen is the research director at americans for fair taxation. their website is fairtax.org, and sometimes go by that name. she has 20 years of experience

in tax policy analysis. having worked in that capacity for three florida governors, two democrats and rone republican. he's worked for the budget reform commission of the florida legislature and worked in the private sector and as director of research for florida tax watch. she has also served as an adjunct professor at florida state university. please join me in welcoming todd mccracken. you can either stay there or come up here. >> i'm using slides so i'll have to go over there. you're welcome to sit. >> thank you, david. i appreciate the opportunity to talk about the fair tax. it's a topic we need to talk about a little bit more because it it clearly is the best system of taxation for not just americans overall but for the small businesses we represent.

we have been advocates of the fair tax now for a number of years. i think we were one of the first group. s to endorse the tax. it's because the small business community faces virtually everies a pebt of our tax system that we have been so committed to it. if you own a business, you're one of the few people in the country that faces -- that doesn't have to pay personal income taxes, business taxes, local taxes, payroll taxes, not only do you have to pay all those taxes, but you have to administer that tax system on behalf of the federal government. you have to withhold from employees, deal with sales taxes. so small businesses are the only ones faced in the full bankrupt of everything our tax system has to offer. and i'd also like to point out that as much as our members hate paying taxes and think they pay too much in taxes. when you ask them the biggest burden of the tax system is,

they tell you it is actually the administration of the taxes. the complexity and the burden and the time that requires of them to deal with the payroll tax system and state tax system and the excise tax system that we have in the country today. you think about it from the current system that we have, especially the income tax, but also the payroll tax, it discourages entrepreneurs and sbrep. neuroship at virtually every level. they see it as punishment in the american dream. every stage faces significant taxes. the startup level, savings or tax, investors are made after tax dollars and taxed multiple times where the income is earned and the underlying assets that generate that income. taxed when growing because the

government takes income. as more money is made, they are taxed when exporting. they are taxed when they add jobs because our high payroll taxes increase the cost of highing. they are taxed when they are sold. the owner gets to meet the undertaker on the same day a leveraged buyout of the business. the payroll tax burden is one of the things that really attracts us to the fair tax. payroll tax burden that small businesses face is enormous and it adds greatly to the cost of employment. most workers while they see the phi ka tax alluded to in his talk, they don't see the other half of that bill that employees have to pay. and that essentially worked to depress their wages, but also to the extept it doesn't increase

the wages that the employers have to pay. the other thing we have to think about from a small business perspective is the primary sources of fines that they have to pay because they have o to remit those payroll taxes on behalf of their employees and themselves. any time there's a mistake or error, which they do this every two weeks, they wiebd up with a letter, a fine, a notice from the irs they have to deal with. it's money out of the pocket of the small businesses and an enormous amount of time that they have to deal with. the other aspect and the complexity that we deal with. the small business community pays the lions share of the compliance. which are in the hundreds of billions of dollars every year that are are paid in order to

just administer the tax system torks hire the cpas, to have work that is not getting done in the business. so to think about essentially removing those hundreds of billions of dollars is extremely attractive. so we think to deal with these problems, the fair tax is the best system. it has enormous simplicity. when you boil it all down, the only question are the only eptties that we have to deal with on the tax and the only question they would have at the end of the year is how much did you sell to consumers. calculate the tax, send it in, you're done. that's all there is to it. compare to all the layers that i just described for you here today. and for most of those companies that are administering that

sales tax, they are already administering a sales tax in their u states. so the type of administration wouldn't be fundamentally different than what they are having to do right now. the other main benefits is the visibility of understanding that congressman woodal described. the cost would be on every purchase they make every day. and so i actually think that's one of the ways that actually would point out the ever growing and increasing costs of our entitlement system is that every time the costs went up, the sales tax would ultimately know why. economic growth, of course. it would be easier to start a company, easier to grow a company, greater rewards for growing a company. all that would lead to greater

economic growth and less of a need for a higher tax rate. it would as the congressman said it would improve our trade position and the other issue i would like to raise before it it comes up, people often as me as an advocate, why are you for the fair tax because businesses wind up being the people dealing with the tax system. especially your retailers. why is this good for retailers? i point out that every retailer in the country right now has to deal with the sales tax today. but they also have to deal with income taxes, payroll taxes, and all the rest of the plethora of things i have already mentioned. we had the fair tax all of that goes away for the retailers. only thing they have to deal with is that sales tax. so why yes they may be more burdened than the consumers they

are less burdened than by the system we have today. for all those reasons and many, many more i could get into if we had all the time in the world, which we don't, we have been strong advocates of the fair tax and hope that the congressman has good luck today in his efforts to convince his colleagues to get on board. with that, i'll end and take your questions. thank you. >> karen? >> congressman woodall and todd have done a good job of laying down the basis of the fair tax. what i'm going to focus on is the economics of it and i'm going to do that with graphics rather than a lot of dull economics terminology. hopefully you will think that.

but so the first thing that we need to look at with the fair tax is what is the base of the fair tax. it's a consumption tax destination principle that's neutral between savings and consumption. it's neutral among types of investment, knneutral between capital and labor and i forgot to do my slides. where is the -- neutral between foreign produced and u.s.-produced goods, and it is broader than the -- it has a broader base than the current system and that's significant because broader base allows for lower rates. and lower rates allow for less distortion in the economic

system and promote higher growth. the congressman was talking about the consumption base and how it's a more stable base than the income tax base. so this graph shows a comparison between an agi, adjusted gross income, and pce, personal consumption expepdtures. it's not exactly the same as the fair tax base because it has something in it that the fair tax doesn't tax like the value of the value to you of your house, what would it be if you collected rent on your own house. that's included in personal consumption expenditures and the fair tax also includes government consumption.

but it's a good parallel. and the adjusted gross income is the basic base of the income tax. you can see overtime since 1975 i started with that because of the big recession in that time. and personal consumption expenditures have had a steady growth every year since then with the base always growing. an estimate for 2012 of the fair tax base, the pce there is about 11 trillion and actual estimate is $12 trillion.

the next graph addresses the point about stability. the problem with the income tax is you have busts and booms. when you're coming out of a recession, at least it used to be that way. it's not that way this time, but normally you have a burst of economic growth and then the income goes way up and then you have a big growth in tax revenues and let's see that we can fund all these things with that. then when you hit the next recession, you have a level of spending that you can't sustain. and then you get into where we are now, borrowing what 40% of what we're spend iing or somethg close to that range. the point -- the thing i want you to observe from this, though, is that the red line is the income tax base changed from year to year and you can see

that the ups and downs are much more variable than they are for the personal consumption expenditures curve. actually adjusted gross income goes as low as negative 7% growth in 2009. and in that year, it was a bad year. that year consumption wept down less than 2%. so that is another reason why the consumption would be a better tax base. so how does the fair tax boost economic growth? the broader base allows for lower marginal rates and lower marginal rates result in greater work savings and investment, and those, in turn, result in higher

productivity and e lower costs chrks then result in increasing jobs and wages. so it does benefit -- so the benefit does go to the worker. it levels the international playing field, it treats u.s. businesses and foreign business activity the same. it would bring corporate headquarters to the u.s. or keep them here, the ones that are about corporate headquarters leaving because of the very high corporate tax rate in the u.s. but also attract production because the system is border adjusted. the taxes from the producing country are taken out.

so all in all, it will will the most clie ma mat in the world if we implemented a zero corporate rate in a territorial system. and equal treatment between foreign-produced goods and u.s.-produced goods. here's just a table that summarizes how strongly disadvantage disadvantaged the u.s. production is. in the red you see for goods sold in the u.s. market, they pay both income and payroll taxes are in the cost of american goods sold in the u.s. foreign goods sold in the u.s. don't have that burden in their

costs, and so it gives them a definite price advantage. it's been estimated as much as around 18%. goods sold in foreign markets, we don't have what's called a border adjustable tax system so when u.s. goods are sold in foreign countries they still have the burden of the income tax and payroll tax included in the costs of the good and makes them noncompetitive overseas. now when you go. to the fair tax, it levels the play field. you can see in american goods sold in the u.s., they pay the fair tax. foreign goods. sold in the u.s., they pay the fair tax. american goods sold in a foreign country, they pay that country's -- the foreign vat,

the foreign production when they sell goods in a foreign country pay the foreign vat. so it's exactly equivalent. it totally removes the disadvantage to american producers. now we're going to give you some examples of research studies that have estimated just will the fair tax effect the economic growth. this first study was done by beacon hill. and what you're seeing the way economic models work is they estimate the current system and then they introduce change into the model that reflects whatever the tax law change is. and then they estimate what the forecast the economic variables under those assumptions.

and so you're comparing what would happen under the fair tax to what would happen under the base case, which is what is expected to happen if the existing system remains in place. and you can see here this study looked at the impact of the fair tax on jobs, investment and wages. and so we have year one, year five and year ten. so you can see in absolutely every variable there the fair tax has an immediate effect in year one. it's still going in year five and continues even by the tenth year to have a pronounced effect. and what's especially important is the investment. you can see how huge the increase in investment would be.

that's from removing the economic distortions in the tax system and not distim nating in savings and investment. this is a little u different model. it also looks at the economic on economic growth in year one, year five and year ten. that first column over there, that could be 2, 9, and 11. but it shows very similar results with all the variable

getting immediate it persisting well beyond ten years. the study has been out 25, but i figured this would give you the idea. even consumption goes up. the fourth column there, people try to say consumptional because you're taxing consumption, but it did you want. people have they have more money in their pockets and have more ability to spend. dpi is diz posable personal income. that shows that even when you take the tax into account they have to pay tax on everything they buy, there's spendable income is still higher than what it would be under the existing system. this study measures a concept of

welfare gain. it looks over the long run. basically you could equate welfare gain and think of it similar to increasing economic well being, increase in purchasing power. it shows for all three income groups, low, middle and high income, that their welfare gain improves that they get the greatest improvement and getting the second best improvement and i guess that's blue being the high income also improved. so it is a very progressive result.

and getting into the topic of how the fair tax and the poor, the current system harms the working poor. the tax loop poles goes. you need a deduction so people at the lower income level cans buy a home. that's proved it. the income tax you get a standard deduction and personal exemptions. on the payroll tax, they don't apply. you may not pay income tax on the first 10,000 or 20,000 depending on your family size, but on payroll tax you pay on

every dollar until $117,000 i think it is. and the higher rates of the income tax reduce investment which reduces productivity, which reduces wages. so in the end, it impacts the worker. and there's high marginal tax rates on the working poor, which hurts their mobility. there's really a disincentive to certain levels in the system where the earned income tax credit phases out that it doesn't really pay them to work any harder or anymore. that's across all the income

groups showing that what the proportion is of each income group that pay more payroll taxes than income taxes. yet payroll taxes aren't ever talked about. they are the hidden secret of the tax system, which are very regressive. i mentioned that all these tax expenditures that the congressman went through not to do this and should have an incentive for that, well the first one, the mortgage interest, you see there the blue bar, the people making less than $50,000 only get 2% of the benefit of the tax e deduction. the 82% of it goes to those

making more than $100,000. like wise u we need the charitab charitable contribution destruction. i won't get into that one, but a lot of charity goes to places that never flow any money to the poor. but any way, they only get 1.6% benefit of the charitable contributions and 87% goes to the well off. and even if you take all those tax expenditures, all those itemized deductions and combine them together, the low income only get 14% compared to 61% for the well off. so people say you can't get rid of all the exemptions. e we need those. they benefit the poor. they do not.

the fair tax is progressive. they try to label because it's a sales tax. it is a broad base consumption tax that exempts the poor completely. like the congressman said they take the poverty level, extending which is based on family size. and that amount of spending is tax free. so this shows the effect of the prebait, the fact, the taxes they pay for the poverty level. i took a particular family here

the poverty level is $31,460. they would pay zero tax under the fair tax. and the median income, which is somewhere in the 50s to 60s, they would only pay about 10 to 11%. so while the fair tax rate is the same for everybody because of the prebait, the is much lower. this is a study somebody asked a question about distribution. this is a study that looks the effect of tax burden over the family's lifetime. it takes -- this is a very clever approach actually he took

families, he created families and gave them income earning history that was the real world and goes up and down and when expenses are higher when they have the kids and go to college and all that, he created a spending history and an income history and then he figured out what the income taxes would be for somebody who had that income his rirks spending history and he figured out what the tax would be. the current system is the red bars and you can see for every income group there in his simulation, the current system is higher than it is under the

fair tax, the green bar. what i do need to point out is this is a good approach of looking at the tax burden because it takes taxes minus social security benefits received. you're paying your taxes and you get something back. so that is good at showing the burden of the tax system. charitable deductions will go away. the point is that economic growth drives the deductions. it stays about 2% of gdp for the last 50 years so the best thing that can happen for charitable deductions is for the economy to

grow. i'm going to skip the housing part because that's kind of k i complicated to explain here in a short amount of time. so i do want to wrap up with why i think the fair tax is the best reform plan. it promotes economic growth, which results in higher wages. it places u.s. workers and business on an equal footing with the foreign competition. it's fair and simple, transparent and understandable and uniquely everybody pays the tax. even though we say the poor pay no tax, that's because it gets rebated back to them. but when they kbo to the store and buy something, their u bill has the tax on the bottom and they pay, but then the government pix up the tab. but they see the cost of government. thank you. >> thank you very much, karen.

we have a few minutes left for any questions of the two panelists. we have a question that came across the interpret. if i understand it correctly, social security payouts are based on what is paid in. how does that play out under the fair tax act? if you want to answer, that's fine. otherwise, i know the answer. >> good go ahead, i know the answer, but you haven't been talking lately. >> the fair tax bill is written so that an amount goes into social security trust funds that is equivalent to the amount that would have gone in if the payroll tax remained in place and off of wages and would be precisely the same as today.

just as they do today. and the benefits would be precisely the same as they are today. so in terms of the basic benefit structure, nothing would change. it would simply be the source of the ref knew flying into the trust fends, rather than payroll tax revenue. thank you all very much for coming. we will conclude this event. again, the next two events are three panelists on economic growth on december 3rd at 11:00. and the 10th of december will speak here on how we can improve the tax policy process which really means revenue analysis, transparency and how we do tax

expenditures in both the congressional budget act and the cbo. thanks again. have a good day. tomorrow at 1:00 eastern time, the head of the centers for disease control will be among those providing an ebola response update.

jeffrey gold is the chancellor of the university of nebraska medical center, where an ebola patient died earlier today. he will testify before a house subcommittee. live coverage starts at 1:00 p.m. eastern on c-span 3. >> president obama has returned to the u.s. after his trip to asia. tomorrow he will hold an ambassador credentialing ceremony. he hosts a conference on schools and their transition to digital learning. and on thursday the president will award the national medal of science and the national medal of technology and innovation awards. with live coverage of the u.s. house on c-span and the senate on c-span 2, hear on c-span 3 we compliment that coverage by showing you the most relevant public affairs events. on weekends c-span 3 is the home to "american history tv" with

programs that tell our nation's story including six unique series. the sieve war's 150 lt an ve anniversary visiting battlefields, american artifacts, touring museums to discover what they reveal about america's past, history book shelf with the best known american history writers, the presidency, looking at policies of our nation's commanders in chief, lectures in history with top college professors, and our new series reel america featuring archival government and educational films from the 1930s through '70s. c-span 3, created by the cable tv industry and funded by your local cable or satellite provider. watch us in hd, like us on facebook, and follow us on twitter. next a look at the communications act of 1934, which created the federal communications commission. former fcc commissioner robert mcdonald and information administration head larry irving talked about the new deal

thinking 80 years ago and ideas for updating the act today to help reflect modern technology. >> good afternoon, i'm stewart brotman, a senior fellow at brookings information and center for technology innovation. we're here for an unusual event. we're here for a birthday party. and it's not often that people gather at places like brookings to celebrate a piece of legislation. more than celebrate, to take a pretty broad and deep look at where we have been and where we may be going with a piece of legislation known as the communications act of 1934. for those of you who do a little math, 1934 plus 80 equals 2014, so we're talking about an 80-year-old piece of legislation. let me just do a few quick

ground rules for our discussion today. first of all rgs we're not going to have any formal presentations. we're going to have a good, spirited conversation and then there will be ample time for q&a afterwards. when we have q&a, if everyone will identify who you are and if you're associated with an organization, that would be helpful. we'll have people with microphones as well. if you'll just wait until a microphone is at your side, it will be a lot easier. many of you know that we're live now on c-span 3, and so welcome to that audience as well. in addition because we are in the age of social media, we have a hash tag, which is #commact. and for those of you who are here and elsewhere tweeting this out would be great. for those of you who will not be tweeting it out, we would appreciate if you'd silence or turn off your cell phones or

other devices. so let me set the stage a little bit and probably the easiest way is also to begin to introduce our very esteemed panel today. on my far right here is is bob. he has a very long and distinguished history as an economist and lawyer here in washington including a very long and distinguished history here in brookings where he was vice president and director of economic studies. bob also has served in the justice department as principle deputy assistant attorney general and anti-trust division and office of management and budget where he was associate director. and i should mention because i've just seen the announcement, bob is the author of a terrific new book which is called "trillion dollar economists", which is published by bloomberg press and is available online and presumably in bookstores

right now. ron mcdowell in the middle as a long and distinguished history as well. most recently seven-year service as commissioner and the senior commissioner of the federal communications commission. rob is now a partner at wiley, which is one of the great law firms in washington and particularly one of the great communications law firms. it's a pleasure for rob to be here. rob also has the distinction of having been nominated and confirmed on a bipartisan basis under two different presidents, george w. bush and barack obama. so he has an interesting perspective clearly as a republican apappointee, but als with an appointment of a democratic president. and then larry irving, larry was formerly under the clinton administration, the administrator of the national telecommunications and information administration, my

old agency. he also had many other titles that attached to that including stapt secretary of commerce for communications and information. larry also has an extensive portfolio on the hill. prior to he was the senior council at the house telecommunications and subcommittee. so with these three panelists and a little bit of myself, i think we span executive branch, legislative branch, we don't span the courts, and obviously the fcc as well. it's very interesting looking back a little bit at the history of the communications act. i went back and consulted with one of the most distinguished chairman in the history of the fcc newton minnow, who many people remember from that famous phrase the vast wasteland. newton minnow was the chairman of the fcc for a relatively short period of time only 27

months beginning with the kenny administration. but many things happen, including the first major amendment to the communications act of communications satellite act of 1962. newt reminded me that even though today, we look at the communications act as a major piece of legislation that's attached to the new deal, at the time that it was formulated, it was really considered a relatively minor piece of legislation. and here are some of the major pieces of legislation that were being formulated at the same time. we had -- in 1934, we had the farm mortgage foreclosure act, the civil works emergency relief act, and the gold preserve act and, of course, the securities

and exchange act. so as you know, new deal brought us out of the depression and really what was on america's mind at that point was how to revive the economy, and communications was not really a central part of our economy at that point and so, it was an act, as we will talk about, that essentially was built upon the foundation of prior legislation, legislation that really started in the 1800s with the interstate commerce act in the late 1800s and then later on, an amendment to that called the mann-elkins act in 1910. that's a little history. it sounds quite ancient, but why don't we at least fast-forward to 1934, and begin to talk a little bit about the original intent of the act. what was the act trying to do when it was formulated? >> i guess i will take a shot. >> do you remember? >> i do remember. i was right there.

franklin and i -- no. it was a housekeeping act. you had telecommunication. long and distinguished about these guys, not about me, a little bit [ inaudible ] commerce department and most folks don't realize that most of the work done at the commerce department, a small agency called the federal radio commission and what this act basically did was take some of the responsibility that was resided in the commerce department, some of the responsibility that resided in the federal radio commission and pull them together. one of the interesting things is that, there was an assumption, in the '30s, that this was going to be a natural monopoly. we were dealing with a scarce resource, monopolistic resource and seen needed to be somebody to make sure the big players really didn't face competition played fair. that was really what it was about, take some of the responsibility, put them in one place and make sure this thing continues to grow, but there was no tba. the radio industry was nascent. an interesting fact at one point, there was a conversation about taking 25% of the

broadcast spectrum, on pbs, on board and look at this, broadcast spectrum was at one point earmarked for educational purposes, the commercial broadcasting industry fought that off, instead, got a public interest responsibility instead of having 25% go to non-profit educational purposes. nobody in 1934 looked at communication the way we look at it now and no thought it would be one-sixth of our economy. >> i will take off on the word monopoly. i think there are two words to keep in mind when we think about 1934. monopoly is one of them. and larry and i think there were two monopolies. monopoly implies scarcity. we had radio. didn't have tv yet. i will get to that in a minute. we thought in terms of monopoly and scarcity, sort of, as i said, two parts of -- two sides of one coin and the other thing, of course, that was fundamental, in 1934, is the work analog, all

right? because we want to set this up for how the world has changed since 1934. but if you think about the predicate of 1934 and what happened afterwards, we get to satellite,et, essentially, larry's right, that the federal radio commission became the fcc and then the fcc morphed into taking on more and more responsibility as we had other forms of communication. so, we got tv. we got satellites. we got mobile telephony. as each of the new technologies came along, the fcc, as i view it, developed departments for each one of them. and they were all separate silos. it was all useful to think of them as separate silos. because in a work of analog, the waves aren't sort of interchangeable. they're all sort of separate. so it made sense to have separate things. i don't want to preempt the discussion, we will talk about what changed since then, you can see how different that world was then than it is now. and we will talk about what's changed since.

>> so building on that, absolutely right. it was very, very different and back to a monopoly point. you did have the old at&t agreeing to -- actually a protection for its monopoly in exchange for what we call the universal service. that is to make telephone service available at reasonable rates upon request and also to build out, the telephone was still a relatively new technology in mainly the affluent and urban and suburban areas, not that there were many suburban areas then, mainly the main subscribers of that. so, how do you have that technology proliferate and there was some competition issues and excluding competitors and in exchange for being able to have a monopoly and not be subject to the trust busters, you can take shelter in being a regulated monopoly. that was part of the impetus and political compromise for the 1934 act. and then there's what i think is sort of a fiction of the

spectrum scarcity, back then, only am radio. my father, who grew up in the tex mex border nr delrio, texas, used to tell stories of that just across the border in mexico, there was a 1 million-watt radio station, again, all a.m., dr. brinkley, the notorious dr. brinkley, his signal could reach over a huge swath of the u.s. and that was his audience, but there wasn't any regulation of that and the screen doors across the river in delrio, texas, would vibrate with the energy from that radio station. there were legitimate spectrum management issues, a question which we could develop into going forward, what was the role of the fcc going forward? need an independent agency manage that or could that be managed by the executive branch for spectrum allocation, a topic to tee up. but those were a couple of the motivations behind the 1934 act and things have changed completely and those silos that you just pointed out still exist in terms of the regulatory landscape, but for technology in the market and especially, most

importantly consumers, those silos don't exist and the law should be updated to reflect that. >> one thing about how much the world has changed. franklin roosevelt suggested the federal communications commission in february, 1934. by june of 1934, it was out of both houses. and by july 11th, the act took effect completely across the nation. you can't get a hearing in six months now in washington. and they passed an entire bill, which gives you a sense of, one, relatively importance and two how much more gridlock there is today in washington than there was when they were looking at this legislation. >> and one party rule. >> one party rule. the democrats, miss those days. >> it's also interesting about the old mann-el kins act of 1910, again, google it or look it up. the mann-elkins act essentially gave for the first time authority of the interstate commerce commission to regulate telephony and telegraph and from

1910 until 1934, that authority was not at the federal radio commission, it was not part of the federal radio act, but telephony and telegraph were considered separate media which were regulated by an entirely different agency, the icc, which essentially regulated rail carriage, and rail transportation. and so, a lot of our notions of common carriage essentially were rooted in this notion of the icc and part of what the communications act of 1934 did was to bring together the notions of telephony and telegraph at that point and to marry them with notions of mass media, principally with radio. so we essentially had two different acts which were combined, put together and we had the federal radio commission then morph into the federal communications commission and the fcc was then given the

authority to regulate telephony as well as broadcast and spectrum-related media. part of it, looking back at the history, is that the icc had very little confidence and was quite frustrated because they wanted to really focus on the railroads. and all of a sudden they had cases dealing with telephony and telegraphs, and the staff and the commissioners really felt uncomfortable. this was not their zone of expertise. and so, they were very supportive of taking that function and moving it out and that's essentially how those two functions got combined into these silos that we're talking about the in the communications act. >> one footnote. so the icc, just to tee up a later discussion, probably none of you people will remember, the icc is gone, okay? we are going to be talking about the future of the icc. it doesn't exist anymore, all right? and i worked on the clinton administration.

and two cheers -- all in my book, by the way, "trillion dollar economist," talked about what happened in the icc, how it grew up and then its demise and people don't realize that it was the carter administration that killed it. they all think that, you know, reagan administration came on and killed off a lot of regulation, carter was responsible for airline deregulation and trucking deregulation and rail. >> rail. >> and rail. >> and it worked. >> it all worked, all right? and the icc in between the time -- right after time that they got ahold of telecommunications, along come trucks, you know, in the 1930s and they ended up with trucks. and, you know, in retrospect, they shouldn't have had anything. and we finally got rid of it all. so i mean, that's just -- that will sort of give you an indication where i'm going to be talking about, the future of the fcc a little later on. >> they don't -- the