that argues to go forward. so yes there are details addressed in your tpa directions to the trade negotiator, ambassador frohman, but the risk is outweighed by the opportunities. >> i don't think that's the case. dr. hall, any comments on that? >> just one very quickly. i want to reiterate there are two benefits on opening trade by agreements or anything else. one is as the government has just indicated, it's a way to get good jobs in the u.s. the other thing which is equally important is that it's a way to get cheap goods into the u.s. in return. don't neglect the benefits of the import side. there has been huge increases in real income in the united states as a result of having very inexpensive products available at walmart and elsewhere that are astonishingly cheap imports always. and that raises u.s. standards

of living. the research on standard of living shows unambiguously that trade is great for these reasons. >> i just make two observations. trade is great when say, japan is in recession. japan is a huge economy. if japan weren't in recession, it would be a huge economy plus 3%. so the returns aren't that different no matter what's going on with japan's business cycle or any of our trading partners. the second is i think to the extent the world is becoming more chaotic, what does this mean about the returns to trade? i think arg automobilely that raises the returns to trade. we are a world with greater shared interest and this is where formal trade becomes a policy as well. there is greater trade with our neighbors when we have deeper linkages with them, and putting it more bluntly in terms of foreign policy, we had a huge

effect in russia because we used to trade in russia and sanctions have been quite effective. i think there have been foreign policy issues on the table as well. >> those are reassuring answers. we hope these numbers are correct. we hope this can be a very essential element of helping drive economic growth in the united states. i just wanted to get your thoughts relative to potential instabilities and sluggish trade partners' impact on that. thank you for that, and mr. chairman my time is expired. i'll withhold my second question and try to get it in at another time. >> thank you senator coats. we go to senator mendez. >> thank you, mr. chairman. i want to congratulate you on your ascendancy to the chair. i look forward to working with you. i'm going to get to my question since i only have five minutes. we have made some enormous strides in our economic recovery since the financial meltdown and recession starting in 2008.

we've seen some robust job growth declining unemployment glowing gdp, but there is still work to do. in my mind the focus on measures we should be looking at is strengthening middle class incomes, investing in our infrastructure and improving educational opportunities. with that in mind, most, i think, members of this committee believe that there is a pressing need to reform and simplify our tax code. however, opinions begin to diverge when we are talking about what are the goals for reform, what they should be and how exactly we go about accomplishing those goals. i think the president made it pretty clear where he stands on this question, and i strongly agree with him that we need to be focused on measures to help middle class families instead of keeping in place tax loopholes geared toward special interest with high-paid lobbyists.

very simply what is more beneficial to the economy and individual families? measures targeted towards the middle class and households across the income spectrum, such as tax credits to help working parents afford child care, students afford college or further tax breaks for those who are at the top of the bracket who don't need them or in many cases aren't asking for them? >> i think my answer is that tax breaks and policies tied to the middle class are going to yield a much bigger dividend. i mean that in two respects. one is there is an emerging body of evidence that inequality may be an important force that is employing to be a drag on our economy, so we canie mill emiliorate that quickly. the other issue is what's the point of having economic growth if it actually delivers nothing

for most? and so to the extent that these policies could do that i think it's worthwhile. i also think that there is some really simple stuff. when someone first explained to me what so-called stepped-up basis was, the trust fund loophole, the mind boggled. i think that would be true for not only most economists but also constituents. these are all loopholes which had basically no economics behind them and no economic benefit, so they potentially free up a whole bunch of money to do something reasonable. >> so if we, in essence, help educate a work force of the private sector needs in order to deal with the human capital requirements and the global economy, and at the same time help more middle class families have greater resources to help educate that child and/or to be able to get to work so they can have their child be taken care of without losing so much of their disposeable income they'll

have more income to spend in our society and that will help fuel our economy, would tntit not? >> absolutely, sir. >> let me ask governor angler and you as well about the importance of our economy on our infrastructure, especially at a time when they are at historic lows. there is a report that came out led by a non-profit transportation entity and it said new jersey's bad roads and bridges are costing individual drivers almost $2000 and contribute to higher numbers of fatal crashes, and it goes on to talk about a whole host of elements. when we're thinking about people getting to work work forces getting to -- sales forces being out there being able to sell the products, being able to move our products to marketplace to ports and whatnot, can you talk about

the importance of investments in infrastructure? we always look at this with a transportation trust that it continues being broken, we do it with short-term entities without looking at the ripple effect. can you respond to that? >> i'm a believer in infrastructure and i'm a believer in investing in infrastructure, and you have to sort of break it down. i think there are elements of infrastructure development where, you know, the user can pay and there is a great return on investment that allow for that investment to be made up front and paid off over time. examples of that you know, you've certainly got everything from the air traffic control system to -- i mentioned the electric grid earlier. there is a tremendous upgrade that could be done, water systems, all of these kinds of things. roads and bridges are harder. it's gotten harder to insist upon a user pay approach because

some vehicles don't pay traditional fuel taxes. the efficiency of the fleet is such today that we pay many more -- we drive many more miles for tax paid so i think that will have to be adjusted over time. you've been fixing the trust fund holes with general fund borrowing. that's probably not sustainable. and we've got a big holcombe coming up this spring again. one of the things driving all of america crazy is the inability to plan longer term for anything, whether it's the tax provisions that expire. we had a code for two weeks, you know, if we go back to december. infrastructure is the same thing. we have a few northerners around the table. you can't build roads year round in some parts of the country so you need to be ready to go in the spring. if the trust fund isn't funded and you can't budget your money accordingly, you underperform that way.

i think in this low interest environment, there is a tremendous opportunity to do projects, and many of them will have -- i mean, if you borrow money, you've got to pay it back. and i think many of them have a value proposition that allows that to take place. in other cases there is public investment that's required. and i think it's not right to if you've got a hole in the roof, you should fix it. >> senator, your time is up. senator scott. >> thank you, mr. chairman and congratulations as well. my first question is for governor engler. i think about the impact of lowering the corporate tax rate on job creation in our country, and i think it could have a significant impact. i think also about the recent tax inversions that have occurred. could you comment on what you think the long-term effect is on research and development and other aspects of companies who move and/or invert their companies to foreign companies

will have on job creation in our country? >> secretary louis yesterday in his remarks referred to our backward international tax rules and part of the system is going to shift their income overseas. that's exactly what we've got in the current code so part of the change to get to where virtually the rest of the world is and allow the foreigners to pay the taxes in the country where they're earned and brought back home, that would have to be advantageous if the united states did all that. i think once home that money is available for -- whether it's capital spending or hiring or higher dividend. let's bring it home so it's been here for any number of productive purposes including research and development. the r and d is a good example of somebody that's been in the tax

code since 1981. at the time it was put in, we're the best in the world. we're not the top 25 today. it's devalued over time. plus it's temporary. as of today, our tax credits expired. so we need permanency in the code, we need predictability, and i think it needs to be competitive. as i said in response to senator thume's question, whether one is a corporate status or non-corporate entity we can improve, but we particularly want to think about anybody in either status who is having to compete globally because today we have the worst competitive environment. >> thank you sir. dr. hall, labor force participation. i note with some interest that if we were using about the same labor participation rates as we had in 2009 65-point-something

percent as to where we are now, there would be more folks in the labor force to be counted it seems like there would not be all that counting towards retirement. how would figure all the people working are involved in the labor force? >> there is a table in my prepared testimony that breaks it down by age and sex. as i mentioned earlier the big declines in participation have been young people. there is a theory -- i'm not going to sponsor this theory, but there is a theory that entertainment -- i think this is most relevant for teenagers but the compelling entertainment has become quite cheap. that makes a difference in how teenagers decide how to allocate their time. maybe things like that. i think you should be encouraged to see that this is perhaps not a total disaster. for one thing these are not, in

most cases primary earners. we're not talking about the middle class. if you look at people in the peak earning in the responsibility years there has been no decline in their participation. i think that's a good thing. the decline has been in people under 35 especially teenagers. i think we may figure out, and of course some of this may reverse. there is always that possibility. to me it doesn't cry out for any policy change, at least until we understand it better and see how permanent it is. >> thank you. final question for you as it relates to the president's proposal. he talked about increasing the capital gains tax. what impact would that have, especially when you think of the backdrop of dodd/frank and capital banks going to entrepreneurship. what impact would that have on more entrepreneurs, fewer entrepreneurs and what that

means for the job market long term? >> it's pushing up an already high tax on entrepreneurial activity. entrepreneurs create a c corporation. the c corporation pays the corporate income tax at, by worldwide standards, a very high rate. then it gets taxed again before it goes into the hands of the entrepreneur, so the tax rates on entrepreneurial activity are really high and i don't think they should be elevated. i think we need to straighten this all out and have an integrated tax system that is careful to get the rates right for everything instead of the hodge-podge we have now. the topic of the carried interest came up. that is something where what should be taxed as ordinary income is sneaking in only as capital gains and it's not income that's previously been taxed under the corporate system. we need to change this. we need to get the rates on entrepreneurial activities down,

we need to get the rates on -- that takes the form of carried interest up. we need to straighten all those things out and get reasonable uniform tax rates on activity. that would just be a huge step forward. >> thank you. my time is up. >> chairman thank you very much, and we all look forward to working with you as chairman of our committee and we wish you the best. senator widen expressed the views of all the members on our side, so we're looking forward to a very productive time. i want to thank our panelists. i think this has been extremely helpful. we are looking at ways in which america can have a stronger economy built on the success that we have create more jobs, and particularly increase real wages in this country to keep up with productivity gains, which is a major concern. so there is a lot of focus on

the business tax. and when we talk business tax, i think you got to talk about not only the corporate rate, but you have to talk about the individual rate since so many businesses pay at the individual rate. and we hear frequently that the united states has some of the highest marginal income tax rates in the industrial world. and i find that somewhat surprising considering when you look at the reliance upon the public sector among the industrial nations of the world and revenue into the public sector, the united states is near the bottom of the industrial countries. and, of course the reason is the united states relies almost solely on income taxes whereas the rest of the industrial world has a heavy reliance on consumption taxes. when the world trade organization was developed we thought it was just fine to allow for border adjustment on the consumption taxes whereas the income taxes are not border adjusted, putting the united

states at a real competitive disadvantage. so i want to try to get to the core of the problem. i'm not sure that just by rearranging the chairs on the deck it's going to make much difference if we still rely heavily on income taxes that are not border adjusted whereas the rest of the industrial world relies on consumption taxes. when i suggest that we do some change i usually hear from two groups of people, one saying, well, we don't want to have a revenue machine for governor. there are ways to deal with that through using some form of an automatic rebate if revenues exceed what you anticipate it being, so you can deal with that issue. the other, of course i hear we don't want middle income families to be more burdened than they already are today. and through use of rebates based upon income, you can deal with that issue. and both of these matters can be dealt with in a much simpler way

than our current income tax structure with its complexities, et cetera. so i guess my question to you from a policy point of view, from the point of view of america's competitiveness why wouldn't it advantage our country to take advantage of our natural advantage, that is that we rely less on the governmental sector for revenues than our industrial -- than our competitors in industrial nations. why shouldn't we be looking at a way to take advantage of that competitively? dr. hall, you're shaking your head the way i want it to be shaken. >> you've just listed all the selling points and particularly a key idea i think you mentioned is that you can have a rebate built into it so that you can get the right distribution of the burden. particular excuse, low income families from having to pay the tax at all and then have a low

to average tax rate for middle income as opposed to higher incomes. a consumption tax which is what you were suggesting and most economists think are a great idea. our proposal didn't include border adjustments, but it's easy to come up with a version of that if you like border adjustments. you kind of don't sound as enthusiastic as border adjustments because we think it comes out in the wash in other ways. i know politicians love border adjustments. so all the advantages you discussed and all the advantages i mentioned, too all combine into making it just a terrific idea. >> thank you. i'll take that. that's 90%. governor engler, do you want to comment on that? >> we used to look at this because what a neat thing it would be if the border put a tax on everything coming in and take it off on everything going out. that has some real attractiveness. it is a heavy lift for congress

which cannot even make things like the r and d tax credit permanent to be able to get there. >> it seems like small things are heavy lifts. maybe big things are later lifts, devisionary. >> all i know is that the conversation, the flat tax type of conversation your legislation on the progressive consumption tax you've introduced i'm kind of wonky i like to talk about all these things but also with respect to our chair and ranking member and some of the work they've done, recognize that probably we have a room of possibilities on certain things and put that on the study committee that gets formed and take a look at the long-term structure. it is a big change, and we're willing to talk about anything that makes the u.s. more

competitive. >> we study things to death and i know we don't have consensus yet so there is a need for us to bring about a greater consensus. everything we've done has been tried. nothing is new here. we know what happened and the united states will be much more competitive than we are today. at one time we didn't have to worry about taxes on competition, today we do. again, i thank the panel for their discussions. thank you, mr. chairman. >> senator howard? >> senator thank you. i look forward to working with all the veterans. i want to thank senator hatch. i look forward to working with you. it's great to be on this committee, and i'm real pleased the first issue we discussed is economic growth and creating jobs. i think for most of the american people, that's where they come down. i want to say hello to the governor. it's good to see you again, and everyone on the panel thank you for being here and for your words and efforts. the economic recession affected

everyone. but in my home state of nevada, it was especially harmful. nevada experienced the nation's highest unemployment rate. nearly 14% at its peak. i would argue real unemployment today is north of 9% as well as the highest foreclosure rate in the nation and the highest personal bankruptcy rate. it's been a rough few years. though our situation has improved nevada's unemployment rate unfortunately remains one of the highest in the nation. recovery has been slow. thousands of nevada families are still waiting for true economic recovery that they can see and, in fact, feel in their pocketbooks. americans have been told the economy is getting better but they are feeling the effects especially in my home state. though the national unemployment rate has gone down millions of americans have dropped out of the work force entirely. the fact is this administration's policies have put up barriers to economic growth. we have already burned some tax

code that has become more complicated under obamacare. businesses continue to face mountains of new federal rules and regulations. and we have a health care law that makes it harder to see your doctor, makes it more difficult for employers to grow and raises taxes of hard-working american taxpayers. to truly grow our economy, there are key factors that deserve the attention of congress. americans deserve a cleaner, simpler tax code trade policies that ensure america's competitiveness in the growing international marketplace and health care policies that actually focus on improving access of affordability and equality. i look forward to working with the chairman and ranking member to move these issues forward and with that a few questions today. there is an article today that came out in politico. as you know, we haven't had tax reform in this country since 1986, and i think there is a pretty good reason why that occurs. i just read two spots out of the

sporting article. the white house is overlooking the benefits of a business code rewrite. some of the economists say predicting any likely overhaul will doolittle for growth and may even hurt the economy. that's because for all the complaints about special interest loopholes and sky high rates, the biggest corporate tax rates are generally believed by economists to promote growth. so i think that voice is going to get louder and louder and louder as we work together as a committee to improve the corporate tax code that we have. but i guess my question to you governor, is there any truth behind these comments, and what are the risks that you see moving forward on corporate tax reform? >> well one of the risks of not moving forward is that we continue to retain a patchwork -- temporary tax code that we have to come back every few months, it seems, to try to extend it. it allows nobody to plan in advance, nobody to rely, whether

you're individual or business taxpayers. as far as the unnamed economists who say certain provisions have benefits, of course many of those benefits are put in to offset some of the negative effects of the code we've got. that was the whole goal. since '86, we've seen changes made but what's really changed since '86 is what the rest of the world has done in reaction to our code. and so then we react to that, and some of those provisions are designed exactly to try to make us more competitive against some other region of the world or some other practice out there. i think that a simpler tax -- i certainly join the conversation with senator hardin, that's a long way that he would like to go, but i think we could see a

simpler tax if we act now on things that are doable with this committee. >> i know d.o.t. has a solid position and i'd like to get your view on this. but in nevada about 30% of the high school graduates go on to a post high school education. unfortunately, by 2020, 65% of the jobs in this country will need post high school education. how do you feel about the president's proposal on tuesday of free community colleges? >> well, the free community colleges are spending a lot of their time doing what the high schools didn't do in the first place, so it's -- i'm frustrated by that proposal a little bit, and i'm certainly frustrated by what's offered as a way of trying to pay for it. nobody has seen the details on what he is actually specifically proposing, but i would say for nevada we really need to have each student in their individual

plans. if you're going to college they need to be able to do college work when they arrive. if they're not going directly to college, maybe the gaming industry or the resource industry, what kind of training is needed for that? can't we start earlier than post 12th grade? let's start in the 10th grade and help people. what we're seeing in the real world is that people who get skills often then also gain confidence with that and conclude that i want even more education, then go back to school to gain that, and often are able to pay for it because they're now employed. and the other thing, the dropouts, because if you drop out you're really dropping out of the whole economy. >> governor, thank you. my time has run out mr. chairman. >> which triggers my time, and i'm going to be very brief, but i wanted to note that each one of the three of you had raised one of the $600,000 question of tax reform. i want to assign you to a

homework assignment to get us back to an answer of the questions you raised. the governor and i appreciate everything you've done for the state and i appreciate you being here, and i'm a big fan of the brt. somewhere in the bowels of the brt, there are a list of sacred vows that lower the tax rate. can you tell us if we go through a comprehensive reform of c corps using tax treatments to offset the reduction in revenues from the percentage rate, is there a sacred list or could we possibly come up with a consensus in this committee or the brt of what could be used to buy the rate down. >> yes, there is. there is a reluctance against somebody's advice certainly

ours. the next thing we find out, it's now a proposal to reduce spending, so there is a reluctance sometimes to put all the cards face up on the table until it's that magic moment that we're ready to do a deal. we've done the math. there is no question that in a fiscally responsible way, we can put together a plan that works. we're certainly looking hard at the past and what can be done. we're optimistic that great progress can be made on all types of business entities. good to work with you. >> i'd love to see that list. thank you very much. dr. wolfers, you made a statement -- i couldn't find it in your printed testimony, though i'm sure it's there, but you made a statement in your verbal testimony that you recommended triggers for automatic stablizers.

can you tell us what those triggers are how you would have those triggers come in? >> if you want a simple formula right now, the unemployment rate is about 7.5%. trigger a bunch of stuff, and when it's below 7.5% trigger it off. >> so you would use that number instead of another index? >> it seems to be the most stable index in the business cycle. >> there are many types of taxes as we all know, payroll tax, income tax, capital gains tax et cetera. what tax would you trigger with that stabilization mode? all income tax, payroll tax? >> i would need to think harder about the question. for sure income taxes. beyond that, i would need to think on it. >> if you think about that -- because it's an interesting concept. and it does beg the $64,000 question, that as tax policy drives economic outlook, and if you have automatic stabilizers

in terms of raising or lowering taxes, it tells us when we razor lower taxes there are economic consequences, so we better do it accurately. which brings me to dr. hall. you want the flat tax, if i'm not mistaken. you talked about the tax code we have right now. the name you give in income determines the tax rate you have, 28% on the proposed capital gains or 23.4, whatever it might be. taking a carried interest assignment as a capital gains type rate or a dividend rate rather than earned income rate, that was a testimony for a flat tax or a fair tax for certain. is that correct? >> right. >> let me ask you the question. if i'm correct in my assumption. the biggest stumbling block to simplicity of the tax code is transition from the code we're in. the code we would have is simpler. for example, you would have longitudinal tax treatments, depletion, investment tax

credits, lower income housing tax credits, and i could go on and on. have you ever designed a model for if you one day woke up and there was all of a sudden an 18% flat tax, just pulling something out of the air. what would you grandfather in from the previous tax code where people had invested their money and which you wouldn't? >> okay. so a while ago, 20 years ago i went through that whole topic in detail. depreciation in the howard bush proposal, there is a first write-off. that's forward looking. that's easy. then there is the question of how you treat the hangover of previously promised depreciation deductions. it would cost a lot of money but we could just honor them. that's probably what i would recommend.

there are some other issues having to do with personal saving vehicles, but those can all be worked out and have been worked out. so it does get into some detail that i can't go into this morning, but certainly it's something i thought about and it's doable. but you're right you have to do it right and there are a fairly long list of fair, correct transition rules that would have to be applied. but it's done. >> and i appreciate your answer and i would love if you did that paper a number of years ago. if you would give it to me so i could read it i would love to learn. i get bored at night watching tv so i would love to read it and see what happens. in the reagan reform taxes of '86, the one thing we made a mistake of is we took passive loss and passive gain and changed those which took a large

segment of the economy, primarily investment real estate and caused a savings and loan collapse, to be honest with you. you have to be very careful when you change the treatment of taxation mid-investment. when they've already made it you have to make sure you don't have the consequence of recession. that's the reason i asked. with that said, i'm going to turn over everything to the ranking member senator widen. >> thank you, senator isaacs and i share a lot of your concerns as well and look forward to working with you. let me if i might, go back governor engler, to what you and senator thune talked about because you've been kind to take the time over the years to talk to me about it, and i think you know how strongly i feel about bipartisan comprehensive tax reform. i think a big part of this debate is really going to come down to pete's auto supply and fran's hardware store. because if they walk away

thinking that all the discussion in washington, d.c. is about the big guys the big guys are going to get the breaks the multi-nationals are going to get the breaks and pete and fran aren't going to get anything a, and b, when they start looking at the numbers they may think they're going to have to pick up some of the costs in order to have the break for the big guys. i think that's a showstopper both substantively and politically, and you, to your credit, have indicated that you're interested in talking about this. i understand that there is some discussion going on in the business community in an effort to try to think this through and you have to find a pay-for and the like. but given the fact that small businesses well over 80% pay taxes rather than businesses, i understand there is some discussion about the concept perhaps coming up with a general

small business credit. something that would allow the small business people on day one to see that there was an effort to try to ensure that as we do tax reform, we want everybody in america to get ahead and we're recognizing the small businesses. i know that this is not the time to talk in specifics or how everything is going to be paid for, but what's your sense of that discussion and where it might go? >> well, i think that first of all, it's an unavoidable discussion. it has to be part of the whole conversation. and i think as long as we're working with the constraint of what i think is described as generally fiscally responsible tax reform, that sort of means that if you're going to try to bring rates down with your cost revenue, as was just mentioned

by senator isaacs what then offsets that revenue loss, i personally would think there is a fairly dynamic effect that's there. there is certainly some effect if you've got tax rates. i happen to think it's a beneficial effect and that will be seen in higher revenues, but i understand the scoring rules that we use. if we say, okay, what's fiscally responsible? how do we want to do on those authorize corporate rate payers, those that are non-corporate entities that pay at that individual rate, nobody should subsidize the other. they shouldn't be subsidizing corporate relief, and i would argue vice versa that corporations shouldn't subsidize their relief. how do you get that better tax code? i think we figured out kind of where we would like to be on the corporate side the other is a bit more complex because you

just, astute untilly pointed out that they're clustered at the bottom. i think the past remedies, more than 200, are bigger than $2 billion. those are big guys up there. as we look at this, your question about a small business credit or something, all of those are intriguing and we're very open to working with the committee to see what could be done. because we certainly always speak of comprehensive tax reform and if it's comprehensive, it means they're not left out. >> let me ask one other quick question if i might then i'm going to recognize senator carper. one of the most troubling aspects of where this country is economically is the huge gap between economic recovery in urban areas and economic recovery in rural areas. and the national association of counties recently released a report noting that if the 3,000

rural counties only 65 are in economic recovery. no county in my state has seen a full economic recovery. 23 rural counties in my state have lagged well beyond the state's more urban and populist counties. clearly, in my state and i just came from town hall meetings in rural oregon i'm not going to accept turning those rural communities into sacrifice zones. we just write them off and say that's the way it goes and the end. i would just like to go down the road before i go to senator carper. maybe if you'd like to start dr. wolfers. but again if you have an idea, just one because time is short, to try to deal with this huge gap between recovery in urban areas and recovery in rural areas, i would be interested in an idea from each of you.

dr. wolfers. >> i would rather reject the question rather than answer. >> fair enough. >> there is an enormous amount of dimps adifference across the country, between rural and urban. we should handle these with dignity and that doesn't mean favoring one over the other. the economic recovery has a lot further to run, and with that i completely agree. if we can push down to a 4.-something employment rate rather than a 5.-something unemployment rate, it's going to help both groups. >> dr. hall? >> the trend toward urbanization has been going on throughout the

history of the u.s. exactly what comfort should be given to the people who are still in rural areas, but it's very important to understand that especially certain big urban areas that have -- that are at the other extreme, for example, in the urban area that i live in, the going rate today is 4%. it's a huge magnet for people from rural areas, and rural populations are declining as urban populations rise. we have a progressive tax system which helps a lot in that respect, and we had a social safety net. i'm not sure it would be appropriate to go beyond that to have something specifically aimed. certainly europe, one of the huge problems in europe is very

consistent attempts to prevent people from migrating to big cities, and that's been one of the many drags on the growth productivity in europe. so, again, i'm against the europeanization of the u.s. and we do want to move in that direction. but i do have to say we have a pretty robust solution of people paying taxes. we still do a reasonable job. >> i'm going to governor cartwright, and i can tell you in rural oregon, people are first and foremost interested in family wage jobs. they want the opportunities in trade, they want an improved infrastructure they want a balanced approach on resources. nobody this weekend said the answer was just safety net programs. governor, anything else you want to add? then i want to going to governor

carper. >> real quickly i grew up in a city in michigan kind of one of those rural communities, i do think technology has a role to play in solving that gap and i really felt the idea that everybody has high-speed access, we could take the work to where the people are today in many cases. i think doubling down on those strategies. the one thing, though that is simply not negotiable is even in rural schools today with technology you can have the very best education that's available in the world but you've got to get it you've got to insist upon it and you've got to build that. if i'm leading one of those communities today, i'm really putting my emphasis on the educational work force. the skills are delynnineators and they're going to get more acute. >> governor? >> he knows how to warm me up

calling me governor. people ask me what i do and i say recovering governor. >> please don't. >> no i'll never fully recover. we worked together on reform. later in life we had our kids and the national governors association got to share a lot of time together. we share a passion for a particular baseball team, and the nationals should be pretty good this year. we'll see how good our tigers are. heim hopeful we still have plenty of months. having said all that, we also are always interested in how do we foster economic growth, and whether you're governors or senators we help create that nurturing environment. i was pleased with the president's speech and he focused on things that could

nurture more jobs. one of those is trade. and he's here for us to sell our products and goods in foreign markets. we talked about tax reform. i'm interested in lowering our rates and moving to territorial. a balanced side of security we have a lot of folks trying to steal our election seat. from universities in michigan in our state i think we're doing a better job but it's a big job. he spoke to immigration reform. someone mentioned today that immigration reform actually will, over the long time, actually reduce deficits and foster great economic growth. and the last one transportation. investments in transportation and infrastructure. governor engler in his current job, after being governor, he led the national association of

manufacturers. they put out some advice from very smart people looking at what kind of gdp growth do we get if we fully fund a transportation plan for the next six years? he said we get a fair amount of gdp growth and economic boost from putting 6 to 700,000 people to work, long-term unemployed but real growth of the gdp of the transportation program comes from an adjustment in the economy, being able to move goods and products out of the country and into foreign markets. that's where we get the gdp growth. the big question around here has always been how do we pay for that stuff? in the last 12 years we've seen ourselves kick the can down the road and not really do anything. we borrowed money from china and

other places around the world. i don't think that's a very smart policy, nothing to do with transportation. one of you i think it was you, dr. hall may have mentioned something like user fees. i know the governor tried to double gas tax from 19 to 39 cents. i think it passed the senate last year but want the house now it's going to referendum to see if they can pass it that way. i chaired until 10 days ago on transportation infrastructure. i invited the public works. i have great interest in that and funding the committee. here's my question. our ranking member here former chairman, he's from oregon. they've been working for ten years on something called the road usage charge. it's another way of saying mousetrap. in delaware if you go on 95, you pay a toll. people can move through rather expeditiously. if you go south to the beaches

and all those places it's a user fee but it's a toll. so we have a combination of tolls, we have road user charges, we have -- i think, dr. hall, you were talking about congestion and charging on that. one, we're going to run out of money. 12 times in five years we'll run out of money at the end of the may. what advice would you have for us? my sense is it needs to be a combination of things but we haven't raised the gas tax or user tax in 20 years. the gas tax today is worth a dime, the diesel tax is worth about 15 cents. we all know what's going on with the price of gas and diesel around the country. your condemnation for each of us when we take up these issues in about a month or so. >> i'm happy to start. i do think that as part of a

comprehensive business tax reform there is some opportunities to do some things. i don't think they're permanent fixes, but i think they're multiple year fixes in the transportation fund. they would not be as good as if you were to address the fund from dedicated sources, but i do think there is some creative ways. chairman kemp got at some of this, so i look at that as there is a possibility. there has been also, in the press, just comments that don't add up where they say, let's just use one dime. that doesn't work, and some of that got into the proposals made in the house in the last congress. there have been also -- and i won't discuss it and use up time here, but some of the other proposals about how you might

even change the way the trust fund's ministry at what level. you are completely right in the problem that we can make the contribution that could be some time but we really need to step it up dramatically from where we are. the needs that are unmet are pretty staggering. >> all right, thank you. dr. hall, please. >> i'm not equipped to deal with these day-to-day problems especially from 2600 miles away. >> where do you live? >> in california. >> where? >> in menlo park. >> i used to live there. >> really? >> yeah, yeah. our road was right very close to the stanford golf course. road came right by the stanford golf course. right by my house. >> great. >> i went back there a couple years ago. i was a naval flight officer out there. they had a sign in front of the house that said tom carper may have slept here. >> taking a somewhat longer perspective on infrastructure in

general, especially roads, roads should make a profit for the owners of the roads, so the owners are in some cases the federal government, then the government ought to make a profit. because they sit on a lot of land that's worth a lot. and if they're not making a profit they're not making good use of the land. so that shows how different infrastructure policy is from today from the way it should be because we know we're pouring a lot of money into. now on the gas tax, there's a case that we should have a gas tax as part of a carbon tax since gasoline has a lot of carbon. otherwise has been pointed out earlier, the gas tax is an extremely inefficient, and now ineffective way to deal with recovering fees. we need to recover fees from transponder, ez-pass or whatever it's called in different parts of the country. >> we do a lot of that in delaware. >> yeah, exactly. that's great. >> we also have a gas tax. >> sure. we should have a gas tax because

of the carbon content. but that doesn't mean we should keep raising it all the time. >> we haven't raised it in 21 years. >> okay. then it's probably too low. in any case so intelligent policy, i think, should be very focused on getting the right level of realtime pricing of users in infrastructure and air travel the same thing. it's scandalous that since most people who fly are at least middle income, it's scandalous that we subsidize airports, through infrastructure funds. so, we need to get that straightened out, too. there shouldn't be any federal subsidy to air travel. >> okay thank you. >> i'd say three things -- >> are you from australia? >> i am, mate. >> are you still an australian citizen? >> i'm an australian citizen. so first, raise the gas tax. and i think you will find -- >> would you say that again? >> raise the gas tax. >> i thought that's what you said. >> and i think you can take almost any economist in the

united states and they would say exactly the same thing. i can think of two reasons. one, at the moment wire effectively subsidizing the dirtiest forms of transport rather than the cleaner ones. with enormous environmental consequences. professor hall is right, there's even better things we could do. but in the world we live in this is the simplest instrument we could use. and second i usually like to run to work. well, when i run to work i have to join a gym just to shower. on the days i drive to work, i can use tax exempt money to pay for a parking spot. so we're actually subsidizing one form of transportation rather than another and i would argue probably not the right form although my fellow michiganders might disagree. the second is how to get more bang for your buck from the transportation fund. one is to think about spending more he stuff is cheapest. so we have a lot of construction workers out of work right now. we have low interest rates. now is a great time to spend if

the boom keeps going. five years time will hopefully be a terrible time to spend. we can get more bang for our buck by kind of cyclical spending. and the third was, you said that you began by saying you'd asked some economists for what the economic growth payoff from better transportation policy would be. i think that's actually the wrong question. >> hmm. >> the real payoff from good transportation policy is mums and dads who get home to see their kids 15 minutes earlier every day. that's not economic growth but it is an improvement in living standards and one we should take seriously. >> that's a great point. texas a&m does a study every year and figure out how much time we sit in traffic. not move. just sit there. it's about two full days. and that's a point well taken. thank you. very generous with your time. mr. chairman, how about that? >> governor carper's been our leader on infrastructure. thank you all. and on behalf of chairman hatch we're adjourned at this time. >> thanks so much.

the senate finance committee will hold another hearing today with u.s. trade representative michael froman. he'll testify about president obama's trade policy agenda for the year ahead. that's expected to begin in about five minutes from now at 10:00 a.m. eastern and we'll have live coverage over on c-span. and here on c-span3 the house select committee on benghazi holds its third public hearing as part of its investigation into the 2012 consulate attack in libya that killed four americans. that's scheduled to begin at 10:30 a.m. eastern. until then, we'll bring you some of this year's world economic forum in davos, switzerland. one of the speakers was china's premier, who speak about china's economy, and plans for the future. >> now it's a great privilege, pleasure and honor to introduce

his excellency premier li keqiang, premier of the people's republic of china. premier li it's a pleasure to welcome you back to davos. because you have joined us five years ago, and actually we welcome you back also to your home. because, the world economic forum has now two homes. one is here but also we have some of davos and we have our office in beijing. this just expresses the great cooperation which we have established under your leadership with your country. and i want to thank you for all the support, and particularly for your presence and i should mention our appreciation also

for being accompanied by such a distinguished delegation compromising the minister of foreign affairs the chairman of the ndrc and as a distinguished members of the chinese administration. mr. premier, you come here at a moment when all our eyes in some way are directed to china. we are living in a world where your country has achieved great strengths, which is using internationally in a very responsible and responsive way. as president suchlt mawuga said the world is characterized the

economy probably by vulnerability, by uncertainty this year. so of course we all are very anxious to hear what policies and what costs, what future you foresee for your country being such a decisive factor in the world, in the world geopolitics and in global economics. so ladies and gentlemen please welcome very cordially his excellency premier li keqiang, premier of the people's republic of china. [ applause ]

>> translator: professor klaus schwab, president sumaruga, excellencies, ladies and gentlemen, dear friends it gives me great pleasure to come back to davos after five years and deliver this address on the podium. this morning i had some spare time out of the official program of my visit so i took a bit of mountain hike inging nearby. the town of davos looks beautiful tranquil, and

peaceful from the top of the mountain. yet the world outside is not a tranquil place. and it is not peaceful so we need to jointly find ways to adapt to this new global context. last night professor schwab told me that davos used to be a place for recuperation from lung disease. however, because of the invasion invasion davos has transformed its function ss from lung to brain.

today davos has become one of the world center for brainstorm ing ing. we need new penicillin to treat new challenges in the international situation. the world today is anything but trouble free. original hot spots local conflicts and terrorist attack continue to flare up. just as president sumaruga mentioned in her address just now, these challenges have emerged one after another, and they pose an immediate threat to humanitarian. global economic recovery which lacks speed and momentum major

economies are performing unevenly. commodity prices are going through frequent fluctuations, and signs of deflation have made the situation even worse. in fact many people are quite pessimistic about the future of the world they believe that the guarantee of peace and tranquillity is weak, and the prospect of development is also elusive. a philosopher once said that we cannot solve problems with the same kind of thinking we used when we created them. indeed, our problems can no longer be solved by clinging to outdated mind-set of confrontation, hatred and isolation. more importantly, dialogue consultation, and cooperation must be explored to find solutions to new problems.

we need to draw lessons from history, and to pool our collective wisdom to maximize the convergence of interests among countries. what is fortunate is that in time of harsh trial mankind have always been able to find courage to get out of the predicament and to gather strength for change and innovation. in a world facing complex situation, we should all work together to uphold peace and stability. and also stick to the bottom line of maintaining peace and stability. this year marks the 70th anniversary of the victory of the world's anti-fascist war. to uphold peace and stability is the aspiration of the people around the world. the world order established after world war ii, as well as generally recognized norms governing international relations, must be maintained

not overturned. otherwise prosperity and development could be jeopardized. the cold war and the zero sum mentalities must be abandoned. the winner takes all approach does not work. original hot spots and geopolitical conflicts must be peacefully resolve edd through political means. china is opposed to terrorism in all its manifestations. china will remain committed to the path of peaceful development, and uphold regional stability. we have no intention to compete for supremacy with other countries. all countries in the world should cherish peace the same as we protect our eyes so that the achievements and benefits of civilization including reason and justice will prevail in a

world of diverse civilizations we should all seek to live in harmony with each other. in other words we should uphold the mind-set of peaceful coexistence. cultural diversity like biodiversity is the most precious treasure of our planet. the flowers of different civilizations together make up the garden of human society. there should be mutual respect and harmony among different cultures and religions. we need to respect those with whom we disagree, while maintaining the natural close ties among those with whom we see eye to eye like the vast ocean admitting all rivers that run in to it countries also need to work together to expand common ground while accepting differences, and sequin-win

cooperation through inclusiveness and mutual learning. in a world facing volatile economic situation we should all work to promote opening up and innovation. in other words we should unleash the dynamism for opening up an innovation. what has happened since the outbreak of the international financial crisis seven years ago proves that to act in unity is the only way for countries to get through the difficulties together. we're all dependent in this world. while countries are entitled to adopt economic policies based on their national conditions, they also need to strengthen policy, coordination with one another in order to expand the convergence of the interests and achieve common development. a german proverb says when the winds of change blows some build walls, while others build windmills.

we should follow the trend of the times and vigorously promote free trade, resolutely reject protectionism, and actively expand regional economic cooperation. we should build global value chains and seize the opportunities of the new technological revolution. although macro economic policies are important, structural reform must be carried forward. the need of structural reform is recognized by all countries, and it must be carried through no matter how difficult it is. as this is the only way to foster conditions conducive to global innovation and generate new momentum for global development. ladies and gentlemen, i know you are all quite interested in the

outlook of china's economy. some may even worry that they might be affected by china's economic slowdown. and that china's economic transition might cause a potential impact. to ease these concerns i'd like to spend more of my time here to talk about the state of china's economy. at present china's economy has entered a state of new normal. the gear of growth is shifting from high speed to medium to high speed. and development is moving from low to medium level to medium to high level. this new situation has made structural reform all the more necessary. it must be noted however that the moderation of growth speed in china reflects the profound adjustment in the world economy, and it is also consistent with

the law of economics. the chinese economy is now the second largest in the world. with a larger base figure of growth even at 7%, world produce an annual increase of more than $800 billion u.s. dollars at current price. which is larger than a 10% growth five years ago. with economy performing within the reasonable range, the strained supply/demand relationship will be eased. the pressure on resources and the environment will be lowered and the more time and energy could be devoted to adjusting and upgrading the economic structure thereby unleashing greater dynamism for the

economy. thus the economy will enter a more advanced stage of development with more sophisticated division of labor and a more optimized structure. if i could compare the china's economy to a running train what i want to emphasize is that this train will not lose speed or momentum. on the contrary it will only be powered by stronger dynamo and run with greater steadiness and bring with it new growth and new opportunities. in 2014, we followed exactly the aforementioned approach. in the face of downward pressure we did not resort to strong stimulus. instead we vigorously pursued reforms and the government, in fact, led these reforms by streamlining administration and delegating power. this has motivated both market, and the business sector. gdp expanded by 7.4% for the whole year which was the best

among major economies in the world. more importantly, over 13 million new jobs were created in cities, which was higher than the previous year. that is we achieved growth in employment despite the economic slowdown, and registered and surveyed unemployment rates were lower than the previous year. cpi was kept at 2%, lower than the target set at the beginning of the year. these outcomes prove that the host of macro regulation measures china adopted were right and effective. more importantly we have made further progress on structural reforms, needless to say the chinese economy will continue to face substantial downward pressure in 2015.

so what shall we choose to do under such circumstances? shall we go for even higher growth for the short-term, or for medium to high growth and higher quality of development over the long run? the answer is obviously the latter. we will maintain our strategic focus, and continue to pursue a pro-active fiscal policy and a prudent monetary policy. we will avoid adopting indiscriminate policies. instead, we will put more emphasis on anticipatory adjustment and fine tuning to an even better job with targeted macro regulation to keep the economy operating within the reasonable range. at the same time we will upgrade the structure of the economy to achieve better quality in the performance. the series of measures currently being implemented will fend off

debt financial and other potential risks. china's high savings rate which now stands at 50%, generates sufficient funds for sustained economic growth. besides, over 70% of china's local debt was incurred for infrastructure development, and is backed by the assets. the reform of the financial system is also making progress. what i want to emphasize is that regional or systemic financial crisis will not happen in china and the chinese economy will not head for a hard landing. it must be pointed out that china is still a developing country, and still has a long way to go before achieving modernization. while peace is the basic condition for china's development, reform and opening up along with our people's desire for a happy life constitute the strongest impetus

propelling development. the space of development in china's rural and urban areas, and vast region is enormous, and the country's domestic demand will simply generate great potential growth, development at medium to high speed for another 10 to 20 years, or bring even bigger changes to china and create more development opportunities for the world. for the chinese economy to withstand downward pressure, to maintain medium to high speed of growth and to achieve medium to high level development we need to say no to traditional mind-set, encourage innovative institutions, and press ahead with structural reform. we need to adopt more innovative macro regulation policies and develop a more vigorous microeconomy. at the same time we need to improve structure related to the urban and rural areas regions, and work towards relatively sufficient employment, particularly employment for the young people, as well as

optimizing income distribution and raising people's welfare. all of these certainly cause for tremendous efforts but we will not be afraid of difficulties and we will continue to move along the path of reform and restructuring with great determination. this way we could shift gear without losing momentum and achieve medium to high-speed of growth. and to make sure that the chinese economy will achieve medium to high level of development. we need to make reform and innovation the key levers to generating momentum for development. we need to properly use the hand of the government and the hand of the market and rely on both traditional and new engines of growth. we will let the market play a decisive role in resource allocation to foster a new engine of growth at the same

time we will give better scope to the role of the government to transform and upgrade the traditional engine of growth. to foster a new engine of growth we need to encourage mass entrepreneurship and innovation. china has 1.3 billion people, and 900 million workforce, and over 70 million enterprises and self-employed businesses. our people are hard-working and talented. if we could activate every cell in society the economy of china as a whole will bring with more vigor and gather stronger power for growth. mass entrepreneurship and innovation could offer endless source of creativity, and wealth. it did a gold mine that we could tap in to to raise a level of development. speaking of this, i think of china's rural reform conducted more than 30 years ago. this process brought farmers

initiatives into foreplay and allowed them to decide for themselves matters related to raw production management. consequently the problem of hunger that previously haunted china was solved in just a couple of years. in short a structural innovation that unleashed the creativity of the people changed the lot of hundreds of millions in china. two months ago, i visited a small village in east china. it is a village with 700 households, and over 2,800 registered online stores. so one man is doing the work of several men. each day, more than 30 million items of various parts are sold to different parts of the world. i wish to add here that these

people are working in accordance with the labor law. they're not engaged in any unfair competition. they used their limited time to the fullest extent possible. so this, i think, a story of the village, speaks vividly of the hard-working chinese people active engaged in entrepreneurship. going forward, china needs new sources of dynamism. a dynamism that comes from diversity and diversity sparks wisdom and innovation. mass entrepreneurship and innovation serves to mobilize people's wisdom and power, expand china's consumption increase social wealth, and improve people's welfare. more importantly, it will create

opportunity for many and give people the stage to reach life's full potential. it will also bring about greater social mobility equity, and justice. excessive regulation discourages innovation, and healthy competition is the way to prosperity. we will deepen reform of the administrative system. this means we will continue to delegate to lower level governments terms of approval with a comprehensive items requiring nongovernmental review and approval. put in place an active list approach for market access. this will help incentivize all market players and will help reduce the possibility of corruption. we will protect intellectual property rights in ard coons with the law and do our best to encourage environments that tolerate failure.

we will protect all sorts of lawful property rights. to transform the traditional engine of growth we need to focus on increasing the supply of public business. china has made remarkable economic achievements, but inadequate supply of public goods and services remains a weak link in development. china's capital stock and public infrastructure in per capita terms is only 38% that of western europe and 23% that of north america. the development of its service sector is 10 percentage points lower than other developing countries at similar development levels and its rate of urbanization is more than 20 percentage points lower than developed countries. this means a massive space for increasing public goods and services. to deliver such public goods and services is the government's responsibility.

and improving people's lives, also generates more demand. this year we have identified some key areas for investment including building railways in sichuan and western province ss rebuilding rundown areas cities and villages and controlling pollution. the government will increase investment in these areas, and it will not act alone. efforts will be made to break monopoly and reform investment financing system to encourage the participation of private and foreign capitals. the model of public private partnership or ppp, signing of foreign cooperatives and government purchases of services will be adopted to better leverage various investment to resources. i have an example here for you. a few years ago a plan was made to build a sewage treatment plant in western china and a

total of 335 million yuan was needed. the project later tracked an investment from a german company with the german side taking 70% of the total share. i hope you find this case a case in point. moving forward we will deepen fiscal and taxation reform, reduce the tax and fees charge to businesses, particularly those in the service sector, and take new steps to support smus. we will deepen reform for the financial system, continue to promote liberalization interest and exchange rates and accelerate development of small and medium sized institutions, private banks in particular. we will develop the market and ensure the financial sector plays a better role in serving the real economy. we'll speed up reform of the pricing system substantially reduce the types and items for which governments set the prices and liberate price regulation to the maximum extent possible more emphasis will be given to the government's role in creating a environment.

better market regulation world class business development and rule of law. in this way we will be able to provide efficient and quality public services to all market players. china's reform and development will bring more business opportunities to the world. we will explore the possibility of management based on the preestablish preestablishment approach and treat chinese and foreign companies as equals. we'll focus on greater openness in the financial education cultural medical care pension and other service sectors. and based on the experienced gained through the sang high free trade zone we will steadily advance the development of other free trade zones. these initiatives will help investors from across countries to find rich mines. china will also explore new approaches to investment cooperation with other countries.

china's high speed railway nuclear power aviation telecommunications and other sophisticated manufacturing capacities are gradually being introduced to other countries. and it will also help increase the amount of export of chinese equipments and technologies. davos of switzerland is a world famous ski resort, as we understand it to be a good skier one needs to do three things, go at the right speed, keep balance, and be courageous. i believe this is also true for the chinese economy because what is important now for china is to maintain a medium to high speed of growth, to keep a proper balance between stated growth and push forward with greater reform with greater courage. china will stay firmly committed to reform and opening up it will focus on structural reform encourage mass entrepreneurship and innovation increase supply of public goods and services and use the twin engines to ensure the economy maintains medium to high speed of growth and achieve medium to high level

development. and this will surely help china overcome the middle income gap and achieve long-term sustainable development. these will in turn bring more opportunities to the development of the world. in closing i would like to call upon the international community to forge ahead and work in unison to uphold peace and stability and harmonious coexistence. by doing so i'm confident that we will be able to overcome whatever difficulty or obstacles that stand in our way and bring about a better future for the world that we all call home. thank you very much. >> mr. premier time is running out, but if you allow me one question of course many people talk about currencies, exchange

rates, and currency shocks and we certainly would be really interested in your wish of the lnb, its internationalization, its global role and impact, and in this connect we would be also interested to hear what you feel about using currency exchange rates as tools to boost artificially competitiveness. >> translator: well, as for your question about the internationalization of imb, i

know this is one of the issues of great interest to the international community. what i want to emphasize here is that the internationalization of imb is a natural result of development of international market. china is a major trading nation in the world. because of that, many countries for the purpose of trade and investment liberalization and the facilitation desire to use imb as the currency for settling trade and investment. where as a result, the offshore business of imb is expanding continuously.

. >> we are going to leave the rest of this conversation. you can find it online c-span.org. take you live now to the house select committee on benghazi. gaveling in shortly to hear from the state department and the cia about delays in requests for documents, and access to witnesses to the attack on the u.s. consulate three years ago. now this select committee was set up last year by the house to look into embassy security, and the u.s. response to the specific attacks in benghazi. congressman trey gowdy is the congressman from south carolina, chair of this committee. you're watching live coverage here on c-span3. the hearing set to begin shortly.

and again, here we're looking at congressman trey gowdy of south carolina chair of the select committee on benghazi. also with him the ranking member elijah cummings of maryland. they're going to be hearing this morning from the state department and the cia about some of the delays in the committee's request for documents and access to witnesses. >> this is the third hearing on the benghazi committee. the committee will come to order. the chair notes a quorum of two members for taking testimony as present. the chair will further note -- well, before i note that, --