the real job creators in america. in a consumer economy when workers have the wages and confidence to spend, they generate demand and it's inturned creates jobs, it's about bigger paychecks. there is an important connection. i said i'd talk about the reconstruction. this is an important connection about america's economy. the success of the middle class is the most important engine of economic growth and of meaningful deficit reduction. this understanding is consistent with middle class economics, which the president articulated in his state of the union address last month, and the budget he released yesterday. democrats commitment to middle class economic stance in sharp contrast to the republicans relentless trickle down agenda, the agenda that drove our economy into a ditch.

republicans economic agenda, included massive unpaid tax cuts for the rich. two unpaid wars and a doctrine of no regulation no supervision of wall street. it is this radical agenda that precipitated the financial meltdown and shattered our economy. how bad was it? on the night of thursday, september 18th 2008, the secretary of the treasury came to the capital for an emergency meeting with congressional leaders to inform us of the severity of the meltdown. when i asked the chairman of the fed, at the time ben bernanke what he thought of what the treasury secretary was telling us? he told the leaders, if we do not act immediately, we will not have an economy by monday. this was thursday evening. that's where we were, september 18th 2008.

in order to stop the meltdown of america's financial institutions, it was necessary for us to pass the troubled assets release program tarp supported largely by democrats and later we enacted historic consumer wall street reforms with dodd/frank regulations. far from creating growth, republican priorities drove an economic catastrophe that destroyed jobs, destroyed the jobs the savings and the security of millions upon millions of america's working families. now, republicans want to take us back to the same failed policies of trickle down including repealing dodd/frank. in their obsession with trickle down economics republicans fail to see the connection between the purchasing power of the middle class and the success of america's economy.

six years after the deepest recession of the great depression, the fruits on the economy are clear 11.2 million new private sector jobs created in 58 months the longest uninterrupted stretch of private sector growth in our history. we provided a lifeline to save the auto industry, and more than a million jobs, part of that. unemployment rate down from around 10% to 5.6%. deficit cut by two thirds, from 1.4 trillion$1.4 trillion to 483 billion this year. stock market has gone from under 7,000 to over 17,000. we've seen reading scores go up, high school graduation rates go

up, more young people attending college than ever. 16 million previously uninsured americans now have affordable dependable health care, and we extended the life of the medicare trust fund by 13 years, to name a few accomplishments. however, even with all of this progress, working families are still being squeezed. the reason our economy has not had a full recovery is because of stagnant wages. it bears repeating that a consumer economy, in a consumer economy, the middle class are the job creators. we must expand the purchasing power of families ensure that working men and women enjoy the bounty of their unprecedented productivity. bigger paychecks better infrastructure, more manufacturing in the united states. we must focus like a laser on strengthening the financial security of america's working

families. once again, there is a need for swift, bold action to reignite the middle class engine of our prosperity. in order to succeed, we must have a healthy respect for another connection. the connection between the public and private sectors. private enterprise is the heart of the economy. generating wealth and jobs. however in order for the private sector to succeed, the public sector must act to secure the conditions in which the private sector can continue to flourish. when the public sector is doing its job, investing in strong education, building infrastructure, maintaining the courts, ensuring public safety, it performs tasks that the private sector cannot perform itself. public sector accomplishments, however that leave the private sector in infinitely better

shape for all americans must happen. congress must grasp again the importance of ambitious goals built into a budget for the future, which is the budget which should be a statement of our values of what is important to us, should be how we allocate our resources. this is the third connection i want to highlight. the undeniable connection between the investments we make today and the success of our country tomorrow. today i believe we must make big bold commitments in four areas. research and innovation back to back, education, infrastructure and investments in working families through the tax code. innovation is the invigorator of our economy. research creates jobs, launches entire new industries and gives us the miraculous power to cure. however, according to the american academy of arts and sciences, the report they just

put out within the past couple weeks, the united states has dropped to 10th place. 10th place in national r&d earn vestment as a percentage of gdp. as the report makes clear, unless basic research becomes a higher government priority than it has been in recent decades, the potential for fundamental scientific breakthroughs and future technological advances will be severely constrained. the report calls for our increasing our nation's total research investment to at least 3.3% of gdp. we must meet that need to reduce the deficit of innovation. the president and congress must work together to establish a sustainable growth rate in federal basic research. in terms of education, we know

that to achieve equality of opportunity we must have equality of education. we will always have an opportunity gap, so long as we have an education gap. today is it is clear that one of the most important ways to address the education gap, at education inequality from early childhood all the way to lifetime learning, is with the power of technology especially broadband. broadband access has more benefits than just enhanced computer skills. it opens the door to a whole new host of new teaching applications and tools enriching the student and supporting a teacher. as recently as 2012, only 37% of our nation's schools had enough broadband for digital learning placing 40 million kids on the wrong side of the digital divide

totally unacceptable. we must meet the needs ensuring that every child in every zip code has the high speed broadband they need to learn, explore and thrive. we must act to close the opportunity gap in education, because we cannot afford to leave anyone behind. and by the way, nothing returns more money to the treasury than investments in education. in terms of infrastructure, the american society of civil engineers rate edd america d plus. after years of disrepair and under investment, we have, according to the american society of civil engineers, 3.6$3.6 trillion deficit in america's infrastructure. what we knee is that no

maintenance is the most expensive maintenance. modern infrastructure is essential for our country. it promotes commerce. improves the quality of life by moving people to and from work and school more quickly. it is good for the quality of our air and water it works to connect all of our communities to the promise of the internet with broadband. we must meet the nied to reduce the deficit of the infrastructure and do so in a green way. we have proven that policies that leverage private sector capital and expertise with government oversight are successful ways to create better, more sustainable communities. we should learn from these examples and expand opportunities for public private

partnerships. we should be putting people to work building roads bridges, mass transit, broadband achieve bigger paychecks and better infrastructure, and this is a strong priority in the president's budget. in order to fund these investments, we must use the tax code and elimben ate special tax expenditures that increase the deficit, they are spending tax expenditures as we close special interest loopholes, we can reduce the corporate rate and produce more revenue we can have tax reforms that ensure all americans pay their fair sure. the economic security of america's working families must be our priority. part of these reforms must make permanent the income tax credit and the child tax credit. policies that are set to expire

in 2017. initiatives with bipartisan support that strengthen the budgets of working families. and we did this with president bush in his stimulus package. this has bipartisan support. if these policies are allowed to expire, nearly 16 million americans, including 8 million children will be pushed into or pushed deeper into poverty. we must also in that regard strengthen the child care development tax credit which is in the president's budget. to further help families, the ranking member of the budget committee has proposed several bold proposals on the table these proposals include a ceo employee paycheck fairness act. a saver's bonus to support retirement. instituting a .1% financial

transactions fee, and provisions restoring respect for hard work in the tax code. they're being reviewed by our members. with tax reform for the middle class, we can put more money into the pockets of working families. and again, ignite the engine of middle class consumers demand that drives growth and tonight for everyone. a strong middle class is the bedrock of our prosperity, the backbone of our democracy. this animates the connection between public action and private sung ses. the connection between growing paychecks and reducing the deficit. our success tomorrow. for us to achieve a bright and durable future for our country we must embrace the fact that the financial security of our working families, is both a

measure and the engine of our nation's success. it's a simple truth. when the middle class succeeds, america succeeds. our recognition of that truth orchestrates the economy and laser focus again on the purchasing power of working families that our economy needs today. we must achieve bigger paychecks, better infrastructure and manufacture more products in the united states. only by laying a firm foundation for growth which the president talked about in his inaugural address based on ambitious goals for our future can we secure and maintain a vibrant middle class only by focused on working families can we reignite the american dream and step into a new era of american prosperity. thank you for the opportunity to

be with you this morning, i look forward to your questions, thank you so much. [ applause ] >> i just want to say we apologize for the state of that microphone, but it was actually a set up to allow you'll no on stack emto silence your voice. welcome this morning. i am tempted to ask you about the impact on the middle class of what is clearly one of the most important news stories in the country right now, i refer to pete carroll's decision to call a pass at the end of the super bowl. it is clear that this has done wonders for the morale of the middle class in my native new england. you can pass on that issue if you'd like. where i'd like to start -- you can -- >> i can see the offense called a pass.

pete took responsibility as a good leader. >> you can be reassured that no decision ever made will be as second guessed as that one. >> i wanted to start beg with the president's budget, i think you can make a case that it's his most aggressive effort to influence the public debate since he took office. he's made this effort at a moment when republicans control both houses. i wonder if you could tack a bit about how -- you have congressman val hallon's proposal out there. what would democrats do if they controlled both houses again and how you will influence the outcome of a budget, be some

koms kpen the republicans and democrats. and this particular congress. >> when we talked about what we would do we talked about what we have done and now we have to go forward. i believe that the president's budget does have within it many areas of common ground. infrastructure has never been a partisan issue. we've always been able to put strong infrastructure legislation, and then, of course, it became a little bit different. i think the urgency is there, the opportunity is there, public private partnerships and it's an issue that has usually been nonpartisan, not even bipartisan. nonpart son. in terms of some of the issues relating to children and the rest, those are priorities we put forth with president bush in his stimulus. he wanted to use the tax code

and he was very accepting of proposals we had for afford ability, the low income tax credit, child tax credit and the rest. these have been issues that republicans have supported. the issues that relate to sequestration. this is probably the fundamental point in the budget that the president put forth, he would do away with sequestration, which is -- anyway we'll do away with it. and that is something that has appealed to republicans. i'm not here to speak for them, but i'm just saying in the past they -- >> that would actually be interested. >> would do away with sequestration of where we had caps that we need to get away with, and we have growth. we all support a strong national defense, but also remove the caps on the domestic side as

well whether it's the over arching nature of it which is to do away with sequestration, building the infrastructure of america, these kinds of issues are really shouldn't have any partisan aspect to them i think while the president has staked out a very strong budget which i believe is a statement of our national values what we care about, there is a distinction between his budget and the republican budget in terms of social security and medicare on the other hand, there's plenty of common ground to find some solution. as i said in the opening comments, we have to have pride we take in our issues, we have to have humility about finding common ground where we can find

it in your remarks, you stressed the pride you and democrats take in the first two years. the stimulus, the auto rescue. these programs have never sort of captured broad popular support at least in the polls, democrats have argued over and over, without the recovery act, the recovery might not have happened or would have been infinitely slower, yet we still have not sort of grabbed the public, the kind of majority support you would have hoped for. >> it's interesting for me to see all our republican colleagues who speak out against the recovery package, show up at every ribbon cutting and groundbreaking. 15,000 projects -- the statistic

statistics are staggering, all that came from that, and i think there was a reluctance to -- people wanted to make sure that reducing the deficit was a high priority for us, and, therefore the jobs would come with the bill but not to boast of what the investments were early on. we should have messaged it differently, as we should have messaged the affordable care act differently. >> on this point about the deficit, one of the striking things about what the president did and in general what the democrats are doing now they seem much less captive to the deficit debate, it's almost as if it took hold so quickly, the things that needed to be done to get the economy moving were pushed off the agenda. can you talk about where the deficit is now, relative to the desire to get the country moving and deal with the long term and the long term? >> in order to reduce the

deficit, which is important to you will of us you have to have growth. you can talk about cutting investments, and you can talk about raising revenue and all that should be on the table, but you must have growth. and you can't have false economies. anyone who thinks that by cutting education, they're going to reduce the deficit is dead wrong. nothing brings more money to reduce the deficit than education of younger people. you have to make a case to the american people about why certain investments are about the future and reduce the deficit, and from the day the president took office until now the deficit has gone down two thirds 1.4 trillion dollars what is it, $485 billion? still too high we want to take it down the public is understanding that growth and

bigger paychecks for the consumer, working class families to inject demand into the economy, create jobs that brings revenue to the treasury. 70% of the deficit has been reduced since the president took office. it isn't any less a priority to reduce it further but there is a recognition more clearly that growth, job creation is an important part of it, not just by cutting investments as we go forward. >> i want to remind everybody that there are cards in the room and i should start getting them soon. please submit your questions i want to invite people to tweet if they wish, #pelosiatbrooking wish, #pelosiatbrookings. i want to ask you, what was the first thing that came to your mind when paul ryan talked about

envy economics, more generally, i'd love to know what -- how do you react to that sort of argument? i mean he made an interesting kind of juxtaposition, where on the one hand, he talked about rising and inequality, and he talked about democratic economics as envy economics? >> we don't have time to go completely into the republican budget. it's not a statement of values that most people would identify with when it comes to how we invest in the future and the rest let me just say, that is so wrong, when i saw it i thought steal. yesterday. that isn't what this is about nobody bee grudges sick people success, people recognize that people take risk and succeed, it creates well it creates jobs that's a good thing what the concern is we don't want that to happen at the exploitation of

the worker. god bless everyone for their success, god bless everyone for their success but not again at the exploitation. i don't paint everybody with the same brush but what we saw on wall street leading up to 2008, that was just not right again not everyone on wall street can be painted with the same brush. we saw a situation where people on main street were seeing the value of their homes or their ability to keep a home the education of their children, the stability of their jobs their savings were all diminished because of what happened on wall street, when we passed tarp people said you did that for wall street not for main street. no, we did it for "economy. it's probably the toughest vote i ever asked members to take they paid a price for it, not something clearly explained to the american people what the

connection was, between that, tarp bailing out the banks and lifting up our economy. it was interesting. this is a big deal and not something we should go back to but again we go back to the status quo. even adam smith wrote a different book, the theory of principles -- >> moral sentiments. >> i wish he had written one book wealth of nations and the theory of moral principles, all in one book, he talks about the responsibility of people to each other in the other book. we all believe in the free markets, that's what our capitalist system is about it's not about laisse fair, no cop on the beat, and look what happened a chairman on the fed, an expert on the great depression, ben

bernanke tells us there will be no economy on monday. stunning. and so when he -- when paul ryan says that, i want to quote him, a chairman of the standard oil of new jersey a few decades ago. chairman abrams, he talked about stakeholder capitalism, capitalism, where decisions are made by management that took into consideration shareholders workers, customers and the community at large. at that time, we had wages at about 30 times -- the ceo was making about 30 times what the workers were making. 30 times. productivity would rise ceo pay would rise, workers wages would rise. when we moved to something

called shareholder capitalism where none of those other considerations, the community at large, the workers were part of the decision shareholder -- it went to 300 times ceo pay versus worker pay a right angle going in the wrong direction, and that -- so it's not about economic envy -- you know we don't -- we just don't want a rising tide to lift all yachts we want it to lift all boats. god bless you for what you have, but let's all share in the prosperity of the country. because the american worker contributes to that. i think that's -- cute but it's not -- it's not a fact. it's just not a fact, everybody wants to succeed, and they don't be grudge other people's success unless it's crushing them under their heel. >> i like one of the headlines,

leader pelosi urges congressman ryan to read all of adam smith, the. >> it's a beautiful book. >> i want to ask i have some great questions here, i'm about to get to i want to ask one more question. the first is, when you look at a lot of polling there are two things that come out on public attitude, there's a lot of skepticism about the way the economy is works a belief that laisse fehr doesn't work by itself. >> on the other side there is a lot of skepticism about government itself, and government itself can't really fix that. the reason i want to link it to the second question is that democrats, and this goes back to your days campaigning for your

dad in baltimore, always counted on the support of working class people of all colors. democrats have had a particular problem with white working class people, some of it may relate to the first half of my question. so i want to ask you, how did democrats, especially with -- they have the white house under a minority in congress restore some faith the government can succeed in doing some of these things, how do they win back more of these white working class voters? >> i will add one other ingredient to your question. what happened in 2008 scarred people. it scarred people, and they have a -- in terms of the confidence they need, to have consumer confidence to invest. i'm not particularly interested in whether it's democrats or republicans, we want a policy that works for america's working families, and i think the --

because of that scarring then, people are feeling more optimistic about what's happening in the economy now, but they are not -- the scarring has had them hesitate to think it's going to last, or that something else couldn't happen. and that's not necessarily only government that's the private sector as well. when they see people trying to repeal the volcker act and dodd/frank and other things, it's part of the debate as well. the role of government has been a debate in our country since we were founded. it's always been, what is the role of government. how much do we need? how much does we need at the federal level, and it's the lively legitimate debate of our country. what i would say is different about the republicans now, it's not about the degree of

government, many in the -- i'm not talking about government, i'm talking about the republican congress. are not supportive of governance. it's not a place where you are on the spectrum, they don't believe in governance science and barack obama. they had a trifecta growing about being opposed to everything that is proposed and in their messaging, with the analyst's money and all the rest of that that has affected the thinking of people but also we haven't messaged what we -- and quite frankly, the breakdown of the -- not the breakdown, but not putting into perspective the rollout of the health care act was not a good thing, people said, well, it doesn't work. yeah, the system works and 16

million people are into it. it's like the refrigerator keeps your food cold, the light's not going on but the foot is cold. that's an issue we have to address, you know as well as i, that many of the people you are describing had social issues that took a little path away from the democrats whether it was guns, god and gays, but a lot of that is diminishing, i maintain whatever it is about the social issues if you have a strong economic agenda that gives hope to people that they can get good paying jobs good paying jobs, and give them that confidence, that is the winning argument and that's one that we make the differentiation. now, believe me, and i mean this from the bottom of my heart, if the republicans would come around to places where we could come together on these elections wouldn't be so

important. as long as they intend to engage in trickle down laisse fair -- i said once to the press, they make adam smith look like a piker. what's a piker? that must be a generational thing. they don't -- it's so far beyond what our responsibility is in order to protect our middle class and all that that involves. some of it was cultural issues that took people away from us even though everything is improving, they have that scar from '08 and they're not ready to fully embrace what is happening they see government having played a role in what happened in '08 either by omission or passing tarp which they didn't like but we had to do it, that was a bitter pill

that i -- probably worst bill i ever had to ask people to vote for in terms of the public not having a clear understanding. we supports president bush in that, the republicans abandoned him, it was overwhelmingly a democratic vote. we worked closely with president bush, the voting rights act, whether it was issued that related as i said earlier to tax credits and the rest whether it was an energy bill, one of the biggest energy bills in the history of the country he wanted nuclear, i wanted renewable. we had one of the greatest bills ever. we did a number of things including tarp with him, and i only wish that the republican leadership in the congress would give the same respect to president obama and try to find

common ground on issues. >> if i mispronounce anyone's name, i apologize. rachel from inside health policy asks, what do you believe is the democrat's best defense against piecemeal attacks on the affordable care act by the gop, what will the democratic strategy be in the face of the king/burwell supreme court lawsuit? >> in terms of the second part of the question, some of you may know, i know some of our friends in the press asked me this so many times who are here today when it was -- the case before the court originally i said, we're going to win. i was wrong, i said it would be 6-3, it was 5-4, i did say we would have the chief, i have confidence about what will happen with the court, the case is -- they're saying we can't give subsidies to those who are

not in a state marketplace if they're in a federal marketplace in states where they don't have a plan in their states, then that was not covered by the bill, i don't see how that's a constitutional issue, i think for the same reason they approved, the verdict was what it was the decision was what it was before it will be this time. to your first part of the question, how will we attack the piecemeal. this bill has won this, you can't have -- you can't say we're going to eliminate discrimination against people on the basis of pre-existing medical condition, but then not say we're going to have a mandate it all goes together, you have to bring down the cost as i said earlier, that's one of the main reasons to have the bill, even if we had no other reason, was to bring down the costs, the republicans say i'm

against discrimination on the basis of pre-existing conditions and women and i don't want lifetime caps and annual caps. you can't say that, unless you have the oneness the integrity, the integral relationship of the different parts to the bill. that's -- it's almost sillty for them to say that without having the mandate which is seth to the bill and that's just the case we'll have to make. endless money came in fire and brimstone, carpet bombings, death panels. abortion abortion, you name it, things that had absolutely nothing to do with the bill and that really poisoned the well and we didn't have an anti-dote out there early enough i may have read a book about the subject and the whole messaging thing i may, i don't have time right

now, because it's -- as president lincoln said, we have it in his book in his own handwriting, public sentiment is everything. you can't assume the public will understand this is in their interest or this and that, the public is wise, but they have to know. god bless the public -- our country is so strong because of the wisdom of the american people, the productivity ingenuity and optimism of the american people, you can't allow the other side with endless money, at the time when insurance companies didn't want the bill to pass but now have become team players in it too define what the legislation was about about, it's so exciting, we talked about lincoln, let's talk about our founders, life healthier life liberty, pursue

your happiness. that's what this bill enables people to have, a healthier life to pursue their happiness without being job locked because a child is bipolar, so they can be free to start -- self employed, start a business, be a -- engaged in the arts, change jobs, have mobility to pursue their happiness, it's a great bill and it brings down costs. lists aspirations breaks down costs and you can't take pieces of it any bill we pass can be subject to scrutiny to say, how can we do this better, that better. we're always open to that, but not something that totally takes the heart of it and undermines it, it's too important. this is as important as

medicare, medicaid ain orderable care for access for all americans. it's a great thing, we're proud of it. >> we have five minutes left, and i have one question i want to close with i'm going to combine two people's questions here, and ask you my last question which is a personal question personal for me this is from athena jones of cnn who very wisely is on top of the day's news. will you weigh-in on the vaccination debate? should they be required? and the second is working families from the department of homeland security could be affected by congressional inaction because the immigration fight that the republicans want to have are you concerned this funding battle will go down to the wire. will there be another c.r. i wanted to ask, steve low man in

the audience said, what messages did you take from the 2014, vaccination, homeland security and 2014? >> on the vaccination issue i'm sympathetic to the concerns and i've met many, many hours and tried to facilitate conversations with families who have had concerns about vaccines and how that affected children, be it autism or otherwise it is a public health issue and the fact is, children should be vaccinate vaccinated. it could be a generational thing, when i was young people had polio, a vaccine, to prevent the spread of disease i think that again -- i support the public health decisions that call for children to be vaccinated. on a separate note we should do everything we can to find out what the causes of some of the

diseases that affect our children are, and that's why in the '90s we did -- i worked with four people senator spector and porter and tom harkin to double the funding for the national institutes of health. and what that meant to invention and discovery and, of course the cdc and what that means and public health is really important to our country i would say, i'm sympathetic to concerns, but let's address it the other way, the public health requires we have the vaccination. >> dhs. my friend ss -- in the december the republicans said we're going do pass a bill. it was a terrible bill. i didn't know if it was a

doughnut and a croissant combined. in any event they pass this bill i won't even go into that let's just say what it didn't do. it didn't fund homeland security for the year, it kicked the can the speaker said, we're going to do it it's like a thing for his -- i don't want to say right wing, it's radical over the edge people, that's december. january paris, the whole world is galvanized around the issue of homeland security except in the hermetically sealed chamber of the house where we just aren't doing it. this is so dangerous to our

security that we would be frivolous with this, is really a dereliction of duty. and it is -- you have to understand that again, it's -- part of our messaging problem is, we don't want to be fear mongers and if you tell it the way it is your hair's on fire and you go running out the room, it's so bad in terms of what it prevents homeland security from doing, in terms of hiring people and the rest, and what are we? the whole world is -- you would think that the paris incident would have said, okay, we made our point, now we're going to the next place. what's the next place? the next place is we're not doing homeland security unless they can get their anti-immigrant and anti-immigration legislation in. when i leave here a little later today, i'll go to a press conference to call out some of the statements that they're making about immigrants.

this isn't who we are, we're a nation of immigrants by and large with all the respect and love for our american brothers and sisters. but it's a -- it's more of the same from there. by the way, you're concerned about the deficit? the immigration bill reduces the deficit by $158 billion in the first 10 years, and then 700 billion over a 20 year period. you want to reduce the deficit, pass the senate passed bipartisan bill. the senate sees this differently than the house in terms of republicans. what we have now, they're taking the president to accord over one thing or another. they're not passing a homeland security bill. no wonder the american people have doubts about the effectiveness of government, since we're identified in terms

of -- public private solutions, then maybe they identify it with us this on homeland security support and defend it's the oath of office we take support and defend constitution and all that's in the constitution and again, their negative attitude toward immigrants is driving their attitude toward the homeland security bill. it's just plain wrong. if you want to make any distinction. this isn't, i mean we have republican former secretaries of homeland security writing and saying don't do this. again, don't paint all the republicans with this same brush, this is what's driving the agenda in the house among the house democrats, not even the senate, the house

republicans. so i'm glad you asked about -- was there a third part to the question? >> there was -- >> oh, yeah. the elections -- as far as the house is concerned, where there wasn't a senate or gubernatorial race, we did just fine. my state of california, they came after us big, we have five tough races they came after us big, they had a new leader in the republican side, they're going to show me and take away the seats we won in the last election. not only did we win them all we added one more. and that's because we really just had the field to ourselves. it wasn't, they're trying to take out a senator or a governor, you know what i mean? where they brought in that big enormous endless money they brought in a lot in california, i'm talking endless in those other places to win the senate, and win some of the state houses, it hurt us in the house races. we didn't -- equivalent to the

senate, we didn't lose as many they lost six, that would have been 30. it's no consolation don't get me wrong. the fact is, you have to -- public sentiment is everything. you have to give people a reason to register and a reason to vote. they didn't see that reason. shame on us for not making it clearer. as i say, at the risk of not being a fear monger, you try to -- now, this is the 50th and i'll close with this, i think i have to. this is the 50th anniversary -- >> i still want to ask my one question, if i may. can i throw in my last question and then you can do the close as part of it. it is a personal question, because there is sort of the image of nancy pelosi, the san francisco liberal, that parody, and yet people who know you and have watched you know there were two aspects of you that don't get talked about much, one is

the deep importance of family to you, mother, grandmother and how family has been so much a part of your life. the other is god and religion. and you spoke earlier about the loss of votes because because of the social issues. and i've not only heard you quote pope francis which is very popular among liberals these days i've heard you quote pope benedict which was not as popular among liberals. i kind of wanted you to square the person you think you are with this public image that was -- that some have because i think those aspects of your life would come as a surprise to people who have a certain view of you in their heads. and i just wanted to put that on the table before we finish. >> all right. i'm so happy that my college roommate at trinity college, washington, d.c. rita meyer is here. >> welcome. >> yes, we've been friends for many, many years. here's the thing.

pope benedict -- pope benedict is known for god is love. and in the encyclical, he quotes st. augustin. and he said that any government that does not exist to promote justice is just a bunch of thieves. words to that effect. and this is st. augustin. god is love, benedict quotes him. and benedict is a beautiful writer and thinker and his speeches here. so then benedict goes on to say sometimes it's hard to define justice. but when you try to do well you must avoid the blinding laser or

word to that effect of special interests and money. is that beautiful? so when i say that on the floor, my republican colleagues are not happy about that i'm quoting benedict in that way. but that's really what we have to do. we have to get money in terms of special interest weighing in on goth government and legislation. money that destroys any confidence that the public has that their vote counts for anything. and that takes -- and so the family i have five children, five children, my baby was brought home alexandra who many of you know, journalist, when i brought her home from the hospital our oldest child nancy, was turning 6. so when our colleagues on the floor start talking about what they know about family planning and the rest, i think i have very strong credentials. in fact, one day since we're speaking of popes when we're having this debate about family planning, whether it's domestic

or international, one of the republicans got up and said nancy pelosi thinks she knows more about having babies than the pope. this is, like, 20 years ago, you know. i think the pope would agree. so it is a strange debate that we have because the fact is is that -- and the catholic church is very important to me, and i love francis, and i'm glad that he's named for a saint and since he was the patron saint of san francisco and his song of st. francis make me an instrument of thy piece is the anthem of our city. republicans don't like when i say that either. but that is what those values are part of who i am but raised in baltimore where we were devoutly catholic fiercely patriotic americans, proud of

our american heritage, and in our case staunchly democratic. we saw that as a connection. and that's who i am. the reason they have a different image is because people sunk nearly $100 million in the campaign of '10 to describe me to the public. and because i wasn't really a known quantity, some of that took. understand that and i accept that. says she immodestly. and then just back to this 50th anniversary. 50th anniversary of the voting rights act. mind you, the court has undone some of it. mind you republicans in congress have not chosen to accept bipartisan modest bill to correct that. but also mind you that when president bush was president, we passed the voting rights act. we were in the minority, but we

worked in a bipartisan way to pass the voting rights act. and i think it's really important because i think i have it here so that you don't all think i'm making this up. the voting rights act reauthorization, july 13th, 2006. 390-33 in the house. bipartisan. 192 republicans voted for it. and in the senate unanimous. the voting rights act, but we can't get it passed a simple version has to get through now. the 50th anniversary of the voting rights act it was in the summer when it was signed originally august by president lyndon johnson. and it's really important. but with it again you have to give people look, one-third of the people voted in the last election. one-third of the electorate.

so there's something wrong with our not getting out those other people. they didn't see a reason to vote. they see the influence of money in politics which we must reduce, and that's a whole other session. but also i'll just close -- i said i would close -- one more time i would close. >> i interrupted your close. >> okay. i intended to have this as a close, but you took us to this path, so i can't ignore this. you know, we have selma coming up, and we're all going to selma again. it's fabulous, and the movie and 50th anniversary and all of that. reverend martin luther king said he had a dream that his children would not be judged, he used the word dream and would not be judged by the color of their skin but the content of their character. and that just haunts me all the time when we talk about -- children and economically

disadvantaged areas. their families are working two jobs because they make a minimum wage, which is not a living wage. they don't have time to even have dinner with their children to mentor their children to read to them to listen to them read back to their parents. their neighbors are in the same boat so the community is not there. when we talk about judging people by the content of their character, we have to judge our country by the content of our character if we are not recognized -- are the heirs of america's future. and you see what your children have, the love, the opportunity, the this or that and you see that disparity. even i talked about it in terms of technology and opportunity and the education gap. so the character of our country can be judged as to how we -- how we invest in these children

how we -- and when people ask me what's the most important three issues facing congress, i always say the same thing, our children, our children our children. their health, their education, the economic security of their families, a clean, safe environment in which they can thrive in a world of peace in which they can reach their aspirations. but if you have a budget that does not enable that bigger paychecks, ending the education gap, all of those kinds of initiatives that help a child's character grow with confidence with confidence and with judgment, with the example of their parents hardworking but not able to meet the needs much their children, although people try very, very hard. so i think that for the 50th anniversary, we have to think of martin luther king and examine our own consciences about what

we are doing for the character of our country to meet the needs of kids so they can be judged by the content of their character. it's pretty -- it's a pretty exciting opportunity. it's the inspiration that we have. it's the inspiration we had at our issues conference in philadelphia. and it's what unites us. and i don't think there's any partisan aspect to investing in america's -- as president kennedy said, they're our greatest resource and our best hope for the future. thank you all for the opportunity to be with you today. thank you. >> thank you.

>> if people would stay in their seats. thank you so much. tonight on c-span3, the irs budget. transportation secretary anthony foxx. and a discussion about u.s.-cuban relations at the heritage foundation. the irs has asked congress to provide $12.9 billion for funding in 2016. 18% more than the current fiscal year. irs commissioner john kostka testified. the senate finance committee is chaired by utah republican orrin hatch. this is just over two hours.

>> welcome to the irs john cost koskinen koskinen. also fiscal year 2016 budget proposal. commissioner costkoskinen. more than 152 years ago the finance committee received a letter from george butwell who president lincoln had apointed as the first commissioner of the international revenue. the letter came in response to an inquiry from the committee seeking information about the commissioner's organization, his budget and the activities of his office. does that sound familiar? in his letter, dated january 21st 1863 commissioner bodwell tried to answer the committee's questions by starting by first asking congress for more money. specifically he wroelt, quote

before proceeding to estimate the expenses of assessing and collecting the revenue i desire to express the opinion that an increase in the pay of assessors is very important if not absolute necessary unquote. now, that part does sound familiar to me. as you and i continue this historic and important relationship, i hope we can begin the 114th congress on new footing. the issues before us are too great for that relationship to be anything but open, honest and productive. we will certainly disagree a lot on your agency's implementation of obamacare, on the application of premium tax credits the federal exchanges and on irs spending, just to name a few issues. sometimes the relationship will be contentious. sometimes it will be congenial. i hope more of the latter than the former but that will depend a lot on you. and maybe a little bit on us, too. when we look at the irs's operations, there are a handful of basic principles the agency

must follow in order to maintain its working relationship with this committee. today i'm going to talk about three of those principles. first, the irs must spend taxpayer dollars wisely. because the agency that collects taxes from american workers and businesses, your agency will continue to be under a special scrutiny when it comes to how it spends the money congress appropriates. and unfortunately, the irs's operations do not appear to be able to withstand such scrutiny at this time. when you reverse the positions of your predecessors to employees who have not paid their taxes, when your agency throws lavish conferences and when you spend tens of millions of dollars on public sector union activity, the public loses faith in your ability to spend your money wisely. now, some of that wasn't your fault. when your agency faced tens of billions of dollars in improper payments every year, when the irs owes refund checks to a

single address and when a quarter of all tax credit payments are improper the public loses faith in the irs's ability to protect tax dollars carefully. secondly, the irs must treat taxpayers fairly and respect their rights. recent scandals have given americans reason to doubt that the irs will treat them fairly. while the targeting of applicants for tax-exempt status may have happened before your tenure taxpayers must have confidence that those days are over. now, just before mr. koskinen you became commissioner, limit the ability of welfare organizations to engage in speech about matters of public importance. after an outcry from all sides of the political spectrum the proposed regulation was withdrawn. but now i hear you have a plan to reissue it. i think this would be a mistake, and i hope you don't go down

that path of trying to limit political speech. that would only further put your agency in needless critical debate and controversy. third, and finally the irs must be open and honest with this committee. we must have a mutual trust between us. i believe you to be an honest man. and when you tell me something i take you at your word. but it's because of this trust that i am concerned about a recent development in the committee's investigation of political targeting at the irs. last july, your agency told the committee that had completed its production of documents regarding lois lerner. the central figure in the investigation. and late last month this committee worked to finalize its investigative report, your agency delivered 86000 pages of new documents including 30,000 pages of new lois lerner documents including new e-mails. 30,000 pages of new documents

e-mails, boxes that i have here about one-tenth of those. just in this pile that i can't even lift. i might be able to if i stand up. but i have about one-tenth of those. these documents are central and relevant to the committee's investigation, they were given to us without notice or explanation roughly 20 months after we made our initial document request and really after we thought we were going to be able to, senator wyden and i were going to be able to have a final report. this prolongs the committee's investigation and raises more questions that it answers. we will be following up on this matter more after today's hearing. now, commissioner koskinen, we are here today to discuss your agency's operations and the president's budget proposal. there is much to discuss on these two topics, and i look forward to hearing your testimony and answers. in your opening remarks i'd appreciate it if you took the

time to address three specific concerns that i have. first i'd like to hear what the irs planned to do -- plans to do to address the consistency consistently high levels of fraud and overpayments to the unearned income tax credit. second i'd like to hear what specific changes you plan to make in the agency's spending habits to deal with the budgetary shortfalls you publicly decried. third, i'd like to hear about any contingency plans you have in place in case the supreme court invalidated the current structure of the affordable care act tax subsidyies later this year. i hope that today can mark the beginning of a new chapter in the long historic relationship between the irs and senate finance committee. i hope there's a good chapter, but once again that is audibly up to you, it seems to me. let me just say that, you know, this is one-tenth of what we're talking about. this is a huge number of documents. and you can see one reason why

i'm a little bit concerned and maybe a little bit upset as well. senator wyden, i turn to you for your opening statement. >> thank you very much. and mr. koskinen, i share chairman hatch's concern about bringing our bipartisan inquiry to a halt. and to get that done to complete it in a thoughtful and a bipartisan way we're going to need these documents. as the chairman noted, we thaurt thought they were going to get some and we're going to need them quickly. whenever i talk with oregonians in meetings or town halls, the conversation always comes down to the same core issue, the struggling middle class. years after economists first said that the recession officially ended, too many middle-class americans feel like they're standing on quicksand because the recovery has yet to reach them. so the challenge facing policymakers is putting america's middle class on solid economic ground. growing their paychecks and

ensuring that our recovery reaches everyone across america. that challenge is going to be top of mind at each of the three hearings colleagues that we hold this week. tomorrow and thursday, the committee will talk with hhs secretary burrwell about the administration's plans to save americans' money on health care, create jobs increase wages and invest in the middle class. today the committee has an opportunity to discuss the status of america's accounting department. the internal revenue service with the commissioner, john koskinen. with w-2 forms in the mail and the tax season beginning, our country's annual headache is now setting in. and i want to emphasize that today taxpayers reside in two separate worlds. in one world a middle-class office employee pays taxes directly out of her wages and

she is subjected every spring to the painstaking process of filing returns. colleagues for that office worker there are no complicated tax avoidance strategies at her disposal. she doesn't have any shelters. she doesn't have any vehicles for her to hide her income. meanwhile, in the other tax world, teams of accountants go out to pry open loopholes that are hidden in the tax code, and the line between right and wrong is murky at best. the inherent unfairness of america's tax system is a blow that falls hardest on the middle class. and it takes a number of forms. the most obvious is that every year families spend more time and money filling out their taxes. people are worried about compiling all their records completing all the forms, and then filing them correctly. unfortunately, the tax code

itself hasn't gotten any simpler, and the lack of resources that the irs has slowed service in a number of instances to a crawl. nina olsen who is the independent irs taxpayer advocate calls -- and i quote here -- that this is the most serious problem facing taxpayers. when americans call into irs help lines they often sit in long queues listening to hold music. protections against identity theft are delayed. taxpayers are worried they might be victims of scams can't end up getting the timely assistance that they need. families that depend on a refund help cover the mortgage or tuition get left waiting. now, there's a second issue to consider today. according to the internal revenue service, nearly $400 billion in taxes go unpaid each year. that's the tax gap. one of its biggest causes is the dishonesty of tax cheats and

scammers who avoid paying what they owe. and it's important to reflect on who gets the short stick as a result. it's the middle-class age earner once again whose taxes come straight out of their paycheck. honest taxpayers have to make up the difference when the laws dodge their responsibilities, and that's wrong. but until congress simplifies and restores fairness to the broken tax code, multinationals and those with high-priced accountants can continue to find loophole loopholes. there is no question that the irs can make better use of the resources it has. that is true for every federal agency, every private business, and the congress itself. and it has been acknowledged by commissioner koskinen and his predecessor. meanwhile, policymakers can't lose sight of the biggest challenge today, which is putting our middle class on solid economic ground. they're going to be many more opportunities for this committee to work on a bipartisan basis with the commissioner and the

irs to make the system work better for middle-class families including through comprehensive tax reform. ultimate goal ought to be fairness. and as i wrap up i want to come back to the fact that taxpayers shouldn't be divided into two worlds. and one of those today carries a much heavier burden than the other. commissioner, we look forward to working with you and our colleagues to make that a reality, and i thank you mr. chairman. >> well thank you senator. commissioner koskinen has been serving as the head of the irs since december 2013. he has broad public sector experience including having chaired chaired freddie mac and deputy director for management of the office of management of budget. three really difficult and trying positions. mr. koskinen also has extensive private sector experience

including working as the president of the united states soccer foundation, and is the president and ceo of palmeri company. he graduated with a j.d. from the university of law and a b.a. in physics from duke university. we want to thank you, mr. commissioner, for being here today and please begin with your statement. >> senator hatch, ranking member wyden and members of the committee, thank you for the opportunity to discuss operations. we at the irs value our working relationship with this committee, with the chairman and the ranking members and look forward to a productive dialogue and constructive working relationship over the next two years of this congress. first of all, i'm pleased to report that the 2015 tax filing season opened on schedule on january 20th and is going well so far. we've accepted more than 16 million tax returns and we've

started issuing refunds. and in fact to show you how much people care about the refunds, we've accepted 16 million returns and already had 80 hits on where's my refund app on the website. opening the current filing season on schedule was a major accomplishment, given the challenges we faced. this achievement is a direct result of the dedication commitment and expertise of the irs work force. along with normal filing season preparations, there were significant challenges and extra work to get ready for the tax changes related to the affordable care act and the foreign account tax compliance act. we also had to update our systems to reflect the tax extender legislation passed in december. despite this success, i remain deeply concerned about the agency's ability to continue to deliver on its mission in light of significant reductions in our budget. just a month ago the agency's fiscal 2015 budget was set at $10.9 billion. $346 million less than 2014 and

really an amount $600 million less than last year when another $250 million in mandated costs and inflation that we must absorb are counted. plus, that's on top of a $600 million cut the irs had already taken as a result of governmentwide sequestration in 2013. the irs is the only major agency that was not subsequently restored to the pre-sequester level. these funding cuts are so significant that efficiency alone cannot make up the difference. we continue to find efficiencies where we can and are presently saving $200 million a year as a result of significantly reduced office space, printing and mailing and use of contractors. but we've reached the point of having to make very critical performance tradeoffs. in allocating our limited resources for 2015, we tried to attempt to do another. rather than going into greater

detail about this, let me respond quickly to the points the chairman raised. first with regard to the earned income tax credit, we are concerned about the high level of improper payments and the volume. the agency has been working for over ten years struggling with this challenge. and as i've testified before this committee before we are asking congress to give us additional tools to deal with the problem. they would include legislation to provide us with w-2s earlier. we should be able to get them at the same time employees do so that we could match and find fraud and improper payments earlier. if we had correctible error authority, we could correct errors and returns, particularly eitc returns. but the only way we can correct them now is by doing an audit. and finally if we had the ability to require minimum standards of tax preparers, over half of the eitc returns are prepared by preparers, the vast majority of whom do a great job. a reasonable number are stymied by the complications of the act

and a small number of preparers are actually crooks. who take advantage of taxpayers and seize all or portions of their refunds. this committee and senator wyden have a bill that would restore our ability to require minimum standards for tax preparers just the way there are minimum standards for everybody from hairdressers to others who provide public services. we've taken actions wherever we can. the famous convention that was held inadvisedly five years ago no longer could be held for training or conferences has to be signed off personally by me and reviewed and signed off by the treasury department. so i am confident that those situations are not going to arise again. with regard to the foreign investigation, we represented to you last spring that we had completed the production of documents related to the determination process. since then we have provided hundreds of thousands of pages of additional documents

requested by anyone of the six various investigations going on. the documents you have received are not more documents about the determination process. they are documents that have been requested by different committees particularly in the house, or more information about other peripheral players in the program, other detailed documents with regard to e-mails from those participants. all of those are responsive to requests we've had which none of them have anything to do with the determination process, but we've been pleased to provide them in an attempt to answer any question that anybody has in request for documents on any matter. our cover letter i thought explained where these documents came from. they are not, in fact, inconsistent with the earlier representations we've made. my time is running out. i will be happy to answer questions about the president's budget for 2016 which would go a significant way toward restoring our ability.

if i had a little additional time, that would be very helpful. i would then -- other point you raised with regard to our payment of performance awards to those who are delinquent in their taxes first of all, i would like the record to note the irs has the highest compliance rate of any agency in government including the congress. over 99% of our employees are compliant with their taxes. and that's because they take it seriously. it's an important responsibility for anybody who works for the internal revenue service to be current on their taxes. those who are not compliant include those who are making installment payments, who are working toward compliance, but it is clear and it's clear to our employees that if you willfully do not pay your taxes not only are you ineligible anymore for an award, you're subject to disciplinary action including in cases, severance from the service, and we do that on a regular basis. so i am confident that performance awards are only going to go to those who are eligible for them.

let me talk just a minute about the president's fiscal year 2016 budget, which total -- the request totals $12.9 billion, and it's consistent with recommendations the president has made over the last several years. the level of funding would provide substantial support for our mission and help the agency move ahead in a number of critical areas. for example, we'd be able to raise our phone service level to nearly 80% and significantly reduce the inventory of taxpayer correspondence. with respect to information technology, we'd be able to properly maintain our current i.t. infrastructure, the funds would also help us work toward our goal of providing taxpayers with the same experience dealing with the irs online as they now have with their financial institutions. on the enforcement side, the president's budget proposal would allow us to reverse the decline in individual audit coverage and increase document matching programs which are critical to ensuring high rates

of voluntary tax compliance. we'd also be able to expand programs to prevent refund fraud related to identity theft and to improve international tax compliance. using the resources provided by the president, we estimate -- our efforts to improve enforcement will generate $60 billion in additional revenue over the next ten years at a cost of $19 billion, thereby reducing the deficit by $41 billion. we'll also use a portion of the funding request to continue implementing legislative mandates including the affordable care act, the foreign account tax compliance act, and the newly passed abel act. as i noted in my complete testimony, i didn't -- the irony did not escape me that we were assigned new responsibilities under the new abel act and to pay for it which is a program for professional employee organizations in the same bill that cut our budget by $350 million. i want to stress though, that

we are required to implement these laws. so if we don't receive necessary funding, we will have to finance to take funds from taxpayer service enforcement or i.t. that's because we believe that we have an obligation to enforce and implement statutory mandates, and we will do that with the abel act and with the professional employees act. along with providing the irs with adequate funding, congress can also help improve tax administration by enacting several proposals in the administration's 2016 budget request which includes proposals i mentioned earlier with regard to earlier provision to the irs of third-party information returns such as w-2s which would allow us to match the documents and also if we could make correctible errors without having to audit returns, we would become much more efficient in terms of stopping improper payments. that concludes my statement. i appreciate the additional time and i'd be happy to take your questions. >> thank you, mr. koskinen.

your fiscal year 2015 budget is about 3% lower than your fiscal year 2014 budget, which has been decreasing since the high watermark of 2010. now, we may disagree about how best to spend taxpayer dollars, but we will stipulate the fact that your agency has been forced to observe budget cuts. now, you will see on the chart behind me -- where is that chart -- right there your budget fluctuations look a little less dramatic when we don't use 2010 as the baseline. i have another chart that i think reveals the true problem. it isn't irs's budget. it's an ever-growing set of tax laws, an ever-increasing number of federal programs the irs is charged with administrateing. well, that's our fault as i view it. instead of only focusing on spending more money we should instead focus on what is driving that need for bigger budgets and that's the growing complexity of the tax code.

the length of the tax laws have more than tripled since 1975. american families and businesses spend an edd 6.1 billion hours with a "b" simply complying with the tax laws. we should not blame you for this. congress is the one that keeps adding to your growing responsibilities. and congress enacted the design and bureaucratically unmanageable known as obamacare, or should we use the other term, quote, affordable care act enquote. congress enacted a labyrinth of new rules. i hope you can recognize that there are two sides to this coin, the amount of money that congress gives you to do your work, and the amount of work that congress gives you to do.

i would love to hear you talk about the latter and not just the former. i want to hear your thoughts about the growing number of programs and policies your agency is tasked with, that you have to administer. we work with the committee on ways we can reduce the burdens of task compliance and streamline the number of growing responsibilities placed on your agency. >> i appreciate that. as i've told our employees, as i visited offices around the country, i've now talked with over 13,000 irs employees. in many ways even with the background noise and challenges the agency faces in some charges, it's instructive that as you note, mr. chairman, the irs continues to be asked to implement new programs. and to some extent that's because there's some confidence that if you give the program to the internal revenue service it will get done. and it is a can-do agency. and as i noted, we're committed

to implementing whatever congress provides. but you are correct, that the tax code has gotten to be extremely unwieldy. and i always preface any remarks i make by saying the tax policy is the domain of the treasury department, the white house and the congress. we are in the tax administration business. you tell us what the tax laws are, and we'll do our best to administer them. having said that as i've also i think, made clear to you in our meetings and also publicly i am a great believer in tax simplification for the very reasons you mentioned. if we could simplify the tax code, it would -- the most important basis make life simpler for taxpayers. it would be easier to determine how much they owe and how to pay it. our experience is most taxpayers want to do the right thing, want to be compliant. they are spending 6 billion hours simply trying to determine what the right amount of tax is to be paid. to the extent we could simplify the code, it would make their lives simpler and it would clearly make our lives simpler. so the two things we look at as

you say, beyond where we are in terms of budget cuts, the tax code were simpler it would allow us to function more efficiently with the resources we have without adding back. the other thing i would emphasize that i mentioned in my testimony is we feel strongly that we need to look to where do we want to be in three to five years? what should the taxpayer experience be three to five years down the road? and if we had the funding provided in the president's budget, we would continue to build our online capacity ultimately hoping to provide taxpayers with the same online account with us that they have with their banks or their financial institutions. they should be able to come online properly authenticate it, look at previous tax returns, look at the status of their filings. we should be able to immediately communicate back to them when they file without having to write a letter or having them call us and say did you forget this? we have another schedule here that isn't in your return. and they should simply be able to make that correction without filing an amendment.

if that happened, we could obviously run much more efficiently and effectively. the people who called us would be people who needed to get specific information, not people calling as a regular matter of course. so i think on both counts, if we could actually build toward a better taxpayer experience from our standpoint if we had a simpler tax code taxpayers would have a much easier time determining what they owe in filing, and we would have a much easier time and a more efficient time running the tax administration. >> well, thank you. we're going to try and do that. it's going to be difficult with this congress but we'll do the best we can. senator wyden. >> thank you, chairman. let's talk about the middle class. senator cardin and i, we are going after these unscrupulous tax preparers, and the combination of that and nina olsen's comment about the shrinking resources you have to go after tax cheats and those costs often get heaped onto the middle class, what should the middle-class taxpayer expect

this filing season? >> as i noted, we're delighted that the filing season three weeks into it has gone smoothly. we encourage people to file electronically. over 85% of people filed electric electronically last year. make sure your return is accurate. if you file an accurate return online, it will be processed quickly. your refund will be processed within 21 days. your filing experience should be a positive one. the difficulties come where people often inadvertently file incorrect returns which cause us to have to write them. he have to write us back. they have to call. and we end up with a significant amount of work for us. and a certain amount of concern on the part of taxpayers. but i would stress overall we expect to process 150 million individual tax returns this year. we expect that the vast majority of those will go without a problem. over 80% of people on the

affordable care act, for instance, will simply check a box and say they have coverage. but most importantly, the vast majority of those people, particularly the 85 a higher percentage of people who file electronically will simply file and that will be it. >> another concern of middle-class families is the growing problem of identity theft. and the internal revenue service is supposed to issue these p.i.n.s, identity protection p.i.n.s to taxpayers who have been the victims of identity theft. but i'm hearing from taxpayers in oregon that many of them have not received these p.i.n.s. and i'm also hearing stories in my state that some victims of identity theft are already being revictimized this filing season as the fraudsters go out and file tax returns with their social security numbers while they wait day after day for the irs to send them these identification p.i.n.s. i think it would be very helpful if you could tell the committee

when americans are going to receive these p.i.n.s and particularly what to do to help these people who otherwise could be victimized again. >> it's important and at the top of our list. we've been fighting refund fraud and identity theft for several years now. with regard to the identity p.i.n.s, we expect to issue about 1.5 million of those. >> when will that happen? >> the p.i.n.s will all be out the end of this week in the mail. our problem has been we're running an antiquated i.t. system. part of the question is why do we spend so much on i.t. the real question is how come we can't spend more. we're running applications we're running when john f. kennedy was president. that's how antiquated it is. we had a problem over the last couple weeks with that part of the system. every year if you have p.i.n., it has to be a new one. it has to be authenticated. we solved those difficulties, but they're difficulties that shouldn't exist.

it should be a straightforward issue. they'll be in the mail before the week is out. >> one last question with respect to the affordable care act. we're starting to get a lot of questions with respect to people filing their tax returns to comply. what are you all doing to inform and assist taxpayers with these requirements? >> we've spent the last nine months trying to spread the word about how the affordable care act was going to operate. we were concerned starting in the spring that anyone who bought a policy through the marketplace was getting an advanced payment paid to the insurance company for their premium to help them with their premium needed to make sure if there was a change in their circumstance, their spouse got a job, they got an increase in pay, their family situation changed, they should go back immediately to the marketplace to correct that information so they wouldn't be surprised during filing season. we have provided a special section on our website devoted totally to the affordable care act. we have met with tax preparers around the country tax

attorneys. we had tax forms with 10,000 preparers last summer who were given -- we had 40 seminars at those gatherings about the affordable care act. we have over 100 youtube videos. we've already had about 800,000 hits on the affordable care act part of the website. if you go -- when you call us while you're waiting to get through, one of the things we put in is an information channel that you can dial into. we'll give you all of the frequently asked questions and answers about the affordable care act. we've been sharing information with all of your offices so when your constituents call, you'll be able to work through, what are the basic question, what are the answers. we have flooded the zone with information. >> my time is up commissioner. i just hope that you all will recognize that taxpayers who received assistance last year, of course, are going to have some questions about the steps to take to comply this year, and i hope there will be a special effort to reach out to them. thank you. thank you, mr. chairman. >> senator cornyn.

>> thank you, mr. commissioner. no doubt you have a daunting responsibility, but american consumers and middle-class families that the ranking member alluded to several times have had to make do with less during the years following the great recession and when middle-class wages have been stagnant. and so the question is why can't the government do more with less? and specifically estimates are that about a quarter of earned income tax credit payments in fiscal year 2013 alone were paid in error. this means that about $15 billion -- $15 billion -- was wrongly paid. but if you spread it over ten years from 2003 to 2013, obviously that is a big number. it's $150 billion of improper

eitc payments. and it appears that the improper payment rate has remained relatively unchanged and the amount of eitc claims has grown despite the efforts that your agency has made. on top of that, as you know, it appears that the improper payment rate for the additional child tax credit is similar to the earned income tax credit, according to the inspector general, at least a quarter of all actc payments for fiscal year 2013 were improperly made with potential improper payments totalling as high as $7.1 billion. so just in one year, 2013, more than $22 billion in improper payments by the internal revenue service. and then there's the issue of -- that i know you're familiar with about the tens of millions of dollars that the agency spends on union members who perform no work that benefits the taxpayer.

it's estimated that 2013 roughly 500,000 hours were spent at a value of roughly $23.5 million. again, these are union members who represent their union in the work force there at the irs that perform zero work that benefits the american taxpayer. and yet there appears to be no real concern about how do you cut down that cost and redirect more of that money to doing the irs's job. so i would just ask you this question. given the amount of money that the irs pays out improperly some $22 billion just in 2013 alone, and given the money spent on nonproductive activity at least in terms of that benefiting the taxpayer due to

the union activity not to mention employee bonuses and the like, how do you think that the american people will feel about just your coming here and asking for more money? it seems to be as the chairman points out an historic -- historically established activity where bureaucrats come in and ask for more money without cleaning up their own house and taking care of their business. it seems to me that if you're coming here asking for more money, we would be more likely motivated to provide more money if in fact, the irs was spending the money that it currently gets to deal with things like these improper payments. >> it's a good point. i would note that we're not asking for more money over history. we're asking for money back that's been taken away. our budget's been cut in absolute terms a billion $200 million since 2010.

as the chairman notes the tax code has gotten more complicated. we have 7 million more taxpayers. we have been charged with implementation of the affordable care act. tax extenders as they go forward. so we are actually doing significantly more with significantly less. there comes a point at which you have to do less with less because you've reached that point. we have, as i said, saved a billion dollars over that five years in efficiencies with less office space fewer contractors, less printing. we have worked very hard, as we've talked on earned income tax credit. part of our problem is we don't have the resource -- we have declining resources to audit in that area. we have 5,000 fewer revenue agents, revenue officers and criminal investigators than we had five years ago. and that's solely because of the decline in expenditures. >> you've asked for roughly 9,000 more -- the president's budget asks for roughly 9,000 more employees for the irs to implement the affordable care act, correct? >> 9,000 employees would not be able to implement the act.

if we got 9,000 back we'd replace some of the 5,000, and we'd replace all of the 3,000 fewer people we have answering phone calls than we had five years ago, the number of phone calls has gone up significantly as can you imagine. with regard to union time, first of all it's part of the bargaining relationship with our union, the way every government agency across the government does. that work benefits taxpayers to the extent that it represents workers, allows them and works with them to ensure that their working conditions are appropriate. we have, in fact, cut those with the union, cut that time that's being spent by over 10% and we continue to work with them to make sure that that time is spent effectively. but we're not the only agency that does that. that's a program that exists every place there's a union across the government. we find that the union is an effective partner with us in terms of trying to improve the operations of the agency. but i would conclude by saying we have done significantly more with significantly less.

but my concern for the last year has been that we're beyond the point of being able to do more with less. we are at a point where we have no choice but to do less with less. >> mr. chairman i would just ask for your help, perhaps. i know representative over in the house that sent a letter to the commissioner in september of 2014 asking him specifically to respond to some questions about the union activity at the irs and its alleged benefit to taxpayers. and there has been no response. that's been since 20 -- september 2014. so if we could get an answer to that letter and some of those questions, it would be very helpful to our understanding of what you're talking about. >> i would be delighted. i'm not aware of that letter. my operating assumption is the chairman knows my commitment was that i read every letter i get and we try to respond as quickly as we can and no later than a month later. >> let's have him re-send the

letter directly to him. >> in fact i met with congressman a couple times. we have what i think is a good working relationship. i am very surprised to find out there's a letter that hasn't been answered for that period of time because that's not our present mode of operation. >> let's have it resubmitted. >> and i would note the chairman sent me two different letters and i hope to have an answer to those letters in the next few days. >> that would be great. senator cardin. >> thank you mr. chairman. mr. commissioner, i want to thank you. this is a tough job. and you continue to serve your country in this capacity and i thank you very much for your willingness. you're the right person. i wish you had more support. it seems to me there's two things that this committee the senate and particularly this committee should be doing. first, we should look at our tax code and make it simpler and more predictable. and i know the chairman and ranking member are working to

see that we can't find common ground in that regard. and that would certainly help a great deal. if we gave more confidence to the tax code, i think taxpayers would be -- would appreciate that and make your job a lot easier. the second thing is that this committee particularly should be an advocate for you having the resources you need in order to carry out the mission. i remember -- i guess it's now been a decade ago working when i was in the house of representatives with then congressman portman following up on the study that was done at the irs at the time. and it was the ways and means committee and senate finance committee that said to the appropriators, you had to have the resources to modernize. and it lasted about one year before the cuts came back. so this committee should be your advocate for adequate resources. instead, as you pointed out you have sustained real cuts while your commissions have increased dramatically.

and we want to have tax compliance in all sections. this and senator cornyn's concerns about the earned income tax credit. the earned income tax credit is an extremely important provision in our tax code that offers fairness for middle-income working families. yes, we want to make sure it's complied with. and senator wyden and i are going after and hope to give you the authority to go after paid tax preparers who are not doing the right thing in that regard. we want to give you those tools. but it's interesting. i don't hear the same strength on behalf of compliance with the high-income provisions that senator wyden mentioned in his opening comment that are available to high-income people. in some cases over 50% of business income is not being reported. so how do you decide with these limited resources how you're going to be able to get tax

compliance when it's complicated and you're going against particularly on the business side or high income side individuals who have tremendous resources to try to minimize their tax liability. how do you make those judgments? i would just urge you to spend more effort dealing with those who have sophisticated services that are not paying their fair share of taxes. >> it is the challenge we have. ultimately, we're all concerned in the compliance rate to make sure we collect $3 trillion a year. my concern is if the compliance rate drops by 1%, it costs the government $30 billion a year. the two sides of the compliance code are enforcement and taxpayer service. and our challenge is our budget is cut is try to make sure that we maintain as much effort in all of those areas as we can. but even in the area of auditing, you know, we cannot take one area of the tax-paying

public and say we're not going to bother with you because there are other people who have more revenues. because if you look at where the revenues come from, they come from across the spectrum. so our challenge is to continue in our exam plans, in our audit plans to try to maximize the enforcement activities of the agency. but as i noted, we have 5,000 people -- fewer people doing that now. so inevitably, our audit rates are going down. and our concern about that is that at some point that's going to affect the overall compliance rate. >> i would just make the point that if you had the additional resources, we would not only get better compliance which is our responsibility to make sure we have compliance, we'd get greater revenue which would help those taxpayers who are paying their taxes, would get the relief so they're not overtaxed while people are not paying their fair share. so it seems to me what this congress has done in cutting their budgets makes no sense and i'm disappointed this committee hasn't been a stronger

advocate on your behalf and the agency's behalf. one last point i would make on implementing at fordable care act and the provisions and this tax season booz allen which has a large presence in my state has given high marks to the program you're using in regards to the refundable tax credit. what reactions are you receiving as you have tried to implement this as to the tools available to irs to try to make the tax season as friendly as possible? >> thus far we've had no significant challenges although i would stress that we are at the front end of the return process. we expect the month of february we'll see a significant increase in the volume of returns. one of the best things we have going for us is that 91% of the tax-paying public uses software either with a paid preparer or they buy the software. and we work with software providers so the software will take people through the application of the affordable

care act in whatever way it applies to the taxpayer whether it's simply showing coverage applying for an exemption, or reconciling the advanced payment they've gotten. again, as i've noted, we have calculators our website that will allow people to make determinations that need to be made. and thus far we've had positive responses. but i would stress we're at the beginning of what's going to be a very interesting filing season. >> thank you mr. chairman. senator coates? >> thank you mr. chairman. mr. koskinen, first of all, i want to state what the chairman and vice chairman have stated relative to our unbelievably complex tax code. it has to be addressed. and i know both the chairman and the vice chairman are committed to that process. and i hope all of our colleagues here are committed to that process because it's clearly having a negative economic impact on us and the complexity

of just simply going through the process of paying your taxes every year and the money that is spent and the hours that are spent, we just simply cannot keep pushing this down the road. your response to that is that you would applaud that very act. and i appreciated that. but let me -- and i know you're concerned about the amount of money you have to spend and the burdens that you have. i'd like to just do a -- give you a little bit of what i think might be some quick relief. this is a small ball thing. but senator cardin who just spoke and i are going to be introducing this week legislation that i hope will -- you'll be able to support. it's legislation that addresses the notification -- it's called the notice act -- legislation

that will give charities, the 5c3s and so forth notice if their status is going to expire. a few years ago the law was changed so that applications was not supplied over a period of time that they would be automatically dropped from the qualification of tax exempt status. now, there's a bunch of little -- i mean, there's tens of thousands of small charitable organizations out there that simpley don't have the back room and lawyers advising them of what they need to do and when they needed to do it.

so it sealed to us, you know, a simple fix on this would be simply to provide them sufficient time to notice, hey, your status is going to expire because we have not received your paperwork relative to reporting. what that has resulted in is thousands of hours and tens of millions of dollars to reinstate which poses a significant burden on the irs. so what we're calling for here, let me just give you an example. there's a small women's automobile accident auxiliary in indiana. they wanted to raise $15,000 to help with the volunteer fire department.

and because the leadership changes and because they didn't really have somebody in the back room to give them notice and they didn't have money to hire lawyers and accountants and so forth and so on, they hit the deadline. and they were automatically then denied their tax exempt status. it cost them $10,000 to reinstate a lot of paperwork, months and months of waiting. i think the figures were like 85,000 who have reapplied. say a h say 90 days out notices go out, whether it's by e-mail or both,

warning, take notice of your exempt -- if you didn't file your information report and your tax exempt status is going to expire unless you respond to it, file that. that's just one piece of paper. but it would save, i think thousands of hours and months and months of delay and significant cost to these small charities, if we could do that. we're going to swro deuce that. if you could work with us on that, we'd appreciate it. >> we had about a million six

hundred thousand outstanding tax exempt organizations. it is a big ball to work with when you look at it that way. we were concerned with, before i got here. we streamlined the process for entities they could sitly send us their notice. they hopefully didn't have to spend $10,000. for small organizations, you can streamline the application process. if they're a very small organization, it doesn't make much sense. we're delighted to work with you on this. there are thousands of these organizations out there. the secretary moved, the president changed. and we need to make sure that we streamline the process for any reinstatement necessary. we're continually trying to streamline the process.

>> that's good for going forward. i'm told that the application are retroactive reinstatements. >> we'd be delighted to work together. >> senator? >> thank you, mr. chairman. senators did. let's not forget what this is about. for an income tax credit began as a temporary program with president ford and was made permanent by president carter and expanded dramatically by president reagan has been supported by presidents of both parties for i believe there is the 40th anniversary this year. we know that they collectively

have reduced poverty for 32 million people including 13 million children. we shouldn't forget that as we talk about this. now, we hear of the 23% broad rate -- many call it the fraud rate, others say it's an error rate. findings of fraud were overturned in 40% of cases where a taxpayer was alleged of eitc fraud and then sought the advocate's assistance. we know that people that file for the eitc are less likely to have a strong advocate whom they employ to add to fight for them. we know all of that. when you take into account those

factors, what's the incident of genuine fraud for eitc? how would actual loss of revenue look if underpayments were also counted? they're part of that 23 ppt, is my understanding. >> it's a complicated issue. that's why it's called the improper payment. it's derived to some extent where children are resident who have authority over them so that they are inadvertent errors made by taxpayers filing on their own without a lot of background. as i've noeted, one other reason we support the provision to have tax prepares to have some minimal understanding of the law because over 50% of those filing for eitc rely upon preparers. as you know, they are lower

income or middle income families who rely on somebody in the neighborhood. and our hope is that somebody in the neighborhood ought to be able to file a correct return for them as we go forward. it would help significantly. also, in some cases we know that there's been an error. we ought to be able to correct that rather than making payment or holding the payment and having to go audit which is now the only way to make that change. the taxpayer can still come in and say wait a minute, i really do have three children. we'd simply be able to get at the heart of the range of the improper payments. the overall issue is that even within this, we have this duality.

we'll probably never get it down to zero. notwithstanding all the activity that is the agency has done. i said i want everybody who knows about this, we're going to sit down and figure out what would be done with things we need to do to be able to attack this problem going forward. >> i think the comments made with the comments and questions made that there is so much less attention paid in the halls of

congress. it's a peculiar kind of class the worst kind in my mind, the worst kind of class warfare where people who are paying good salaries who get good pensions and health care from the government members of congress spend an awful lot of time attacking a program that has brought literally millions of people out of pocket that has had a long, long, good history of support from presidents across both parties of liberals to conservative spectrum.