i want you both to know how much i appreciate both of you. let me just ask this question. revenues in 2014 were 17.5% of gdp. trending up to 18.3%. of gdp by 2025. in other words, taxes are higher now than their historical average and headed even higher. since taxes are higher than average and raising revenue in tax reform makes enacting it less likely shouldn't we do to reform a revenue neutral basis. we'll start with you, senator packwood. >> i would much prefer you do it on a revenue neutral basis, although i would combine corporate and individual into one bill.

and then you have a little more wiggle room using either side of that equation to be able to reach your revenue neutrality. >> okay, bill. senator. >> we, of course, did it revenue neutral. i think the times today probably might require some additional tax. but i believe that's something that the committee has to work out itself. if you really do thorough tax reform, what you find is -- at least we found -- that upper income americans will pay a higher percent. for example, we cut the rate from 50% to 28% and yet the top 5% paid a higher percent of the total tax revenue after that reduction than before. >> well the u.s. is one of five

major economies operating on a worldwide tax system. meaning it currently taxes the income of its companies wherever that income is earned. even if it's not in our country. currently companies have -- profits they earn back to the u.s. but they face a tax of 35% minus foreign tax credits. those would not pay this additional tax and keep earnings abroad, deferring the additional tax. current utah law -- u.s. law, i better say allows companies to defer the tax indefinitely. president obama's proposal would substantially limit deefrl since it imposes a minimum tax of 19%. now, do you think we should go to a territorial tax system with base erosion protections like most other major countries? in fact, most all other or not? >> mr. chairman, i thought so

the last 30 years. we're often -- we have to compete overseas and here are the advantages they have. and one of the advantages they have is territorial. i think we ought to go to the system that the rest of the principle industrial countries use, which is if you invest overseas and you make profits overseas and you pay your taxes overseas, you can bring back whatever profit you have to this country and they're not taxed. and i think that's a good system. >> of course when you have profits overseas and you're taxed in a particular rated at the rate that country charges, all of those taxes are deducted against your liability in the united states, the tax credit. so i think you have to have a clear view of how this works. the president's proposed two things. i think one is a 19% tax on the

deferred income -- >> i think they'll have to work its will on that. i think that territorial tax makes sense in terms of the overall picture, but in reality you're going to have to figure out, is there -- i don't think that's going to happen. some other way you could bring the money back? and you, think, embodied in the president's proposal -- to what rate is a willingness to bring -- back. >> my time is up. senator. >> thank you, mr. chairman.

and the two of you have tolden spiring story this morning about bipartisanship on a major issue. we just looked up the vote that attests to what happened. it was 97-3. the original vote coming in the senate and then on the conference report it was 74-23. then the house it was more than two-thirds. so this kooirndind of work paid off. what i would like to start with is asking you about the process. because as far as i can tell in this effort to promote bipartisanship every step of the way, you said we're going to use the normal process because the normal process in the senate really promotes bipartisanship. and you have to have 60 votes. certainly neither side today has 60 votes so you use the normal process and is it really forces bipartisanship. the alternative is to use what's called reconciliation which, in

effect, has 51 votes. one side now has 51 votes. they could have their way on tax reform. my question to both of you either one who wants to start is it your view that using the normal process, which you all used in 1986, was helpful and is it your assessment that using the normal process helps promote bipartisanship, either one you have? >> absolutely. but for a variety of reasons. one, every member of this committee has to have forgivings about reconciliation and use it to jam as many things into a bill as majority wants it because they don't think they can get it passed to any other way. what that lends itself to is more and more the decisions moving up to the leadership. in my era let alone now, even in lyndon johnson's era, no majority leader would have ever thought of taking a bill away from committee.

reconciliation just holds out that plum and says, use it this way. one, it can still -- the arguments against it, we had no chance. we didn't get to offer the amendments. there was a time limit. and if you -- in the normal process, you got a lot better credibility than if you jammed it through in reconciliation. >> senator bradley can you top that? >> no. but i'll have a comment or two. your question was what mr. chairman? >> normal process, meaning -- >> i i think -- >> the normal process, inviteing bipartisanship reconciliation, going more bipartisanship. >> i think the way we did it, i would agree with senator packwood 100% that the normal process is better. you know, also has to do with what is the cloud of the committee in the larger senate.

we had agreement among members of the committee that whenever a vote would come up on the floor, none of the committee members would break from the bill that was reported out of the finance committee and would stay with the -- with the committee bill. that was a point of personal anguish for me because in the committee -- [ laughter ] in the committee as it related to what senator packwood referred to as the oilies, you know, senator packwood was the chair and at the time senator russell long, louisiana, was the ranking member and he had a few interests in the oil patch. and i, of course was going to go after it. we have to go after that. we can't leave that out. we were meeting in secret back there and we had a vote in the back room.

and it was 11-9 against me. and i viewed that -- you know, this was in the back room -- but if there was one senator who was taken in public, he wouldn't vote that way. and so i then raised the issue in the committee, the full committee, and i saw senator long's head go like that. and i called for the vote. and the person who i thought would switch didn't switch. and right up there against that wall afterwards russell long got ahold of me saying, if you ever do that again. but life went on and you know, the screw turned. we got to the senate floor and then republican senator lowell whim wiker offered the exact same amendment that i had offered in the finance committee. but because we had a deal we

were all going to stay together, i voted against my own amendment. so the cloud of the finance committee in the senate as a whole is instrumental in getting a bill passed because most. other senators don't know a whole lot about taxes. they have a few opinions about this, that and the other thing. to the extent you can speak clearly, authoritatively and hang together, you have -- you won't need to have any kind of reconciliation. >> senator hatch, if i could ask one other question because this was a remarkable feature of the '86 bill. and i think it would be helpful for the committee to know how you two got to common ground in '86. in 1986, you were able to say that income from wages and income from capital was treated equally. senator badlyradley talk a little about his views on it. i think it would be very helpful to know how you two reached that judgment that by today's standards would be remarkable. in fact, today people say if you

could just reduce the difference between the way income from capital and the income from wages was treated, that would be a huge reform. how did you two in 1986 get to common ground on treating wage income and capital income the same? >> well, realize we wanted to keep the same progressivety we had in the existing law but we were going to lower the rates tremendously. so, in order to make sure that the very wealthy still were roughly in the same progressivety incline, we had to get rid of capital gains and the differential. it was as simple as that. in fact, it didn't even really bother the committee that much. it was a small issue. malcolm wall did have some misgivings about it. we agreed, remember, bill, we made the rate the same, but didn't put it as a separate

section of the ball because malcolm wallop says, you put that in the bill and get rid of capital gains and the word and then pretty soon, congress is going to start to raise the rates and capital gains will go right up with them. turns out he was right. it was to make sure our progressivety was the same. >> just a little addition to that. exactly agree with what senator packwood said. there was a provision in the bill since we got to the magic number of 28 for both capital and earned income. we had a provision in the bill that said if the generate ever that said if the general rate ever went higher than 28 prsz, the capital gains rate would be 28%. in other words, you would never tax capital higher than 28s. and i remember, oh, might have been four months, after the passage of that bill people were in saying, we need a

differential in capital gains. and my point was, if you take a differential in capital gains, you're going to end up with a much higher general rate. indeed, that's precisely what happened. when president clinton came in the capital gains went back in and the rates went to 39%. capital gain, you're going to end up with much higher, generate. and indeed, that's what's happened when president clinton came in. capital gains went back in and and seems to me there was a lot more co-hee rans in a bill with a lower rate that treats capital and labor the same. >> well, thank you. senator grassley. >> thank you both for coming. i want to start with something you both touched on in your open statement but to get more specific, so i'll start with senator packwood but i'll ask senator bradley the similar question. it deals with the process of and presidential involvement. do you think tax reform, senator packwood, do you think tax reform would have happened if

president reagan would not have made tax reform a priority in his administration? and a follow-on, and then isn't it going to take at least that much commitment and involvement from president obama with his own party in congress to get a tax reform bill enacted? and then for senator bradley, could you share your thoughts on the importance of presidential leadership in accomplishing tax reform? senator packwood. >> well, president reagan was immensely helpful. if you're asking me, is it absolutely essential that the president be there from day one and pushing i don't know. it's like saying this committee couldn't reach its own conclusion without the president. but it was very helpful and one morning there was a small breakfast at the white house. so just danny and me and the president and the vice president, jim baker. it was before -- the bill had passed here but before

conference. and the president took danny and me aside at the end and said f you can keep this bill revenue neutral and keep the rates you've got, you may count on my support no matter how you get to those rates. so, that's how critical it was. we knew he -- we had his backing, absolutely. but bill touched on something, that was about the treasury. jim baker was up to his neck in negotiations with us especially as assist an treasury secretary dick darman because in the last six days where this was all done, he wasn't here. he was in tokyo with the president on one of those economic multination meetings. and all of the final negotiation for the administration were done by darman. on the last paragraph of my testimony you'll see an interesting exchange on the phone between darman calling baker in tokyo and telling him what to tell the president. so, is it critical?

i don't know if it's critical. is it immensely helpful? and was it immensely helpful? yes. >> senator bradley. >> i think presidential leadership is essential. i believe that there are so many times when things happen that you need to have the -- to be able to get the white house's clout. and that can be manifested through the treasury secretary. it's not you talking to the president all the time. but i also would say, going back to my anecdote, i think the president was viscerally in favor of lowering tax rates because when he was an actor he had a 90% rate. 90%. and i was viscerally in favor of this because of the depreciatable asset as a basketball player. in other words, closing loopholes had traditionally been what democrats were for.

lowering rates were traditionally what republicans were for. the question is, can you bridge that divide and bring something together? the answer is, yes but if ronald reagan had not said i put my impremator this, there, it wouldn't have happened >> and bill touched on something right there, senator grassley. democrats wanted to get rid of unjustifiable deductions. republicans are not adverse to going along with that, if they could use the money to lower the rates. and as president reagan had said, i'm not signing it unless it's revenue neutral. if you got a lot of deductions and produced a potted full of money and you couldn't raise revenues with this bill, had you to use it to lower rates. but you and a willingness on both sides for different reasons, to want to reach the same conclusion. >> my last question deals with something we have to tackle here in a basic way. so, both of you n your view how

important was it that the '86 bill was comprehensive tax reform package rather than focusing only on business or, on the other hand, individual reform and getting support for its passage? >> well for us it was critical because we needed awe lot lot of the money we needed from business. don't confuse rates with revenue. we raised an immense amount of revenue, more than we raised from businesses before, but we lowered the rates. and we used a lot of their money to lower rates for individuals. and we mixed the two of them up. i would have misgivings about trying to do just business. and then later on, we'll try to do just individual. i think you're better off to try to do both of them at once in one big bill. i want to use the word grandeur again. you come out with a big bill that you've agreed upon, and if you do and it touches the point bill and i have talked about,

before the bill ever gets to the floor of the senate, you'll have immense newspaper support, academic support across the board, liberal or conservative. and you will -- you will be glad in retrospect that you combined it all in one. >> i agree. we should -- you should -- you should combine both corporate and individual. because if you just do corporate, it's not like you're going to have an easy path. if you do anything that's serious. for example, when we did the individual and corporate, essentially, the business community split. a large percent of the business community were for the reform. another segment of the business community was against reform. guess what was the dividing line? what tax rate they paid. if they paid less tax because the rate went from 50% to 28%,

they were for it. if they paid up more, they were against it. but the key was constructing a coalition that included a significant part of business, where bob was brilliant. and so, i would argue that that's very important. you also might get through a you also might get to a point where you might have more flexibility if you do individual and corporate because they're both -- they both are essentially two sides of the same coin. for example, you might decide that you want to cut the corporate rate to 10% or 15%. and you might want to offset that by increasing the taxes on the individual side. on dividends and capital gains. that's what they do in denmark, for example. you wouldn't have that flexibility if you didn't have

both individual and corporate put together in the same bill. >> thank you. senator isaacson. >> thank you mr. chairman. thanks both of you for being here. i was a real estate guy in 1986. i had a development company and a brokerage company. i have a question for both of you. first of all, thanks for being on the nine who voted against selective treatment from the passed law. i think that's right, both of you voted against that, if i'm not mistaken. looking in a rear-view mirror, had some transition been applied to those investments made prior to '86 so the treatment would be continued and tax law been prospective instead of a claw back, did you ever think about doing that, or if we go into something again, could we do it that way? >> we did not think about it at time. if there's an industry we hit, it was real estate. and we drove the s&ls out of business who were the principle

financiers of real estate. we did not do it -- we did not do it -- mean, we did it retro actively. we found passive losses, such a grievous way for rich people to shell their money and pay very little taxes that we got rid of it. but, senator, you're absolutely right. the real estate industry was hit hard. and the oil industry got a particular favor because of a deal that i made, because i was going to need their votes later on on the floor on a particular issue. >> senator bradley. >> i agree that the real estate industry paid more. if you phase it in of course you have not as much revenue and you also skew the distributional tables. but in regard to real estate keep in mind that was at a time where there were, i would say,

real estate tax shelters that were not based -- investment was not based on the need for apartments or office space, but was based upon the individual taxpayer getting a tax deduction offset against all his other income, or her other income. i had a call some time in this period from paul volcker, who was then the federal reserve chairman. and he said, you know i really like what you guys are doing up there. i said, why is that? he says, because i can't get at these banks who are simply throwing money at uneconomic real estate investments. and it has to be through the tax code. so, i think that's one of the reasons, at least for me, that i felt that we were on strong ground. >> i think you did the right thing because it was abused.

my point was if you could have transitioned prospectively in in terms of the passive law rather than the claw back, you might have prevented the collapse of the savings and loans and the reits which is what the ramifications were. >> i think you're right. >> one other question -- >> i wouldn't say the collapse of the savings and loan was because of the tax reform. >> that was the last straw, i guess. >> yeah, that would be. >> maybe that's a better way to say it. my other question is did you consider in 1986 or have you thought since about going to a retail sales tax kor -- >> i've thought to myself, what kind of a deal could have been between the republicans and democrats that would result in some increased revenue? and i thought, what happens if the democrats were to offer this to the republicans?

we'll go to an electronic funds transaction tax, which i prefer to -- that or retail sales tax, and we will cut in half the corporate and individual income tax. and you will allow the tax, however, to produce an additional $500 billion in revenue. and now the republicans are thinking, wow, cut the income tax in half and the corporate in half and we're not really -- and we've always kind of supported a consumption tax anyway. is that kind of deal possible? we'll go to it one day. there's no question in my mind. the daveng any kind of a consumption tax, this is probably why republicans are more afraid of it, it is so easy to raise. need a little more money? you raise it a half a percent. take a look at your sales taxes in different states that started

at 1% or 2% 30 years ago. they're now at 8% or 9% look at the european value added taxes. i don't know if any major country in europe that's not less than 20% on the value added tax. but to answer your question, yes, if you could combine it i think there's a possibility that you could possibly, i can maybe see the republicans shaking their heads, you could possibly make an argument for some increased revenue in exchange for a dramatic reductions in corporate and individual taxes. >> i'm out of time. real quickly, senator bradley, i'd love to hear your comment. >> i think what senator packwood said about electronics transfer tax is extremely interesting. you know, if i were the chairman, i would task the joint tax committee to do an analysis of that in terms of revenue that could be generated because you've got to know what revenue you're going to generate before you decide how you're going to spend it.

on the consumption tax issue in my testimony, i make a suggestion, basically, the point is that we should tax less those things we like such as wages and tax more those things which are bad for us or dangerous, which are pollution, for example. and i think here there could be a very interesting tradeoff between employment taxes -- sober security social security, medicare and unemployment -- and a gasoline tax. or a tax on things like volatile organics or sulfur dioxide or lead or nitrous oxide or whatever. it's just a numbers game. and if you did that, it would be -- have profound impact. for example, if you were to

dramatically cut both individual and corporate social security employment taxes you would in essence, be giving individuals a tax cut and corporations a tax cut at a time where jobs are needed. the fact that there's this 15% hurdle is -- it affects different industries in different ways. for example, if you're mckenzie or microsoft and you want to -- or google and i want to hire real talent, you pay them more because you really need that talent. so that you pay them more to offset the employment tax. if you're working the lumberyard in oregon or somewhere, where there's a surplus of labor, the -- you don't pay them more to offset it. so, the irony is that it ends up hitting the lower paid guy and

the lower -- the struggling industry more than it hits the person who's in the consulting or technology industry. so reducing those employment taxes are -- have many benefits. for example, 24 million people or 25 million people who are working part time now could very well be brought into the workforce. you can find people that weren't working that could be brought into the workforce. so, that's the good news. the question is, what are you going to do to provide the money to do that? and, you know, i know the committee has looked at it. it's probably not possible, but who knows. they said tax reform wasn't possible in '86. you could take a dollar gasoline tax or you could take a carbon tax and use all that money to reduce those employment taxes. and i think the net benefit would be greater job creation

and economic growth. it would hit certain sectors more than others, obviously. let's just take the dollar gasoline tax. never could it be offered, a better time to do it than now, when prices are where they are. but let's say you phase it in, as you suggested you do on the other things. if you phased in a gasoline tax over five years and the automobile industry was going to -- you require to improve the auto -- the mileage efficiency at the end of that five years since the individual would be getting more miles with less gasoline, they would be paying no more for gasoline with a dollar tax that could be used to reduce social security taxes and employment taxes than they're paying now without that. >> senator nelson. >> and could also senator bradley, improve the roads and

bridges that are crumbling. this has been a fascinating discussion for me. and thank you very much. and i -- i take your ideas and try to put them into today's politics. offsetting lower employment taxes and going after something like nitrous oxide and that's much more difficult today because of the climate debate that is going on. getting the votes. i think about what you said, senator packwood, that president reagan was so critical in tamping down the opposition among republicans in the house. well, how are you going to get president obama to tamp down that opposition?

today, just over the knee-jerk reaction of some republicans to the word tax. so, it's hard for me to make the transition from your success in '86 to today. and it really puts a real burden on the shoulders of our chairman and ranking member. >> well, that's why this committee, at least in bill's and my ear, there is much more nonpartisanship in the senate than there apparently is today. i can't tell you whether or not you can put it together but 1986, it appeared to us just as difficult to put it together as it appears to you now. there are different issues than we had then. and nobody can make the right circumstances. you can't buy them. you can't wish them. you can't coerce them. all you can do is be around when the circumstance comes and hope

you can take advantage of it. i say maybe there's a possibility. but if -- if at the start we're going to say, the republicans say, no bill if there's any revenue increases total. and if the democratic position is, no bill unless there's some revenue increases. then you might as well spend your time working on the asia-pacific trade agreement or something like that. >> you know, our proproblem thus far since a lot of your success has been we're in this kind of heshg herky-jerky patch at the 11th hour. tax extenders, an example. you want to give us your thought about how we take this illogical approach to taxes? do you have to do it in the

overall global kind of big deal in order to get it done? >> tax extenders are lobbyists for employment act. >> yes. >> you have to bite the bullet and make some decisions. what should be permanent, what shouldn't be permanent. and there are always questions of revenue so you always -- you know, you want it to go out a year or two but not three or four because that would affect the revenue. and i just think that you know, the practical reality is that people would probably say, extenders are necessary. but they're necessary only because fundamental choices are not made about the tax code. what kind of tax code do you want? what do you want in, what do you want out? >> right. >> not what do you want in this year because we all know that means you lobbied every year about the same things. and quite frankly, it becomes

boring, i would think. you know the arguments before they come on. so, on your earlier point about nitrous oxide, you know, you would be cutting some taxes. social security. recall a couple years ago you cut the social security tax and then there was a quiet deal, you let it go back up and nobody said anything about it right? not one party attacked the other party. well, that's the kind of thing you could get here with the employment tax reduction and the increased taxes on essentially either pollutants or gas or carbon. >> i have mixed feelings about extendsers. you make some of these permanent, you're going to play hell ever getting rid of them when the time comes you think you ought to get rid of them. at least with text endersextenders, you are forced to look at them at least and think, should this be kept?

and then of course, everything falls apart and you extend them all. but let's say you made them all permanent. now you don't have to look at them until somebody says i wonder if we should look at this once. you kind of pay your money and take your choice to. >> thank you. >> next is senator coates. >> well mr. chairman, this has been fascinating for me. i'm a rookie senator sitting, -- i can't use the basketball analogy but i can use the baseball analogy. in the left field bleachers here with my friend in nevada. had to extend the roster here to accommodate the three of us. >> it's a right field -- >> well -- >> right field bleachers, if you -- >> that's home plate. i figure i'm in the left field. although i would prefer to be in the right field. nevertheless, having had the opportunity to serve with these two distinguished former

senators, just sitting here, listening to them talk through the process has been fascinating. and so often we take an issue and we start with the substance of the issue and nobody pays attention to the process until everything comes to a grinding halt because the process wasn't set at the beginning in terms of how are we -- what is it going to take to get from here to there? so, it was fascinating to me that both of you outlined the principles of the process that you had to work through in order to accomplish the goal. and it occurs to me, mr. chairman that a buy-in of the committee with the principals up front to prevent us from having to be seduced away, either through ideology or

through special interest group pressure on particulars -- well okay, i'm -- i can get behind you unless you -- if you exclude this or include that. traps us from getting from the batter's box all the way around to home plate. so i just thought it fascinating lesson in history here. and i had the great pleasure of serving with both of you being in the house in 1986. but watching what was happening there is somewhat neophyte member of the house and now all of of a sudden having the opportunity sitting here thinking, could this really be done? and what you've left with us is yes, if you avoid -- if you as -- if we as a committee can

avoid the pitfalls of making prejudgments as to what ought to be in what ought to be out, and look at how we could accomplish something of enormous impact for the future of america -- for a whole generation i think that's what we're looking at here. what a legacy that would be to you, mr. chairman, to ranking member, to all of us on this committee, it appeared to me that there are some stars lining up here. between the house and the senate. the leadership of the ways and means as well as the finance committee here. question mark in terms of where the occupant of 1600 pennsylvania starting from relative to their situation and

relative to their income level and the things that cause them -- the eureka moment that says, yeah i want to get on board that. and to me it seems like -- i'm just going on here -- but it seems like the real challenge here is to address the question of how a lower rate and cleaner product can result in the kind of growth and economic -- and the dynamic economic impact of something that we would do as -- and how -- where that money should go. should it go back in government for expenditures as perhaps -- as appealing as it might be, how many roads could we pave and how many bridges could we fix or do we let the market determine how that capital is better invested?

it's really not asking the question if the panelists want to comment on that. i was actually making a statement. >> your time -- >> over my time. >> only in one sense. senator widen, you may remember my predecessor for whom you worked at one time used to use the expression, give me control of the procedures of democracy and i will control the substance of democracy. dan, this process in 1986 was not really a planned procedure. the house had pretty much ceded us the right to go ahead and write the bill. if we wrote it the way danny liked it, they would adopt it. but i wasn't following any progress following normal procedures. it was only when the thing was not moving at all that i came up with this idea about, what about half a dozen of us getting together in secret as quick as possible. and in that group we had -- you know, four republicans, three democrats. we had an agreement if any four of us could agree on something,

it would be put in the chairman's mark. i recall no vote that was four republicans, three democrats. i recall a number of votes where i was on the three side of a vote. but we had that agreement. i mean, was that bipartisan in that sense? but it wasn't planned. it was, nothing else has worked and yet the circumstance was there to make something work. and that's how it happened. [ inaudible ] >> i don't know if the circumstances here. you feel it. you don't plan for it. it arrives. and i'm not sure i know how to make it arrive. >> i'm trying to get that feeling. senator carper, you're next. >> thanks. thank you, mr. chairman. senator wyden to chairman packwood to my friend, bill bradley, it's great to see you. just great to see you. i was talking with brian seelander, who you graciously

sent to me when you withdrew from the presidential race. one of the reasons why i'm here today is because of that kind gift along with shawn barney and a couple of others who came as well. so, thank you for all of them. now i serve on this committee where you both once provided great leadership. a couple of years ago we had -- we were having a hearing on the issue of deficit reduction and we had a bunch of really smart people here to talk to us that day, too. one of them was alan blinder. he had previously been vice chairman of the federal reserve. as you may recall. he's back now teaching economics at some school in new jersey. starts with "p." princeton, that's it. in his testimony he said to us, in terms of deficit reduction, health care costs. he said if we don't get our arms around that we're doomed. he said more than that but that was the sum and substance of what he said. we had a came to ask questions. my time to ask a question i

said, doctor you said health care costs are the 800-pound gorilla in the room. if we don't get our arms rood around that, we're doomed. i said, what's your advice to that? he sat there for a while, thought and then finally said, i'm not a health economists, i'm not an expert on that stuff. but he said, this would be my advice to you. find out what works. do more of that. that's all he said. find out what works do more of that. i said you mean find out what doesn't work and do less of that? and he said yeah. and where -- we're happy you're here. and looking to find out -- and you've given us some ideas of what worked all those many years ago. and one of the keys, it's clear to me in what you're saying here, is leadership. most important ingredient in the organization. whether it's a basketball team whether it's a military unit in the army navy, air force marine corps, whether it's

college of business. most important here most important in this leadership. we can't pass laws to create leadership. every once in a while people come along and provide great leadership. talk about leadership, what the leaders of this committee and other senators especially what we need to be doing, please. >> well, as i said earlier leadership starts from the president, the treasury secretary, chairman of ways and means and chairman of the finance committee. that's the leadership structure. if any one of those isn't on board, it's not going to happen. i would also make the point when senator packwood talked about the seven people in the room and voting 4-3 whoever voted, he lost sometime, i lost sometime, but four republicans, three democrats. that was one. legislating is fun, with the right people.

you can do something very important and you can enjoy what you're doing because you never know what's coming around tomorrow. if you're in that kind of negotiation. and it requires you to know what you're talking about. and, you know, i just hope you guys are having that much fun. >> i've got -- >> fun would be good around here. >> i've got to tell a humorous story about bill because -- i only have a little bit of time -- >> i'm sorry. >> no, go ahead. if you just want to answer -- i would love to hear the story about bill but a question about leadership. and i think what senator bradley told us is very important. >> well, you know, all of us in politics have seen natural leaders. some are inside leaders like lyndon johnson. some are outside leaders, like ronald reagan. but everybody in the senate, there's a small fraternity, we all know who are the standout

leaders. we knew in my era that scoop jackson and sam nunn on defense were good for seven or eight votes in a tight vote any time. we knew that dick lugar on foreign policy was good for six or seven votes. they were leaders in their area. all of you on this committee know who the half a dozen leaders of this committee are. i don't know who they r but you know. and the -- certainly the ranking member and chairman know who they are. and there's -- and a coalition of those can be put together. but the key is not do you have the leadership. does the little leadership group agree on the goal that they want to reach? if they don't agree on the goal, no quantity of leadership is going to make any difference. >> all right. thank you. second question deals with, you know, you did all this work in

'86, the ink dry on the legislation you labored on for all those years, and we started changing it. started changing it. a whole lot over time. and did you ever think at a time that we'd see this kind of change that quickly and in such -- to such an axe tent? and did you ever think at the time about what can question do to sort of preserve what we have for at least a while? i don't know how many changes we've seen but i'm told 15,000 or something, maybe more since '86. but should we be thinking about -- should we be looking for some way to preserve for a while, at least, what we're going to do, or is that just a fool's error? >> tom that was a real lesson for me. obviously, one congress can't bind another congress. you can pass something, which i

thought, i think bob did, and people as significantly as tax reform and it can be like a sandcastle on the edge. sea. you know, it can be washed away the next year. which means you have to be humble when you do these things. and you have to -- i don't think there is an institutional fix to make things permanent. maybe the reason this wasn't permanent was that, you know this wasn't something that bubbled up from the country saying, you must do that, do this. this was something that happened because people who had responsibility on this committee assessed what was the right thing for the country. >> all right. senator packwood, very briefly, and my time's expired, i'm afraid. thank you. >> senator heller. >> mr. chairman thank you. thanks for holding this hearing. i want to begin by thanking our distinguished guests for being here today.

as a relatively new member of the senate and a new member of this committee, it's great to get this historical perspective. so, thank you very much for taking time. mr. chairman, i historical perspective. thank you for being committed to this effort. i know it is not going to be easy but it is good to see that there is real work, real work moving forward. i appreciate your seven priorities and i share those with you. look forward to getting that done to done. to our witnesses, the further you get out here in left field the further afield get our questions. but boert ofth of you started from where i am today so there is hope for the future. i want to move to five years ago and the bowles-simpson proposal. did either of you testify or have any opportunity to haveny input on that particular proposal? >> i did not.

i was not called as a witness. i followed it very carefully in the press but i was not a witness before the commission. >> can you give me any perspective on what you thought of that report? >> well i thought the report was excellent in the sense of here's where this country is going if we don't do something. i've often put it when i speak, i put it in a different version. i am less concerned about the deficit than i am about the increased spending. if you're rich enough, you can afford a deficit. as long as you stay rich. you can afford to pay the interest on a debt. but i look at spending and the figures are not necessarily good from a century ago, but as best we can tell a century ago all of the governments in this country -- federal, state, local, water districts, fire districts, spent about 10% of the gross domestic product.

today the same government spends around 40% of the gross domestic product, and that same pattern has been true, by the way, in all of the major industrial countries. they just started at a higher point a century ago than where we were. if you look at simpson-bowles report and you see what's coming in medicare medicaid social security, that 40% figure is going to go up. and the debate we ought to be having in this country is not is there a deficit. of course there is. you can debate if you want can we afford to carry it. i think we can. but do you want this country to eventually spend 45%, 50% 55% of all the available assets in this country on government? that debate doesn't get discussed very often because it gets mixed up with the deficit. >> senator bradley i propose the same question to you. >> no i did not testify. i always talked to my buddy al

simpson. but we didn't spend a lot of time talking about taxes. >> he's one of my favorites alan simpson. i was on the -- when i was in the house i was on the ways and means committee and dave camp was my chairman. as you know bowles-simpson was dead on arrival. camp cape up with ame up with a proposal that was frankly dead on arrival. what lesson do we learn from these efforts? >> you're discouraged. i read the camp proposal. i thought it was a good proposal. i thought it covered a lot of the bases that needed to be covered and you're right it was dead on arrival. this is one -- again i'm not going to badmouth the president, but it irritated me that he appoints this commission, and as soon as it comes out he just gives it the back of his hand. well, that practically kills it

right there. but i thought the commission did a first-rate job. >> i think camp had some interesting ideas. what happened? he kind of started too late. people knew he was going out the door and he did his own thing and put something specific forward which is a requisite prerequisite. remember treasury one, treasury two. the two bills i put in. you have to put in something specific. because then the interests chew it up and you have to figure out what can be swallowed, what can't. i just think you need to see the total picture. i think he did a very good job of thinking through tax policy and coming out with a coherent package. >> senator bennett you're next. >> thank you. thank you, mr. chairman. what a great privilege to have both of you here. i was thinking back actually as

senator packwood was talking to believe it or not the book about senator bradley when he was playing basketball at princeton. he sort of asked the question, how could this -- maybe not the best athlete that we have succeed so well at what he was doing. think in terms of tax reform senator packwood interestingly said, the opportunity appears to do it. so with that in mind i wanted to read -- i took a look at "showdown at gucci gulch" in advance of your arrival. i think it is worth the historical perspective. i just ask you to respond to it for us. the groups with an interest in the existing tax system were well organized and ready to defend their tax breaks at a moment's notice. the populous who stood to benefit from lower rates were unorganized and diffuse. furthermore, congress was a slow and cumbersome institution --

that's not true anymore, of course -- that usually made only piecemeal inskremtcremental changes. tax reform proposed something very different -- a radical revamping of the entire tax structure. there was a tremendous inertia in congress that resisted any such sweeping clang. pass a result, the conventional wisdom in washington held that tax reform was den continuestined to lose and conventional wisdom had plenty of history to back it up. tax breaks, after all, had always been part of the currency of congress. this passage i would say is even truer today than it was 30 years ago as a description of where we are. just in 2014 federal lobbying total over $3.2 billion. i wonder if you could take us inside that room that you talked about and tell us a little bit as senators how you were able to overcome these interests and the pressures that you faced and how we, as senators, should think

about that in the arc of our careers on this committee. >> well, if you're talking about the little cabal of seven sf us pressures were not really that great on us. we knew what could be done. we wondered can we swing it will it work but i don't recall any one of us saying i'm not going along with there. if "x" is or is not in this bill. so those pressures were not on us. i know what you mean about the interest groups. that's what happened to the house bill. they had a lot of individual votes on each of those little parts and if it hit your part and you mate that,hate that, you're against the rest of the bill. there is enough of that. that was not in if the senate -- the senate bill just didn't happen the way -- that senate bill was written in those seven days and we didn't have any hearings. and it was suddenly -- it was like minerva born fully formed.

on that night does the committee see the whole bill for the first time and vote for it 20-0. but had they had to vote on individual little sections -- in fact, i will give you there. the reason i made this deal -- tell you to a bill why. i reason i made the deal with the oilies and gave them the bill they wanted when nobody else wanted it and we'd taken it away from everybody else and gave it back to them. bill was furious. george mitchell was furious because i hadn't bounced this off my little group because it was the night we were voting anyway. the reason i did it was because the biggest issue i was going to face on the floor -- when this came out of committee 20-0 it is going to pass, but there was one issue. it was on the i.r.a.s. there. wasn't a great clamor about tighten up the i.r.a.s. the clamor was on the other side about more more. as you'll see in the listed in my testimony, the i.r.a.s, i

recall, was about a $24 billion pick-up. well, in the senate -- on the senate floor this i.r.a. amendment came up. and i won it 51-48. and 19 out of the 20 oilie senators voted with me. had i not made that deal i would have lost a couple of them. had i lost a couple i'd lose i.r.a. and that loses the bill. senator bradley? >> the reality is that tax reform was failing until the packwood counteroffensive. and it wasn't like this just sprung forth from the head of seduce zeus. right? we had had 30 hearings. the substance had been chewed over by the committee so it was familiar territory. it was just put together in a different way. >> thank you mr. chairman. >> i thank you.

senator thune. >> wait a minute. wait a minute. let me just see here. sorry. senator menendez first. >> all right mr. chairman. thank you. thank you both for your testimony which i read at length. i think we all agree that we need to simplify the tax code and make it more economically efficient. but i always think that before we go about the task of comprehensive tax reform we need to agree what is the end goals that we are trying to achieve so that we can direct our focus. i mean i know that some of my friends here argue that we should focus solely on corporate tax reform and profits and stock market gains. i think i've heard you both say that you really need to do it all at the end of the day in order to make it effective. senator bradley, do you believe

it's enough to -- for tax reform to be focused on increasing gdp on the stock market on corporate profits or should we also have the goal of insuring economic growth as part of it particularly it is it is felt by as many americans as possible. is that the type of goal we should be looking forwards to? >> yeah. i mean you want the economy to grow and you want everybody to benefit from that. i know when we did this bill, as i said earlier, we had four principles. these are the things you should consider. that the market is a more efficient allocator of resources than ways and means committee is finances, determining we ought to do this secondly equal incomes should pay equal tax. it is not fair for your neighbor to pay less because they have a

particular tax benefit. third, those who have more should pay more. progressive principle. and fourth, if you can simplify it, please simplify it. to me, those are the four principles. the economic issues, economic growth obviously progressivety would say you'd want people to move up, and you'd want to say to people at the top you have to pay a little bit more. so i think those are the principles that i would use going forward. >> you know, i think that it's -- my question suggests -- at least i view it -- that it is not an either/or proposition. in fact, fairness and equity in the code actually help reduce the burden on low and middle class working families. not only morally desirable but economically good policy because about two-thirds of our economy is fueled by consumer spending and certainly low and middle income class families have a higher percentage of their

income that they need and spend on goods and services. so, in that respect i think that it makes eminent sense to be looking at how we deal -- how the consequences of reform deal with them, not just on the corporate taxes as well. because i think it will fuel spending that will help private sector profits. senator packwood, at the end of your testimony you included a statistic that in 1983, at least 1,900 people who earned $1 million or more paid no federal tax. and that fact was due to a myriad of special interest loopholes that were clogging the arteries of the tax code before '86. and as you noted in your testimony, the product that passed the finance committee 20-0 and would later become law raised the taxes significantly on corporations and rich individuals. they would pay more middle income and the poor would pay

less. so we've had now a situation in which the average new jersey family that makes $65,000 per year pays a higher rate than the welt wealthiest 400 americans that make an average of $270 million per year. so from your experience what impact does inequity have on the public's perception of the tax code fairness and would you agree that a focus of rye form should be to elimb flatinate the loopholes and preferential rates that have allowed the wealthiest to steadily reduce their effective tax rate over the last 30 years. >> there is no question that the public is aware of the inequality. in 1986 they weren't and the issue was fairness how do these people avoid paying any tax at all or how do major corporations that arice ic are making profits.

that irritated everybody. that was a driving goal for us. inequality today is obviously a much higher goal, preference, issuehsue than it was 30 years ago. what i'm hesitant about is not do you want to fix that. the longer i've been in life, and the longer in the senate the less confident i was that what we were going to do would necessarily get us to what we wants. that's why i agree with bill. the market is a better allocation. if you want to somehow undo the inequality, i think that is legislatively doable. if you can get both sides to agree on that, that is perfect. but it wasn't what drew us in 1986. >> thank you. >> i might say that -- >> i'm sorry bill. >> in terms of the middle class, i mean we need more good paying jobs. so that's tough to get at

through the tax code. but not impossible. so i'll share with you one of my hobby lorss byby horses. infrastructure investment. desperately needed. tough budget. you can't do it. at the size that we'd like to do it. but there are people that have money. chinese. singaporeans. koreans. in the persian gulf. large sovereign funds. i mean hundreds and hundreds and hundreds of billions of dollars. and they have to decide what do they do with that money. and i ask any number of them why don't you invest in infrastructure in the united states? in other words they play the role the british played in the 19th century. they say well, there is this one provision in the tax code. and the provision of the tax code is section 892.

and that says that if you're a foreign government and you invest in stocks or bonds, you don't pay tax on that. very simple. extend that to infrastructure and you could very well find a significant amount of money for infrastructure coming from sovereign funds. >> thank you. >> great. senator thune? >> thank you, mr. chairman. thank you all very much for being here. i was a staffer back in '85-'86 when this was done last time. great admirer of the hard work that went into it and the ultimate result. and -- there are some things that are very different. this is a different time. i think this is a different place probably than it was back then. one thing you already noted, too, that i think made a difference was the active engagement of the president in the process. remember treasury one and treasury two, the big books that they sent up here and how hard

they wereorked to try to get that across the finish line. that seems like to do anything big in this town you need presidential leadership. i hope we can get to that. a couple quick questions with regard to a couple issues you batted around at that time. one had to do with weather lower rates or more favorable cost recovery provisions ought to be a focus of tax reform and which approach is better for economic growth. i think that was a part of the debate. the question i guess is do you believe lower rates paired with longer depreciation schedules was the right policy choice and how do you suggest we ought to approach that question today? >> don't know how you ought to approach today. we clearly felt that lower rates were the most desirable thing we were doing. depreciation was a major difference of interest between the house and senate on that when we had to go to conference. but i'm not going to advice you as to what you ought to do i just say lower rates my mind

keep it revenue neutral. but there might be something you can work on that to even increase revenues. but lower rates would be what would be driving me. >> how about the issue of capped gains? at the time going at the same right as ordinary income. we've since then gone back to a differential. in your view when you look back on it was that a good thing? >> yes he,, i think it was. i remember bill talking for a moment about the hearings we had. you had to have a differential. if it was 30% had to be 15%. if it was 20%, had to be 10%. so i asked him i said if there was no income tax, would you have to have the subsidy to invest? because there's no differential. and he had never been asked that question. didn't know how to answer it. but i think you can do very well if you have a low rate with capital gains being the same rate. >> and this has been alluded to

a little bit already today too, but there's been some discussion about the goals of the tax reform. one of the things i think that separates us here which makes it kind of hard is that there are folks who look at this as an exercise to raise ref flew. that's something the president obviously wants to do. lot of us believe tlat best way to get revenue is through greater growth and that tax reform goal of tax reform ought to be how do we generate economic growth in the economy which lifts everybody's boats and addresses a lot of those income disparity issues that were mentioned earlier as well. so speak a little bit about growth as an objective, a goal of tax reform and how you think that plays into the deliberations that should occur here. >> growth -- obviously, everybody wants growth. but i remember russell long chairman of this committee for 16 17 years in one meeting going, i been here -- came here in '94. i have been here for 30 years! he says three times we have put

the investment tax credit ending tax reform. three times we've taken it out in tax reform. now you tell me when is it reform and when does it work to help the economy? i think a lot of us don't flow exactly what works. i do know there are all kinds of industries that want things who say this will work, but i don't think we're necessarily smart enough to know. >> senator bradley, you've talked a lot about growth. tell me your sort of views on that. >> well, i think you can have growth and equity. i think growth you get in part, through the lower rates, but also in part from clearing out the code of all of this underbrush that prevents the economy from growing because it subsidizes one segment as opposed to another. i think that if you're going to deal with the equity question i think the way to do that is with the earned income tax credit. i think the president's proposal

on the second earner credit is pretty interesting. i mean you can do things in the code that are structural that are are not special interest that will allow you to deal with equity, at the same time you are lowering the overall rate. and to me that's the key. >> thank you, mr. chairman. senator bradley you are a credit to basketball players everywhere so thank you. >> a big complement coming from you, senator. >> yeah right. >> thank you mr. chairman. thank you both for being here today with us and providing us insight from 1986 in how you brought together what at times seemed to be impossible and i will tell you that sitting here as a relatively new senator, it seems relatively impossible for the two sides to come together as well. so your insight has been valuable to all of us and i just for point of reference, i think this is treasury 2. and this is treasury 1. during the years that you guys

found the will to make things happen and these are about six years of presidents' proposals. my first question really for both of you all is, how do we find common ground when finding a serious partner towards real tax reform appears to be missing in the seriousness of the presentations and proposals, number one. and the second part of that is when we've heard from both our chairman, senator hatch and senator thune just talked about revenue-neutral position. when you start the conversation as well talking about achieving several hundred billion dollars more of revenue versus a position of neutrality, how do we bridge that chasm? >> i don't think bill and i can tell you how to bridge that gap. if the positions are

irrevocable, revenue, no revenue, that gap cannot be bridged. >> i kind of agree. >> if you can't bridge that then spend some time doing something else. i think however that the question is can you put together a splaul group of people on this committee that have sufficient clout within that committee as bob said earlier that you can actually spend the time to come up with something that was pretty good. i mean more taxes. you have to figure out which taxes. the trade-offs that i offered with the consumption tax versus cutting the social security and employment taxes.

that's not something we'll decide. that's something you have to decide. all i know, we dmpbtidn't have room for seven people, you're doing votes that affect this part of the economy, that's a lot of fun. if you're just having two sides make your statements, that can't be too much fun. >> can't be too much fun is correct. looking for other things to do with our time sir. i thought about playing basketball but i'm too short and built for football. good news is senator hatch on the other hand has taken a fairly inventive and creative approach to making sure that we find some common ground working across the aisle and looking for sweet spots and he's put together some working groups that i think may be very beneficial going forward. one of the areas that i have great passion and interest as an entrepreneur for the last 15 years is why simplification of the tax code actually benefits all. i think senator bradley you said that tax loopholes are ways for politicians to spends money

without having to go through the appropriations process. the baltimore opportunities that poll significances have to spend money without going through the appropriations process, the more complicated and difficult the tax code comes. when i started my business, i will tell you that i didn't think about loopholes as it relates to starting a business. i thought about creating jobs making a profit changing the lives of family members and employees. i would love to hear you chat just a little bit about the notion of simplification either of you esteemed gentlemen, talk about the notion of simplification and the natural outcome of allowing money to find its best place through the private sector. >> when i was speaking about this every day for four years i went on the david letterman show. that's when he was late late. i took out a card and said, you ought to be able to do your

income tax on this card. that's not quite true, but we do know the vast number of americans have income from wages, interest or dividends. guess who has all that information other than the individuals? the irs. the irs, for the bulk of americans, could do the return based on that send it to the people and the people could either sign it or they could say, no, i want to have another accountant do it. that would be a dramatic simplification. >> well in 1986, i had a younger person on the joint tax committee who was gone -- can't remember who it was now -- give me just a ballpark estimate. not spend time much. what you could do with a flat tax which is certainly simple. and he said at that time -- took him a few days, you could have a flat tax, 1 1% and raise the same amount of money we're now raising. that meant a widow with two kids

who paid no taxes would now pay $1,100 in taxes. i said what about if you exempt all families of four under $30,000. just exempt them. came back couple days later says 19%. but it's slightly tilted towards the rich. and i was curious about slightly. he said, you realize that when you're going to get rid of every deduction that mankind conceivably has, you're mainly talking about people with the rich. nopt the poor. sally who works at the mill who fills out a 1040es with no deductions is not adversely affected. but he said i think if 19% would be the norm you could keep the same progressivity and do it at around 17% on the low end, 20% middle and around 23% osh then the top. this is a top of the head thought of his. but it is worth unrunning if you want to see what you could do. then senator, you have a simple tax. how much did you earn?

you're in the 20% tax bracket. you don't have any deductions in that's simple. >> that's interesting. thank you. >> thank you, senator. senator white -- by the way we've had over 30 hearings on this over the last four years. >> before you -- i do want to tell this one quick story about bill because it was cute. >> sure. >> president kind the bill. signing ceremony -- >> i knew he was going to say that. >> signing ceremony is going to be, say, on a wednesday. bill is in portland at a noon time luncheon fund-raiser for a democratic candidate for governor. then he's a going to catch the plane back for the signing ceremony. my campaign person is tough woman. she says you're not going back for any publicity. but bill was going. portland was socked in. he can't get a plane out in the afternoon. he calls seattle can i drive to jatdle and get a plane out. can i get a charter plane to san francisco. nothing's flying out. i was having a press conference

the next day at 7:3400 and the president was going to call after he finished signing. i said we have a press conference tomorrow, if you want to come. he said no, i want to get out. early the next morning he calls my hotel and says where is that press conference. and he comes and the president talks to me. then i said, and the local network affiliates are there. president talks to me. i chat a bit. i said, by the way, mr. president, bill bradley is leer and you know how valuable he was for us on this. i wonder if you could say a few words. he comes on and speaks to bill. now the thing that irritates me he makes national television from appearing on the local aaffiliate in portland and i don't get covered nationwide. >> well, the more relevant point is, it was because of my respect for bob packwood that i decided in the middle of his campaign to join him in a press conference.

i think that's probably not happened a lot recently. >> that was well done. >> well, i have a lot of respect for both of you. you've both been great senators and you both have done an lot for this country. we're very proud of you. senator widen has -- >> i'm going to be very brief. thank you both for that simplicity discussion because i've thought for a long time that this insanely complicated tax code plays right into the hands of the special interests and the lobbyists. it is going to be even more challenging today than it was in '86. we've been talking about guically gulchgu icallygucci gulch. lobbyists would wait outside the ways and means booth for a phone booth. well, today, a lobbyist is going

to set in the back of the room and set in motion a tweet that's, in effect, probably going to go to millions. maybe they'll be able to tweet directly to millions from the back of the room. so simplicity is going to be hugely important. i think there's some contenders for how to do it. senator bradley mentioned one in his testimony with respect to the information that the irs, in effect, has in giving the citizen an option of in effect, having the irs plalmail something. not required, just an option. the postcard concept that in effect you can also put a tax return on the back of a w-2 and that is something worth exploring. i'm also interested in looking and we'll be following up with the two of you on the idea that if you triple the standard deduction and a number of senators of both political parties are interested in a significant increase in the standard deduction, you don't

have so many people itemized. that's another possibility. but just know we're going to follow up with you on the simplicity issue. i want to wrap up with one last question. and that is, is there one thing you regret about what happened in '86 and you would counsel us in terms of what to do for the future? in other words, it's always easy to kind of think about what's possible today in the abstract. but you two went through it. anything you regret and you'd like us to change? i know that one thing that i regret about '86 and i was just a junior, junior congress person is, senator bradley's right when he says no current congress can currently bind a future congress from unraveling it but you can make it really hard. you can put people through multiple votes and the like. so i can think of some things but you two went through it. anything you regret one thing that you'd tell us to be careful

about? >> well, i regret the odious deal i had to make with the oilies which is totally unjustified and given to them in no other busy got it but i needed their votes on the floor. what they wanted didn't cost very much money. and the i.r.a.s were $24 billion. but do you wish -- do i wish i didn't have to put that in? you're right. by that's one of those decisions you make on the spur of the moment. i made it the night we were doing the final mark-up and i didn't bounce it off my group of six because i knew they would vote against it. i'd rather just put it in have them mad than have them mad i put it in and think i double-crossed them. >> so even in this world of great equality among senators among the group of seven that senator packwood talked about, there was still the chairman's prerogative and i think that's what that was.

nobody questioned that. because we had been through the whole process. do i regret anything? i regret that the bill lasted only a short period of time. as i said, it was a humbling experience. sand castles at the edge of the ocean. only a commitment from members of. this committee and from presidents -- succeeding presidents. president clinton had a totally different idea of taxes. he'd like to spend through the tax code and therefore that helped unravel the differential of capital gains came back. we no longer treated capital and labor the same which was what we did. rate went up to 39%. there were infinite numbers of hiding places for little provisions. my favorite being the one that says if you rent your house for two weeks you pay no tax on that income. there was once a senator from georgia on this committee who

had a lot of friends that had the masters golf tournament. they had big houses around the masters golf tournament. these things happen, right? but i don't regret that. that was before my time. but i do think that you have to find some way -- i regret that it didn't last. that's what i say. >> well, thanks to both of you. senator packwood, you have one of your top staffers -- at least one, i know of, who was with you at the time. you care to introduce? >> bill? >> yeah. >> bill stand up. that's what tax reform does. bill was the chief of staff of the financial committee at the time. i've often said, if that bill wasn't my bill. this was our bill. he was absolutely krilcritical, especially in dealing with the administration and with dick durbin. but it would not have passed but for him. >> i agree with that. >> he's still legendary.

i want to thank both of you. this means a lot to me personally. and i've admired boertth of you for a long time as premier legislators, as people who really care for people and who are both extreme lip intelligent. so this has meant a lot to me and i appreciate it. with that, we'll recess until further notice. >> thank you. >> tonight on our companion network c-span our road to the white house coverage continues. first american union chair and former hewlett-packard ceo carly fiorina speaks at a politics and eggs breakfast in new hampshire. see what she has to say about her presidential aspirations. then potential presidential

candidate sfloert randenator rand paul talks talks. here are some of our featured programs for this presidents' day weekend on the c-span networks. on c-span's 2 book tv saturday morning at 9:00 live coverage of the savannah book festival with flon-fiction authors and books on topics like the disappearance of michael rockefeller. a british company of elephants during world war ii. and four women spies during the civil war. and sunday at 9:00 p.m. eastern on after words, former senior advisor for president obama, david axelrod on his 40 years in politics. on american history tv on c-span3, saturday plonk beginning at 8:30, the 100th anniversary of the release of the firm did the birth of a nation" starting with an interview of the author.

followed by a live call-in program with a civil war historian, larry jones, and the author. sunday at 8:00 on the presidency, george washingtonfocusing on how artists captured the spirit of the first president. find our complete television schedule at c-span.org. let us know wlauhat you think about the programs you are watching. next, a senate commerce subcommittee hearing on the u.s. supply chain. senators hear from food and freight industry officials who talk about growing challenges presented by weak infrastructure and port productivity. this is 1:25 minutes.

>> the hearing will come to order. good morning. i am pleased to convene the senate subcommittee on surface transportation and merchant marine infrastructure, safety and security for our second hearing which is entitled "keeping goods moving." to grow the economy and create new jobs we need an efficient and reliable intermodal

transportation network. today's hearing allows us to explore this issue with a particular focus on infrastructure and maintaining operations at our nation's ports. america's intermodal transportation network is the foundation upon which u.s. businesses, along all segments of the supply chain produce goods and get them to market. at our last hearing, cabela's outlined how disruptions or inefficiencies along our nation's just-in-time shipping network cost companies through lost sales increased costs and poor customer service. deep-water ports represent a key element of the u.s. transportation network and are vital to our economic growth. in fact america's seaports often serve as the key connection point for all modes of transportation. our west coast ports alone move

12.5% of u.s. gdp per year. a shutdown of america's west coast ports even for a short period of time would have devastating economic consequences. according to a recent report by the national retail federation and the national association of manufacturers, in the most severe case a 20-day west coast ports closure would disrupt 405,000 jobs, reduce u.s. gdp by almost $50 billion and cost the u.s. economy $2.5 billion per day. i've heard from businesses and consumer in my state expressing grave concerns about service disruptions at west coast ports. just last week my office heard from an omaha-based company that manufactures electric conductors with inputs from asia. this company is seen as import time frame double and cost

triple because ever current slowdowns. for many businesses changing shipping routes or modes is cost prohibitive. unfortunately, whether they export agricultural goods or import retail, businesses are being forced to opt for air freight or are rerouting projects to avoid losing market share due to misedsed shirmts. port congestion obstructs. everyone looks forward to see the situation resolved quickly. members of congress and the administration must pay close attention to these ongoing negotiations and the economic impact of service disruption at our ports. this is particularly important as we face the potential for ports on both coasts to be negotiating simultaneously in 2018 which is when the current

east coast labor contract expires. i'm pleased that today's panel will represent a wide array of perspectives on the effect of recent disruptions in our nation's supply chain. i'm eager to hear further details from our panelists on the challenges that slowdowns at our nation's west coast ports have posed to their industries and their consumers. i'm also looking forward to hearing about opportunities for congress, state and local governments and the private sector to work towards modernizing and enhancing our nation's ports, infrastructure for businesses workers and consumers. we need to explore the policy options to support port growth and future volumes of freight to keep goods moving. i'd like to now invite my colleague, senator blumenthal, to make any opening remarks. senator? >> thank you, madam chairwoman.

senator fisher. thanks to our witnesses for being here today coming long distances and contributing your insights to one of the critical challenges that our country faces. not always the most glamorous or noticed, but one of the most profoundly important to our economy, to jobs and to our quality of life. so we thank you for being here. in the next remainder of this decade, the department of transportation estimates that freight will grow at least 10% in volume not to mention the value of that volume to our economy. so far from diminishing the importance of moving goods, the topic which brings us here today will only increase dramatically and that estimate in my view is a conservative one.

no individual part of the country, no city or town and certainly no region is an island. all depend on transportation working together. we move goods. we tend to focus on passengers as we did last week in the tragic collision in new york a tragedy that was preventable and avoidable with proper safety procedures. the same is true in moving goods, in moving freight. safety lass to be made number one priority. but we're all dependent on freight transportation just as we are on moving people. moving goods is equally important. we all depend on all of the modes of transportation, all the types of transit whether it's roads and bridges, rail, water, all working together and all fulfilling their vital functions. so i join in the hope that the

parties to the west coast ports dispute can find a reasonable mutually agreeable solution as fast as possible. time is not on our side. and that the businesses impacted by the slowdown, including many in connecticut, are able to weather this time, and the impact economically. but looking beyond this immediate issue are the broader challenges of investing and making sure that we build the infrastructure that is vital to moving goods and people. just as one example. connecticut has a freight infrastructure that is very much in need of that investment, upgrading certain sections of our freight rail network so they can accommodate 286,000-pound

weights in moving goods and services by rail which is the north american rail network standard is very, very important. most freight railroads in the country are able to sustain freight cars weighing 286,000 pounds and this weight limit includes the weight of the car, plus about 110 tons of cargo or 220,000 pounds. if connecticut doesn't upgrade its weight limits, then our state could become a freight island. but of course, if we are a freight island the rest of america can't reach us moving goods. and that's just one example of how clogged arteries can stymie economic progress and job creation. so i'm very much looking forward to the testimony that we're going to hear today and to hopefully the initiatives that

it will enable us to take in the interests of all america. thank you again for being here. >> thank you, senator blumenthal. welcome to the panel today. i appreciate you taking time out of your schedules to be here at this hearing and provide the senators with more information on this very important topic. i would like to get right to it so our first witness is mr. norman baseck. he is the vice president of international sales of cargill. so welcome. >> thank you, chairman fisher and members of the committee, subcommittee, for inviting me to testify. trade maximizes the value of products u.s. farmers and ranchers produce and our employees process because we're able to sell them to the domestic and international markets where they have the most value. this creates the best opportunities for cargill, our customers, our farmer and rancher suppliers, our hard

working employees, and the communities where we operate. ports are and integral part of a dependable supply clan.hain. let me outline the beef and pork supply chain i work with every day and detail challenges that occur when there are problems with product flow through the ports. cargill procures livestock from farmers and ranchers to be processed into fresh beef and pork in our plants located predominantly in nebraska kansas, texas, iowa, pennsylvania illinois, collorado and california. customers from around the world rely on fresh beef and pork to sell in homes, restaurants and food processing plants. fresh meat has a relatively short shelf life. it must be quickly packaged and shipped in temperature-controlled trucks, rail cars or containers to ensure product integrity and safety and to allow enough shelf life to sell or process once the

product arrives. under normal circumstances, a container of fresh pork destined for asia usually arrives with more than 25 days' shelf life. the industry is currently experiencing delays of two to three weeks on chilled product due to the congestion in west coast ports. with this delay, our asian customers cannot count on a dependable supply of u.s. beef and pork. so they're canceling orders and are looking to suppliers in chile, australia and the european union to meet their needs. yesterday japanese customers canceled next week's chilled pork shipments. i assume many of our competitors are facing similar cancellations. needless to say, the current situation has created a tremendous amount of uncertainty. today the industry is faced with three choices. first, continue to ship product despite the current uncertainty. this can result in shorter shelf

life, an increased risk of potential spoilage and even complete product loss. second, we can air freight the product at a tremendous expense often three to five times the normal cost. or third, don't manufacture export products and adjust operations and procurement accordingly. if you take nothing else away from my testimony today understand that any of these choices result in negative effects to everyone in the chain, in particular farmers, ranchers customers, and plant employees. today about 10% of u.s. beef and 25% of u.s. pork is exported. the u.s. meat export federation estimates thatted the global demand for u.s. beef and pork will reach 17.6 billion pounds in 2024. that's up 50% for beef and 42% for pork. with most of that growth coming

from the pacific rim. future growth to serve these markets depends on an effective, efficient and reliable supply chain capable of moving 162,000 incremental containers per year. for reference, this is enough to provide 29.2 billion more four-ounce servings of beef or pork. our nation's advantage has always been having a fair, robust competitive transportation system that ensures we can compete in the global market. we must look at our situation not simply as manufacturers, shippers, labor and capital but through the lens of global competition. we ignore it at our collective peril. ports where the goods we make are loaded and exported for the world's consumers functioning ports are imperative from both a labor and operational perspective. when ports don't operate the supply chain backs up causing

long-term problems for us, our industry, our farmer and rancher suppliers, our customers, and our employees. we ask you to take the steps needed to address the challenges i've outlined today so that we can continue helping the world thrive by meeting the needs of consumers around the globe. i look forward to your questions. thank you. >> thank you. miss farmer is the vice president of consumer products at bnsf. welcome. >> thank you. good morning chairman and members of the subcommittee. thank you for the opportunity to be here to discuss bnsf's perspective on the importance of our nation's ports to the u.s. supply chain. i'd like to begin by explaining rail's role in the international splay chain. intermodal is the movement of shipping containers and trucks by rail combined with a shorter truck movement at one or both ends. its growth over the last decade is attributable to a number of

factors, including fuel efficiency, highway congestion trade growth and truck driver shortages. there are two kinds of intermodal movements on frayed railroad. the first is domestic intermodal which is the movement of 53 foot-long containers or trailers within the u.s. the second is international intermodal in which goods manufactured overseas are shipped in 20 and 40-foot long containers. these containers arrive on a container ship on a port, loaded on to trains on dock or trucked a short distance to an off-dock or near-dock intermodal yard where they are sorted and loaded for movement to markets in the interior of the country. the containers are owned by the steam ship lines and we work together to balance the flows of eastbound traffic and match back the empties with full loads of u.s. goods westbound to a ship destined for asia or other international markets. last year on our railroad we handled post reception record volume levels of freight. we did not deliver the service

that customers had come to expect from bnsf. we have moved quickly and implemented a $4 billion capital improvement program in 2013 followed by a $5.5 billion program in 2014. we have announced a $6 billion capital budget this year. with. investment we have permanently expanded the capacity of our network which we believe will continue to maintain the u.s. supply chain advantage. the san pedro bay port complex comprised of the ports of los angeles and long beach is the busiest container port complex in the western hemisphere and a top gateway for u.s. trade with asia. the bnsf transports half the international shipments that go out of these ports and 75 prsz of these units carried by us are loaded on dock. the remaining are handled off dock at bnsf's hobart yard in east los angeles. the facility is 24 miles by highway from the ports. bnsf has been, woulding for well over a decade to build a near dock facility only four miles

from the ports called the southern california international gateway or scig which would be the greenest intermodal railway fra silt every constructed and eliminate millions of truck miles on free freeways between the ports and downtown los angeles. our abilities to build these facilities have been challenged and permanently tied up in the courts. we think this project creates operational efficiencies for the ports. west coast ports face challenges due to congestion. growing freight volumes are not the whole story since overall freight levels since the west coast ports have not returned to levels since before the recession. there are several factors that contribute to growing congestion at these ports including inadequate port infrastructure needed to handle larger ships limited infrastructure adjacent to the ports operating restrictions from local communities as well as operating inefficiencies. but by far and away the most disruptive aspect to the supply chain over the last several

months has been the reduction in port productivity as a result of ongoing negotiations between the pma and ilwu. port productivity has declined by as much as 50% during this period. the result is year over year reductions in. eastbound weekly train counts by 20 to 30 trains per week carrying a minimum of 250 containers that are not being processed through the supply chain. this also impacts the return movement of freight westbound for exports. this is causing significant delays and increased cost for our customers. bnsf has taken numerous actions to ensure its customer and ensure fluidity in the face of these challenges including equipment management. during the 11-day shutdown of port operations that occurred in 2002, freight permanently migrated away from the west coast. this is certainly a potential long-term consequence from the current situation. congress can play a role in

keeping goods moving through sound from uk turinfrastructure policy. my written report details those thoughts. thank you and i look forward to your questions. >> thank you, miss farmer. next we have dr. walter kemesis. he is the chief economist at moffett and echo. welcome. >> good morning. >> good morning. it is well recognized that international trade is increasingly important to the u.s. economy and that this trade mostly utilizes ocean going vessels, particularly container vessels due to the versatility of containers for handling a range of car ghoegos from dry goods, refrigerated goods liquids, and gases.

ports have an important role in the movement of overseas freight because they are major intermodal exchange points transferring cargo between ships, trucks and rail. they ocean liners are adapting to growing trade volumes and i would agree with senator blumenthal that the estimates for trade volume growth are probably low. and we should likely see much higher growth rates provided that the infrastructure is there. the ocean liners are responding to this by -- to not only the larger trade volumes but also to rising fuel costs and to stricter environmental impact regulations by investing in larger vessels. the larger vessels mean more cargo in fewer ships and fewer ports because the time it takes to load and unload the ships is time that vessels do not earn

revenues. and given the cost of these very large ships it is important they minimize the time that they spend stationary particularly sitting in ports. the ports are adapting to this change in the global ocean vessel fleet. they are investing in dredging the access channels, investing in dredging the berths in removing air draft restrictions. they have been acquiring larger ship to shore cranes that have greater reach and must greater lift capacity. they are densifying the terminals so you can stack the containers higher and also by automation. investments made by the ocean liners and ports are not matched often by the land side investments outside the port

gates. handling capacity has creates congestion problems in gateways around the world and in some parts of the u.s. in locations where land side planning and investsing is not exactly in line what with what's apping in on the water side. and transition of ocean carriers moving away from providing chassises to their customers and allowing the financial sector to step in and lease these has not been very smooth and to some extent this has impacts the effect of the larger vessels on congestion ig issues. and to that we would include the productivity losses that have kurd at the ports due to the

contract negotiations. but to my perspective we see the shorter term issues as masking some of these longer term trends driven by the larger vessels and therefore causing concern about the long-term congestion problems that we would expect to see in the u.s. supply chain. it is likely that foreign ports in locations where intermodalism characterizes freight movement and planning will be gating at the expense of u.s. ports and therefore the expense of u.s. logistics industry. to sum up i believe that fail your to cut costs across u.s. ports by which i mean not just cutting costs in ways that create competition between u.s. ports but rather cutting costs for the spire port system is required. otherwise u.s. ports will not be the winners in competition with the foreign ports.

the spotlight on this is on the inland segment of the flow path. railroad lines in order to improve service markets close to the port and truck factways to improve access to markets further away. we need to focus our attention on tinld segments of the product flow path. on the railroad lines the great crosses, the container transfer facilities and for trucks we need to start thinking about dedicated freight ways. these types of investments will make u.s. exports more exceptive i. -- competitive. >> thank you. >> next mr. john grueling. he's a board member of the coalition for america's gateways and trade corridors. welcome sir.

>> today i'm represent inging a diverse group of 60 public and private organizations dedicated to increasing private investment in america's freight infrastructure. i'm also here at as the ceo for economic development. our responsibility is marketing the largest inland international container port in north mork. crossed by six records, five interstate highway several commercial water ports on our nation's largest inland water way. last year we processed over 3 million containers containing $65 billion worth of goods that our grown, manufacture, assembled and delivered throughout the united states and the world. our first and last mile infrastructure requirements today total $3.6 billion of new investment just in our county.

and that does not include bringing our existing infrastructure up to a state of good repair. our needs extend far beyond roads. increased utilization of freight by rail is resulting in more harm to public safety. we need at the local level more grade separation structures and first and last mile interstate connecters to accommodate the afraid of the future. the growth has been stated. we believe by about 2025 the increase about 45%. meanwhile, 95% of the international consumers are now outside of the united states. so being at the beginning and the end of major global supply chain, u.s. companies have to understand, and the government needs to understand that we need

good infrastructure to reach those markets. u.s. government infrastructure investment as a percentage of gdp is currently less than 2%. offer trade partners, canada china, mexico are spending two to five times more than that on their infrastructure. and it can't be just one mode we're focused on when talking ak funding infrastructure. we have toic loo at all modes and we need to make those modes work together are better together. rail truck, air and water are today the key components of the global supply chain. the global situation is getting worse in a lot of respects. but we have the opportunity to take advantage of what's going on internationally in the economy. the coalition for america's gateways and trade corridors ask congress to take the following steps in the upcoming transportation service authorization. first we would like you to

establish a freight program containing dedicated and flexible funding. freight should not compete with other mobility needs. it is integral to other mobility needs. freight movement occupies a special place in our transportation system, as the elements supporting commerce, competitiveness and that all important word jobs. we should have a dedicated funding such as a gt freight trust fund that is committed to stoking the economic engine by approving efficiency, safety reliability and speed at which goods are moved. second fund at the minimum level of 2 billion dollars a year, a grant program. projects of national or regional significance or significant freight specific competitive grant program is needed to prioritize federal funding of projects that meet certain performance criteria to advance economic goals of this country. by prioritizing projects we can

identify important public benefits as well as non federal support. a $2 billion grant program could leverage many times that amount in private investment and infrastructure. third, ensure robust public investment in all modes. where public benefit is derived public investment must be made. it is often where modes come together that public assistance is needed to close the gaps. highway grade rail crosses. excess cargo. logistics or transfer facility tunnel and bridges for port access and border crossing capacity enhances. finally modify the national freight transportation policy to make it multimodal. create an office and give freight the significant attention that it needs in this country to keep our economy healthy. thank you.

>> thank you very much. we will begin with a first round of questions. five minutes. i will start. mr. bessac, you talked about competing in a global market and the effect that has. and being with car gill and the emphasis you have with port, can you tell me what percentage of pork in this country goes for exports? >> certainly. pork is much larger than beef. about 25 -- between 20-25 percent depending on the year. and about 10% of beef is exported. >> when you are looking at delays at our ports and you see other countries stepping forward and being able to fulfill some