china and there is still so much confusion in so many countries and they love to find this in some of them. i think the big challenge is cultural and the lack of leadership. who knows where to go? >> right. and in particular, a final question for you on this. in particular, do you have that view of brazil, as well, where you've just been through elections and a big debate about the various aspecs of the economic model? >> no. it was not a big debate of the economic model and the economic model is the same in brazil and brazil has been a country that for many years with the governments, dictators and they have very clear the paper of private investment and entrepreneurs and they support always the development of businessmen and that's why the best, best business community in latin america is brazilian. it doesn't matter if it's cardozo, it doesn't matter the dictator. maybe the only scene, and i will say that i am not sure that it

is a good idea is that they are very protective of the economy. they close too much the economy and they are more than 200 million people, and they close the market and you need to produce things there or you pay 35% taxes. i think that should be a little easy, but it has been done by one government to be very protectionist for the industrial and the production nationally. >> saud, if we come to you, your view of the challenge that carlos has laid out for us, the debate over the direction that essentially a civilization should take is fairly pronounced in some parts of the world that you operate in. i mean, how is it affecting the way that you and your company make investment decisions, think about customers and look at opportunities?

>> well, for us, i think we look at markets, the first thing we look at is the demographic in terms of the younger population and how quickly the population is growing. i think urban rule is very important for us and we look at those sorts of numbers and the barrier to entry and there is an opportunity we go in, but i'll give you some examples. for example, afghanistan has a population of 30 million. its population is set to grow by 2016. it will be the 16th largest country in the world. pakistan's population is 180 million and set to grow to 400 million people by the year 2050. and even if you have a bad government and high unemployment the economy still continues to grow and what's allowed people like us and carlos and others to go in is technology. we didn't have satellite televisions before. we didn't have the ability to

compete with state broadcasters and we're going into these marks. i mean, we -- we're a small company and we're fairly quick to make decisions and sometimes we may not make the right decisions, but we go in and we take huge amounts of risk. for example, we launched our iraqi channel to the 31st of august of this year. now weeks before we weren't even sure if baghdad would stay in the hands of the iraqi government. we had 40 people on the ground in iraq, but we took a chance and, you know, for the benefit of hindsight it was the right decision. so we're not your typical company with -- you know, we're not that risk averse so to speak and we've taken huge amounts of risk. our business is all about risk and high growth and along the way we'll lose a business or two because of war and competition because someone will get blown up, but longer term if we have a diverse portfolio of assets and countries, i think we'll be okay. at least that's the formula, but you are taking up with investments like that and we recognize you have a high appetite for risk than most company, but you are taking a

very long-term view of how the politics will play out in that region. >> i think bigger picture, i think we'll be okay. i think we have a lot of challenges whether it's isis in iraq or the taliban in afghanistan, and the regime in iran, for example where we have the channel that goes in by satellite and if you go into afghanistan people talk about the good old days of the '70s. literacy was at 8% and the gdp per capita even relative to the rest of the world was very low, but you fast forward to 2014 literacy is under 40% and the economy is a lot stronger. so despite 30 years of conflict, the country has actually progressed. so if you take a step back and if we look forward to say 2050 or 2100, you know, the entire region will improve. i mean what we're seeing today is the upheaval whether it's isis or various other movements i think ultimately we'll put the region in a better place in a decade or two obviously we will. >> continue to elaborate and

explain and i've never heard it quite described like that before. >> i think what's happening is a lot of these country, the populations were pretty much paralyzed. they couldn't think. they couldn't read. they couldn't write. they couldn't express themselves and they weren't participating in business or civil society and so forth and you're beginning to see that. of course, we tend to go to the extremes and i think that -- what's interesting is people are at least questioning things and let's not get too relaxed. there say danger of the region becoming radicalized, but longer term it will come back to the middle. these are natural reactions that we're seeing for people looking for answers. >> before we go to questions. >> just one thing. one thing very important to point out. afghanistan was under the taliban rule for five years, right?

it's the first place that this type of regime took over. today the taliban's approval rating is less than 10%. afghans don't want the taliban. yes, they have managed to challenge the international forces and the afghan forces, but it's not that the people want them. it's very different to some other parts of the middle east. >> and before we go to questions in the audience, i just want to ask both of you about the opportunities and challenges in africa because all of the trends we've talked about are playing out in africa whether it's radicalization and whether it's the lack of leadership or the civilizational transformation that, carlos, you talked about. let's start with you. what is your view of africa? >> we like africa, in particular north africa and ethiopia. if you look at algeria, for example, some of its gdp is 250 billion. it has over $200 billion in its

reserves and the country has no debt. a population of 40 million people and the second largest arab country and obviously it's been a very controlled economy, but it's beginning to open up. it has enormous opportunity and very literate population, multilingual, sophisticated in their own way and to a large extent, battered and bruised because of the civil war that they experienced, but there's an enormous opportunity for people like us to go into that market. >> carlos, your view of africa? >> i think you need to be, to look at it with a global vision and you cannot put a label and say africa is like this. they are many countries, different sizes, different levels of development and south africa is different from central africa and north africa is also a different stage, but you cannot say africa, but it's clear for me that the society, the civilization moved from the

original agricultural societies of 10,000 years to the development and the paradigms are different. in africa they are in a different stage. they are countries that are still with a lot of normalities and a lot of people moving around and there are other countries that developed agricultural and very rural and there are other countries that are in the industrial society. you need to make the difference about that, and i think that all the countries the good thing is to come to this new society, and moving from one stage to the other, you have a lot of important opportunities and mainly to have a better health, a better education that this made for the development of africa, we need to improve with the support of outside the

health of the fall of africa with the malaria and malaria has been better than other aides and we need them to have more help and get down the child mortality and education. and education. i think what should be done there is a modern education using technology and not -- you cannot do the classic education. we need to move to something more modern and cheaper and more cost efficient and develop jobs. the movement from a rural area and from the urban society is a great generator of economic activity and unemployment and improving the development of the country and that's what should be there in the general terms. like what has been done in all the world. >> we probably have our first question in the audience. we do on the left.

>> on the left. >> i was on the board here. i was encouraged to hear mr. mosini say that you think in ten years the middle east will be better because people have, there's better education and more communication and interaction and people don't want the taliban, for instance in afghanistan, but how do people get to have what they want in a part of the world where they don't have much to say about who rules them. a decade, it could be decades, but in some ways, i think some populations need to go through that in order for them to see how full it would be to go with the system to go with one created by isis. by the way, we're experiencing different forms of extremism

right across the region. turkey is not the turkey of ten years ago. and so i think these are growing pains for the region. i don't want to make light of the problem that we have today in the region, but i just want to take a step back and look into the region in the next you know, 40, 50 years, but i think that education is very important, but the other thing is that the region, this is one of the challenges that we have in the countries we operate in and we have 100 million viewers across ten countries is that not many people in the region take responsibility for their own issues and with responsibility i think that people will become and act more responsibly in terms of choosing the people that would lead them. another question? one up there. there's one over here, as well.

>> mary peters on the trustee board here at rand. i would like to ask you, mr. slim, if you could talk about the shale oil explosion here in the united states especially eagleford down in the coastal area of texas and into mexico and what effect that might have on the mexican economy. >> thank you. we talked about the last question and a big problem that are in countries is is extremists. and active and exclusive of other ideas. think it is very important that you were telling opportunities and we need to educate more the people and trying to change the culture like i was telling before, the culture of the people that are still living in fan attism and extremism and radical thinking. about the oil and gas, the

shale, i think for the u.s. it is very, very important because you are importing, like, 9 million barrels a day and that's $1 billion a day and you were dependent about the oil, et cetera and now with this development and all of the technology and all of the technology that you are developing and the cost is going down and down and down, and i think it is very important not only for u.s., but for europe also that is very dependent of this product, and i think the development of the shale gas in u.s. is going very strong, it will be very important because in getting down prices of everything and we'll take out the dependence of u.s. from outside oil and the big trade deficit that it produced the $1 billion a day, but also we'll get down the energy and the energy of the united states and

we'll make more competitive the country to produce some other products and manufacturers that should be done, and i think that the thing that will come is that we will integrate north america and maybe including central america and this energy program of changing and the use of energetics that will make our costs be down so much that including mexico that has with local energy with the cost of gas and the labor, we'll compete strongly against china with better conditions and the american companies, instead of buying there can buy and produce with our country. we will be competing within the country with the shale anywhere. i'm talking now about mexico. i think it's a revolution, an energy revolution because also the gas is cleaner. when the gas will be available

you will have more and it will be gas stations and not with gasoline. the use of gas will be, i don't know, but electric cars are very important. produce the electricity from somewhere and it comes by thermal production that is using oil and other combustibles and at least gas, but when you begin to use gas in the trucks and everything it will be cleaner for the atmosphere and for the carbon and contamination and cleaner for the industries and cheaper and i think it is very important and the most important thing that i have seen in the last year for u.s. and for all north america including mexico, canada and central america. and i think that something in a few years, it's three, four or five years and before 2020, the

u.s. will be not dependent. already authorizing to export oil and the national export and that's yet prices are going down and now you can pay instead of paying $4 or more for a gallon under $3, that is money that's also going to the pockets of the people and let them use this money for other purposes as much as you are a very high energy consumer you can use a cheaper energy doing here and not so contaminant is a big, big revolutionary change, i think. >> i wanted to ask assad a question related to oil. so the big revolution that carlos just talked about is also changing the way that the middle east figures in the strategic picture and does that in any way effect the dynamic that is playing on the ground at least

over the next decade or so? >> sure. just look at iran, for example, for them to will bahhance their books and oil prices need to be above $120. so the more the price is under pressure, the more that, you know, that -- let's assume they care about their economy and the iraqis and how that impacts what they do, of course. i think everything has an impact within the region and the outside deals with that region and everything has consequences. back here on your right. >> excuse me, about the oil. can i say something? >> of course. in '86, the oil went to $6 and in '81 it was 40 and at the end of the '90s it was $15 and $17 and it went to the crazy price of $150 a few years ago and volatility is also terrible

because it is a very painful for many countries and there is a transfer of wealth going from one place to another and the middle east countries have a lot of money and they are doing a change to many forms like noriega also has done this and they can support that. and they're moving to high education or technology and trying to change the formula, but the price to get more stable and not too high in the future and for the u.s. especially, and understanding this change. >> we have a question back here. >> good afternoon, sherry christy. i would like to address with the panel another precious commodity and i think we have the oil, gas

and energy fossil fuel alternative under cover and i'm very happy that we're all witnessing the united states becoming independent with water is the most precious commodity and it is only 1% of our planet and we're not having it renewed. so how do you see this entering into our countries that have the emerged market and their infrastructure has not yet caught up with how we all need to live and eat in our land, as well. >> maybe he would like our answer and this 1% is too much. 1% is a lot and as much as you can manage the water and it was available, and nobody cared. what we need to do is take care of water and recyclable and

renewable and you see water can be treated. and what we need to do is to manage the water efficiently and then the problem of water will be the viscosity and you can take water from the sea and recycle the water that you're using from the river and everywhere and it is a problem of management from the water and say the water will be a private issue in some other country, it is already in some cities and you have the same network that you have an electricity or in telecommunications and it's the same thing. it is the same service of fixed lines and electricity and you will have a -- that is renewable and recyclable and the best business on electricity and the

only thing that you need to manage it and you won't have a problem of viscosity if you manage the water in the right way, i think water is a lot of water around including the sea. >> saud, anything from you on that. >> carlos is right. water needs to be better managed and it's important to educate the public in our neck of the woods and they're not particularly responsible and we actually do a lot of public service announcements in some of the countries we operate in terms of conserving water and the other thing that's very important is many people don't realize and the disputes we see in the region is over water. you have afghanistan, pakistan,

central asia and afghanistan and, you know, these need to be, you know, we still don't have deals with some of these countries and we need to actually, maybe the international community needs to step in and ensure that we have different arrangements with different countries. >> i believe in the gross subsidies. i think for the people that you need to give the first 30 meters, and near free, but after that, you need to charge. i think the reason will be that you don't take care of the water in your house and you pay $3 for the meter and the cost is $1 and the water that you are taking out of your shower or any place, go to some place and get clean again and they will sell it to you again and they will sell for $3 and they will cold front $1 to make a treatment that will make it work. it is like telling to our customers don't call by phone because you will use my electricity. no, if you use water the good way it will be the best business that you can do.

>> question over here. >>. >> because it's recyclable. >> hector ruiz, i'm a trustee, and mr. mosini, i find it interesting that the approval rating of the taliban in afghanistan is the same as congress in the united states. >> and they're still around. >> a question. you seem to have quite a success in some very difficult places. my question is actually quite simple, but it's how do you deal with corruption which is known to be quite a challenge in those parts of the world especially in these emerging countries? how do you deal with that piece? >>. >> in afghanistan, when we have a news channel, this is one of our obsessions to deal with corruption and in a place like afghanistan where we have seen

so many challenges with the state, the judiciary has been very weak and corrupt. it's quite interesting that people actually rely on the media to do anything that entails corruption. if a person finds an individual that takes money and records the conversation or tapes it he doesn't go to the prosecution. he comes to the media. so the media then does an expose and quite often during karzai's tenure in afghanistan there was no reaction from the state at all and it gave people enough satisfaction that it was on television at least that that individual was embarrassed or humiliated and to this day, people still come to the media. so i think the media can play a very important role in terms of allowing people. if nothing more upon it's an outlet. people let off steam and i think the media has a huge responsibility in dealing with corruption and corruption is the cancer. i mean, if you look at afghanistan, the taliban, they were in some parts of the country because of how inept and

corrupt the state is. >> we have a question over here. >> hi. crystal wong, prgs graduate student. my question is somewhat tied to the last one. china's first ten years of opening up in reform has been driven largely by special economic zones that attract investors to these areas. my question is then what are your views of these charter cities and economic zones? paul romer is a huge champion of breaking free entire cities that have a different set of tax rules and special reforms that can create a safer environment for investors. have you encountered this in any of your business and what are your views on it? >> do you want to take that? >> i don't know who had the question, but what is happening in china is maybe 78 or 1980 they begin to move from a rural and agricultural society and very poor society to a modern

society is jumping a lot of that and that's why they have so much. when they say no, they are not growing because it is 7% today and 7% in absolute terms is 16% ten years ago. that's a lot in the amount and china is moving from a very rural and agricultural society to a very modern with technology development is maybe the only country that is moving like this because, let's say, russia, has still a primitive mentality, i think, and it's thinking in power, in territory and in territory, power and primary commodities, oil and gas and all of the primary commodities and china's thinking in markets and that's why they are leaders in the market and that's why they are the big exporters in the

factory of the world and they are thinking in technology development and they are moving ahead and they are with another mentality and to change these things in the country is very, very difficult and they have the five-year plan and they're looking at a 50-year program and look at what will happen in 20 years, but moving and changing so much will bring always problems and those are the problems that some cities will have and you have in china places like shanghai, very developed and very advanced or hong kong now with these political problems and you have the others and the big problem, not the big problem, but the big thing and the good thing is that the paradigms of the new civilization are democracy, rurality, diversity, freedom, competition, more participation of the civil society and in the past, the state where the civil societiy is more important and

they're asking for places and spaces. the private investment is looking, and that's a big change that is happening and they will have some programs, that's why they are a little -- how you can say? they can be very democratic and very open like they need to have the rules and they happen to move ahead and as much as china -- because china is a country taking more people out of poverty every year. maybe 20, 30 million people every year and they are educating them. they are getting to urban areas and they're having also the problem with these big cities and the development because they are moving very fast, moving a country of 30 million every year and that's the big thing that there are not many countries with 30 million and that means that in five years they move 150 million people and the numbers

are fantastic and that's, i think, one of the reasons of this, but let me go back. the corruption is the worst problem of the new society everywhere in the world. i think that should be an attack, and i see two ways to do that. first, the cultural change is very important, but secondly, when they pay so low salaries because they say the president cannot win more than $5,000 a month. that's crazy. and the minister of that, 5,000, that's crazy. have better salaries and not to have impunity in place. salary retire when they go out of the job, to have also an income and impunity is very important and the corruption is a big problem everywhere in the societies, i think.

>> just very quickly to tack on to the question and go to saud, so the chinese experiment with special economic zones and special cities where you don't change what happens in the country, but you try to change a little bit in one place so that people can come in and feel safer there. >> that model has also been tried in the middle east. your company is headquartered in dubai which has a special economic zone and it has been tried elsewhere. what's your experience of that? >> in dubai is very good. we are in a city that is tax-free and you have to provide those sorts of services if you want to attract companies and it's good to see different parts of the middle east compete. abu dhabi is competing for business and so is qatar and of course, other countries in the region, as well. >> we as business people favor it. we like it.

>> we've got a question up here in the front. >> sure. >> yes, mr. slim, i know you've done wonderful philanthropic things in your country, but i wonder how you feel about what is happening in mexico at the moment and whether mexico can ever extricate the way that the drug cartels, business, police are all seem to be according to what we hear, tied together. do you feel optimistic about the future? where is mexico going? >> i think it is terrible what is happening, very, very terrible. the crime is taking institutions and territories. we are seeing that people is involved. we have 2500 municipalities, many of them are very small and they have a police of 30 people, 100 people and the crime take

the police under their control and our big problem is that u.s. send the arms and we are fighting against the drugs with u.s. agreements and the u.s. sends with the arms. >> first, we have to finish with the arms coming from the u.s. and they have the after-market follow-up with the arms to know where they are going and who have them, but we are fighting with arms and selling from here. that's a big problem. the second problem is that the things are so bad. so bad because for many years with the merida plan that was signed by the last president calderon with president obama, it was an agreement to fight the drug organizations and, well, it was many people were dead and many people disappeared and it was terrible, but now i think things are all so bad that we need to make a very deep solution to move out of the

politics, and to take out this police that the municipality police and the state police instead of having this small place like a sheriff with 80 people or 90 people without threatening it and without robbing the very poor municipality or country and i don't know how you call them, we need to change to make deep changes and the things were so bad and it was so public and it needs to changed and what is that? the police cannot be in the hands of a small community because the crime control them. not by money, only they kill

them or get involved and they need a stronger police or talk in the u.s. in a way to follow up the arms. it is full of arms and because you stay here with the drug and the money and we stay with the arms and the violence. that's not a fair game and that's not reasonable. we need to work together to fight the crime and to fight the drugs and to fight all of this, and locally, we need to make in our country and i think that is what will be more stronger now that this problem, to fight with the crime and to fight the crime that this involves in politics and the people that are being in government are involved and they need to be removed and to go by the law and i think that will be important and also we are looking that you are making legal the drugs. that also doesn't make sense. the legality of the marijuana

and they are killing people because of the marijuana in mexico. >> next question back here on the panel, left. >> hi, rob cox from reuters. actually following up on the question about mexico, i spent a lot of time talking to smart and highly paid investors in private equity hedge fund, whatever, around the world and they look at latin america now and they go, not so much, but mexico. we really like mexico. we love the new government and the reforms happening in the oil sector in particular. where are you putting your money? i would be curious to know -- >> i'm putting my money in my country. >> where are you investing? >> in my country and in latin america. >> that's it? >> that's it. >> there is something very important, like the developed countries doesn't find how to move to this new society. you have a stagnation everywhere

from japan, europe, united states, that's a problem from china. china has a good model to know what to do and to come to a industrial society, but which is the kind of society that we will have worldwide in 50 years? there is a confusion about where to move. they are not moving on that and the good thing of our countries, mexico, latin america and the emerging countries is that we have a lot of investments to do and usually we don't have the resources to finance that jobs and now with so much money and so low cost and so long term, the financial resources that used to be the big obstacle for our developments is available. that's what we need in our countries is to develop this

projects of energy now like we were talking with the changing the laws and all of the -- the projects that we have a delay of them that the developed countries already organized should be done by us and also this will move with the new cities and the new way of work. i think i have said that people will work less days. i say three days, 75 years and have 12 days free and that will create new business and new activities and a lot of entertainment and education or trying to do a better job and we'll take out the bankrupt governments that retire people at 60 years or 65 or sometimes i think 20 years after working in some areas. so i think that our countries are a big opportunity for investment for everyone. >> in the middle? >> i was born and raised in south africa and so the idea of going into business in southern

africa really appealed to me once, but i looked at what my parents' friends in business in southern africa had to deal with and i don't want to have to deal with all that nonsense. anyone who applies for rights to mine has to basically tolerate exproep ration. people who own newspapers, they place a critical article in the newspaper and immediately lose their advertisers the next day because they pulled all government contracts. threatened the support unless they withdrew from the newspaper. what lessons have you learned -- how does one go about being a billionaire in russia and the billionaire in china and the risks are so huge you can lose the government's, you know, the next day. in south africa they like to

tell business people you operate because of our magnanimity and the implication is we can change our minds tomorrow. what lessons have you learned for how to tough it out or how to protect yourselves against those risks? >> carlos, do you want to take that? [ speaking spanish ]

[ speaking spanish ] [ speaking spanish ]

[ speaking spanish ] [ speaking spanish ] >> could you give us a bit of a summary in english. >> ah! excuse me. excuse me. >> oh, my goodness.

>> if you are -- if you are -- you need to look if you are going to -- first i say that we are not doing business in some of these countries that you were telling, but anyway if you are involved in some kind of economic activity where you don't need the decision of any officials for the customers to buy your products or for you to sell them you don't have a problem. let's say the decision to buy a -- to go to a movie or to see one film or the other by containing in the tv or pay tv you don't need to ask them for that, that means you don't need to go to the officials or border

for selling your products or for selling your services. >> saud, you're in africa. is that the -- we have to deal with that in all these countries. first and foremost, if it's easy we're not going to be there because a company much bigger than us will be there. so the more difficult that market there is, the better opportunity for us. we like obstacles and as soon as people talk about the challenges about getting into the country we get very excited and once we're in, we have to deal with things like corruption. for us, being a media company to an extent we're immune from it because the very people who highlight corruption, but i mean, for us, i mean, if this -- we stand for eradicating corruption where we have to pay people off, we will quit that market. we have to be careful and we can't take on every corrupt individual. our people have been threatened so we are very careful and selective in how we challenge these individuals. i wish i could say that you know, we take up every single,

krukt individual and we're working on a story on a major identity and we're gathering the filings and we're nervous about the prospect, but we have to go through with it. >> we have time for a couple of more questions at the most. do we have any more in the audience? >> in the front over here. >> brandon barney. most of the opportunities are a result of the population growth. what do countries where the population not growing at the same rate have to do to match their economic growth? what can we learn from them, i guess? >> well, in our case we grow up for 80 years. in some years, 30 years, or 40 years, now we have to grow and it is not only depending on the demographics.

it depends on the population has a better income and that's what i was telling that was very people that people have income and to have income they need to have good education and good health and good education to be a better offer and then to create investments and a great economic activity to generate jobs. as much as they have jobs and the better jobs are very important and that's why the distribution of income is very important and that's why the welfare of the people is better for the society because you will have a bigger market and a big economy and the more dynamic company is you don't have to support the demand and by taking back some tax checks like was done by president bush or now with the gasoline that i was telling by other mean, in our country we have so low income

with the economic activity to keep the jobs and to have people have the money to get involved in the different goods and services. and when you are very small you need to integrate and you have a common market and a bigger market and the companies have a bigger market to serve. >> saud, any thoughts on that. >> i agree with carlos. the population growth is very important and some of the markets we're in, the growth has now, in term of the population growth and it's peaked, but there's significant potential for their gdps to double in the next decade. and if they're off a low base it's a much better educated

population than it has the prospect of growing very, very quickly. >> so it has to be a combination of both. >> one last question from the audience. >> yes, we do have one there. >> hi. my name is carlos gutierrez and i'm from mexico and a ph student from rand. one question, i'm very interested in the relationship between mexico and the u.s. and as a business person, what are the two or three most important challenges that you see in the economic, bilateral agenda between these countries? thank you. >> well, first immigration. i think it should be legalized in some way that things work in a legal way, no? because they say there are 10 million people without documents or something like that. i think that's a very important issue. the other is the possibility to move from each country to the other by that reason and i think

the energy is another important way to connect and they are already in auction and in process to integrate mexico to the network of the united states, to get connected and to make bigger the market the offer and the demand. that will very important for both countries to make this integration and i think more production of work or did i say the united states have a bit more in our countries who own the factories, the outstanding is a great example, is very strong. branch and companies, but also international brands. and to have more the trade is big, but i think when we can be still being developed and that

we can have more investments in mexico that create this economic activity that generated jobs that really grew the revenues of the people and to make these million mexican market stronger. we've got 5 to 6% a year. per capita, maybe 14,000 per capita. the world and it can double in 50 years. you can talk about $35,000 per capita. very important and i'd say that is the way to create more middle classes, a wider, bigger middle class and ascended. a middle class growing up. we do that for 50 years and we need to do it again. how can we do that? moving from the society to the

service society and creating economic activity that the service society requires. >> thank you. so those have been very interest interesting discussions. thank you so much for your insights. insights. you surveyed the landscape from the shale book in the united states and north america to the generational shifts going on in the emerging markets to the remarkable opportunities you see in places like iraq and afghanistan, to the possibility that the turmoil in the middle east and the radical -- the rise of radicalism over the long-term can produce positive benefits. thank you to our panelists. [ applause ] . and some live programming to tell you about on the c-span networks. later ashton carter will talk

about cyber security challenges facing the u.s. joined by admiral michael rogers at ft. mead maryland on c-span. and more road to the white house coverage. remarks from senator rand paul. the kentucky republican will speak from bowie state, maryland also on c-span. and our other campaign 2016 coverage coming up this weekend. this week c-span is in new hampshire for road to the white house coverage of several presidential candidates. tonight at 7:45 to a house party in dover new hampshire, with jeb bush. on saturday just before noon, live on c-span wisconsin cover scott walker at a grassroots

workshop workshop. and ted cruz at a lincoln dinner. road to the white house on stash c-span. here are the featured programs this weekend on the c-span networks. on saturday at 1:00 p.m. book tv is live from the university of arizonafor the tucson for the tucson festival of books and with the obama administration and concussions in football. and on saturday on cspan3 live from longwood university in farmville, virginia for the 16th annual civil war seminar and on sunday we continue the live coverage with the remarks on the

sur render of the confederacy. find the schedule at c-span.org and let us know what you think about the programs you are watching. call us at 202-626-3400 or send us an e-mail at comments at c-span.org or follow us on facebook or twitter. jack lew speaks to the house ways and means committee. this is just under three hours.

>> the committee will come to order. welcome to the committee of ways and means hearing. this is not the agricultural hearing. welcome to the president aez's budget committee. our hearing room is under construction so this is temporary quarters for us so we're not used to the room. before we get started please be advised members may submit questions to be made part of the formal writing. and secretary lew has a hard stop at 1:00 and we'll run this

tight but wherever we cut off we'll start with that member in the cue next time we pick up with the next hearing just to make sure to play it fair like that. so secretary, i want to say something. we got your budget yesterday. i've got to say as a former budget chairman, i'm a little miffed. four years in a row when i was chairman mitty. four years in a row you're late but when i leave, you're on time. but the one positive i would say it is finally on time. and for those of us in the budget world, that means a lot. it sets the tempo over congress. and it means a lot of things, so congratulations on finally giving us a budget on time. that said the irony wasn't lost on me that the administration submitted their budget on groundhog day because it is the

same thing every year. even a little worse. you've raised taxed by $1.7 trillion over the past six years. now you want to raise them again by $2.1 trillion. you want to tax savings and investment in small businesses. sooner or later you're going to start looking for money in the couch cushions so i just want to take an opportunity here to make something really clear. we're not going to raise taxes on the american people. their working harder and harder to get ahead and they're falling behind. wages are stagnating. they deserve a break not another tax increase. the last thing this country needs is with another tax increase. and the biggest kicker, you don't even balance the budget. because you don't get spending under control. but as far as i'm concerned, i would not to focus on the

differences, let's try to find some time to see if there is common ground. i think there may be opportunities to do that. first thing that comes to my mind is trade. we all agree that trade is good for america. because more trade means higher pay. and so our top priority is to put in place trade promotion authority, to get the best trade deals possible we have to be in the best position possible and that is what tpa helps us do. so i will be interested in hering what -- hearing what the administration wants to do with tpa. and with trade, we haven't had high hopes but you've gradually, grudgingly taken a few steps in the right direction, but in my opinion you need to move it farther. for years you talked about fixing the tax code for corporations but not for families and small businesses. tax reform cannot give an unfair

advantage to big public companies over closely-hold family-owned businesses, the administration is now finally talking about helping small businesses as well. even though your specific proposals have been far from adequate, it is a step in the right direction. now the administration is taking a few more baby steps in the right direction to simplify the tax code for middle class families so it is progress, not a lot, but we'll take it. so i would be interested to hear what you have to say about tax reform f. we can find common ground, we need to explore it. but i'll tell you right now what is the president is offering for pass throughs tax corporations, s-corporations, it doesn't cut through. small businesses are the engine of our economy and this committee is not going to do just anything, this committee will not leave them behind. this committee needs to make

sure they are part of the solution. the tax code has to work for everybody. especially families and small business. we need to make it simpler and fair and flatter. we need to make it more globally competitive. we need to create more jobs. that is the way to create jobs and build a healthy economy. so we want to work with this administration and explore common ground. we have two big issues on tax and trade. so let's see if we can work together and with that i would yield to the ranking member mr. levin. >> thank you very much, mr. chairman. welcome mr. secretary, as the chairman said, you are further away. we'll try to make this more personal though. i wanted to start on a personal note to recognize the fact that someone who has served as our staff director on how

[ inaudible ], this is her last hearing. i don't know where she is. >> i'm back here. >> sbell, thank you for all of your work. [ applause ] >> again, welcome mr. secretary. this administration first presented a budget to congress six years ago. back then in the months and february and march of 2009, just weeks after president obama took office the economy lost more than 1.5 million jobs, the most in any two-month period since world war ii. today the economy is experiencing significant growth, with 58 consecutive months of private-sector job gains. over the past four years the u.s. has put more people back to work than europe, japan, and all of the world's major advanced

economies combined. that is hardly a, in quotes, stagnant economy. republicans try to minimize that dramatic turn-around, but it is instructed to visit what their party's presidential nominee in 2012 promised to achieve by the end of his first term in office. mitt romney said and i quote i can tell you that over a period of four years by virtue of the policies that we put in place we get the unemployment rate down to 6% and perhaps a little lower. today, nearly two years before that deadline the unemployment rate has dropped to 5.6%. the ongoing challenge that we confront, a challenge that has persisted for the last three decades dating back to the

reagan years is how to ensure that middle class families are not left out of the growth of our economy is now being experienced and will be experienced in the future. president's budget takes direct aim at that challenge. it includes proposals to support working families by making childcare more accessible, guaranteeing paid sick leave and making permanent extensions of vital provisions including the eitc, the child tax credit and the american opportunity tax credit, and combines changes in the international tax structure and provisions for the long-term needs of our nation's infrastructure. it closes tax loopholes that predominantly benefit a select few. these proposals are not envy

economics, they are everyone-economics. they are not the economics of envy. they are the economics of working for all, not just the very wealthy. through a fiscally responsible replacement for the sequester, the president's budget would allow us to invest in education, medical research and other domestic priorities as well as provide the resources, social security medicare and the irs need to serve the american people and provide for the ever-changing needs for the military as they face new challenges. i hope the republicans and others give these presented in the budget mr. chairman the full consideration they deserve. one of the many outstanding issues in the trade pacific negotiations currency manipulation is mainly in the purview of treasurerly. over the past decade, currency

manipulation by foreign governments has resulted in an increase in unfairly traded imports into the u.s. it has made it more difficult for u.s. exporters to compete in foreign markets it has cost us millions of middle class jobs. tpp includes a number of former currency manipulators such as japan and other countries are discussing tpp who have been in the past manipulating their currencies, including china, korea and taiwan. each of these countries is party to the imf which already prohibits currency manipulation and developed guidelines to define when it occurs. but the problem is it lacks any definement. that is why i suggest building on these guidelines. i've heard that the u.s.

monetary policy might be at risk if we put such restriction in the tpp. the imf guidelines clearly spell out that u.s. monetary policy including quantitative easement is not manipulation. the first is large scale manipulation and the u.s. has not engaged in that. the second factors have an excessive amount of foreign exchange reserves. i could go through each factor but suffice it to say that the imf has supported each round of quantitative easement. this would not be put at risk by support ing supporting quantitative easement. i look forward to discussing with the administration how to include a strong enforceable

manipulation provision as well as tackling the other major outstanding issues in tpp that i outlined late last month in a document that i called a path toward an effective tpp agreement. thank you, mr. secretary, for your dedication and service to our nation for many years going back to the days when you were still much younger, working for tip o'neill. and i'm happy to have you working for this administration. >> thank you. second lieu-- secretary lew, if you could summarize your report in five minutes because you have a hard stop. we would appreciate it. the time is yours. >> thank you very much chairman ryan and ranking members and it is good to be here with you to discuss the president's budget.

and i know mr. chairman this is the first time since you've taken over the gavel. i look forward to working with you on a bipartisan basis to get things done. a year ago president obama said 2014 would be a break-through year for the economy and the evidence is clear over the last 12 months america has made great strides. we're seeing progress in job creation, family growth, economic growth manufacturing exports, retirement accounts stock, graduation rates and the deficit. our business has created 3 million jobs last year the most jobs in any year since the late 1990s. this capped off five years of job growth, the longest stretch of job growth in our history and in the creation of 11 million new jobs. the unemployment rate jobs rate grew in the second, third and fourth quarters of 2014 and

continuing in 2015. from a global perspective can he continue to outgrow our trading partners many of which are still trying to climb out of the economic crisis. at the same time with the affordable care act in place 10 million americans know the financial security of health insurance and health care prices are at the lowest. even as we end the auto market rescue taxpayers recovered more money than we invested. and due to the energy strategy we have closer to nufl dependency and gas prices fell providing a shot in the arm for families and small business. so today we have turned the corner on a small front. this resurgence has not reached every american. for too many hard working men and women in this country. it is still too hard to get ahead and raise a family afford childcare, pay for college and buy a home and secure

retirement. the president's budget meets these challenges by offering real solutions to grow the economy, strengthening the middle class and make paychecks go father. it is that hard work should pay off and it should rein in spending to reduce taxes for families and businesses and manufacturers. this budget replaces the across the board cuts from sequestration and makes cuts while maintaining a responsible fiscal path. as we know, lot long ago some were predicted that the president's policies would explode our deficits but history makes clear the opposite is true. in the 1990s i oversaw three budget surpluses in a row and we were on a page to pay down our debt but when this administration took office there was a very different reality. after years of runaway spending including tax cuts for the most well off and two wars not paid

for and then the financial crisis our deficits reached a world world war ii high. the president moved to right the ship. the agreements forged with congress and a growing economy, the deficit has fallen by plm three quarters and the swift's downward ork following demobilization following world war ii and today we are putting forward a plan to lower the deficits to about 2.5% of gdp even as congress was unable to ub do a -- undo a portion of sequestration and replace the cuts with balance and savings. still nothing has been done to address the cuts in 2016. without action viting funding for defense and education and infrastructure and research will be severely cut back. the president's budget provides a path to eliminate sequestration while achieving the president's long standing

commitment to a balanced approach. it charts a way forward to keep our fiscal house forward with policies needed to keep our nation stronger in the future. one pro-growth strategy is to bring efficiency to our system. by strapping loopholes it reduces the taxes for the most fortunate but do not help our economy and provide tax relief for the middle class and those struggling to join the middle class. our economy should work for everyone and everyone should shoulder their fair share for fiscal health. this budget places a fiscal approach on bipartisan tax reform so america is the best place in the world for businesses to locate and grow and create the good high-paying jobs that support middle class families. this shows how members of both parties can reach a common ground and realize the shared objectives of simplifying the

system and removing wasteful tax preferences and distortions and so we have a tax where some pay nothing and others pay the highest in the world. it is time to stop rewarding those with the best lobbyists and accountants and benefit those who build higher and invest in the united states. it is time to make inversions, a loopholes a thing of the past and this budget does that. a more fair and efficient tax system will create good middle class jobs and grow our economy. we know that with business tax reform there will be a one-time transition revenues. the president wants to use some of these one-time revenues to make long overdue repairs to the roads, bridges, and airports. the need to rebuild our infrastructure isir reputable and this creates a suspended period of funding for a six-year

surface infrastructure bill that will ignite more public and private partnerships across the nation. keeping our country on back and building on the momentum we've made and made it possible for every american to get ahead will require strategies both bold and effective and that is what this budget is about. it provides a series of targeted investments proven to make a difference and it invests in education by expanding student loans, strengthening tax incentives and making college free for those who earn it and starting apprenticeship grants enhancing earning tax credit and increasing the childcare tax credit and providing tax relief for credit when both parents are holding down jobs and making it easier for employees to save for the future and businesses to provide 401(k) to employees. it invests in innovation by creating manufacturing

institutes and starting medical research initiatives and bringing broadband to communities. as this budget calls on congress to sent measures to the president's desk now and well into the future. it helps to pass trade promotion authority. this is part of the president's plan to help improve the lives of millions of hard-working americans while meeting our responsibilities to future generations. task before us now is to put political brinksmanship aside and find common ground. i'm sure we can get this done. i look forward to delivering to the american people and i look forward to getting this done. >> thank you, mr. secretary. there are four areas i want to get into it. i just added one to it from your testimony. the sequester. as the author of the last agreement, the bipartisan agreement to provide sequester

relief i think the formula we reached in that bipartisan budget agreement in the last session was the right precedent and so what was that precedent? it was we understand that the mandatory side of the ledger book, the auto pilot spending is not under control is the source of our debt crisis coming in the future and it needs to be reformed. so what patty murray and i sat down to do was to find an excessive amount of savings on the mandatory side of the ledger book to pay for some sequester relief and to fix the caps for the various concerns that i think on both sides of the aisle people have. but the precedence was you had more spending reductions through entitlement mandatory reforms resulting in net deficit reduction which also got us some sequester relief. so we know it is a show-stopper to raise taxes to pay for some sequester relief.

the president said -- the precedent set was to do two things relief from the sequester and smart relief from other areas of the government and contribute on the net to deficit reduction. so i would argue strongly, we have a good formula in place, we have a good precedent it has bipartisan origins, let's try to stick with that formula. >> mr. chairman, if i might. i think the agreement you and senator murray reached was important and one of the reasons that we've been operating in a more normal way these last two years and one of the reasons the budget could be on time this year. >> yeah. >> so i think working together is important. we obviously present our view of the best way to do it in our budget and we need to work on a bipartisan basis. >> and my point is let's stick with what we had and it is the best way forward. second let me ask you about pass-throughs. it is a good step in the right direction. and mind you and you know this, 80% of american businesses

aren't corporations they are pass-throughs. they file taxes as individuals, sole preprite or ships llcs. the issue of greater concerns these days is unlike the big public companies with large cash and ability to borrow at low interest rates and the post dod frank have found it hard to find credit as banks have restricted lending so we have a cash flow issue. they need cash flow from the current operations just to meet payroll and keep people working but our current broken code makes it harder for people to do that. your budget takes baby steps in that direction. section 179, we'll do this marking this up tomorrow but other proposals like expanded cash accounting our only -- are only helping small c corporations and don't help

small businesses organized as pass-throughs so will you work with us to explore more areas in trying to help these closely-held family businesses we think of as pass-throughs to help them because in this post frank dod world they have even tighter credit? >> mr. chairman i believe our proposals reflect our commitment to making tax reform work for small businesses. we've called it business tax reform on purpose because we think of it as both corporate and small business tax reform. we've put in our plan a number of things to simplify taxes for small businesses to make it possible to take deductions more easily and more quickly. and to lower the tax burden for many small businesses. a lot of different kinds of companies organize as pass-throughs, some of them are mom and pop businesses some are large companies that look like corporations. we look forward to look on a bipartisan basis to see what we

can help small businesses. >> big or small is where most of the jobs come from. i don't think there is enough in this proposal to do justice to what needs to be done so let's keep working on that. transition -- i want to get you down on the record on this idea of tax reform financing highways. your point, just to be clear, it not to support a one-time repatriation holiday such as we did in 2004-2005 but as a means of permanent transition to what you call a new i think, hybrid transition, only do you see tax reform as part of the solution to the highway trust fund issues is that correct? >> mr. chairman, we've pointed out many times that we think that the one-time re pate ration holiday created a perverse incentive. it created incentive for companies to keep their money overseas until the next holiday.

we think the next answer is to have tax reform and change the structure to companies bring their income home and invest it where it is most economically efficient. the idea of tax reform is to have the efficiency of business to invest and not the tax code which is skewing decisions in a way that is inefficient. we believe that what we've proposed in terms of the international hybrid system will create that and the toll charge we've put in is the right way to have a transition and the one-time revenue from the telecharge can fund the highway infrastructure program in a effective way. when you talk to companies, the two things are one to reform our tax code and two to brild our infrastructure so our economy can grow and three, take care of immigration. and so we can take care of two of the three. >> i would take care of the

style. but it is a move in a constructive way. we obviously see it differently. but it is for a permanent conversion to a permanent new system. right. okay. and last question, is eitc. i think the data is clear that the eitc is effective and effective at moving people from poverty into the work force and lowering barriers that are in front of a person who wants to get into the work fofs. but it is also a program that known to have a high degree of fraud. it is known to have a high improper payment rate. a lot of people say well give the irs more agents and they can fix that. i think that is an inefficient answer. will you work with us to try and figure out how we can clean up the management in the structure of the eitc so we can get at this exceptionally high improper payment rate and are there ideas about how it could be restructured and reformed so that it truly goes to those who are really truly and supposed to

get it and not to others? >> mr. chairman i totally agree with you on the importance of the eitc as a bridge to work and to get families back to work in a way that makes good sense. it has been a bipartisan commitment from the inception and i look forward to looking with you to strengthen the eitc. and i agree compliance needs to be improved. we do have resource constraints. i don't think they can be dismissed. the funding of the irs does make it challenging to put the funding into compliance so i hope we can help the irs get the resources it needs. every year they reclaim $2 billion in funding and revenue through the eitc compliance. and we look forward to doing better but it is available to the resources available. we hope there are the resources to doing it properly. >> so my point of asking is that

many of us agree there are other on legislations that this reform could be applied to. let's say childless adults. so if we can contain it within itself, that would be an enormous step in the right direction and that could perhaps lead to a bipartisan common ground success. >> we very much look forward to working together on the childless adult provisions. it is something that i think would fill an enormously important gap in the current system. i don't know whether the costs would be covered by it but would you be happy to look at it and work with you. >> thank you. mr. levin is recognized. >> thank you. mr. chairman you and i have had a few discussions about the issues and all of us want to do more of that. so if i might, i want to ask a broader question of the secretary briefly. but let me just mention about pass-throughs. i think it is one of the major challenges to tax reform as you indicated. and i think it has to be looked

at comprehensively. we're going to mark up 179 and other bills tomorrow and i think it is a mistake to take that outside of tax reform unpaid for, permanent. mr. secretary, you've expressed your view on this before, do you want to just comment briefly on that approach? >> congressman, we have consistently opposed taking these items one by one and making them permanent in an unpaid for way, even provisions that we approve of and part of our plan. i think section 179 should be addressed and expanded in the context of business tax reform and if we can have real progress on business tax reform, that would be a way to get it done in a way that takes the issue off the table for the future and removes the uncertainty that goes with short-term extensions which is where we end up if we don't have business tax reform. >> thank you. mr. chairman, also in terms of international taxation the

secretary has mentioned how i think totally unsuccessful the repatriation was before and what the administration has come up with is kind of a hybrid system and i think we need to get away from the labels and look at how it might work. and let me just say briefly as we continue dialogue, i think we need to look at eitc in terms of its implementation. i think irs help is not the only factor but i think, as the secretary said cutting revenues appropriations for -- for the irs is not the way to go. you can't get tax enforcement when you cut down the irs appropriation. mr. secretary if you would i have almost three minutes, would you use them -- you talked about

in your statement about middle class economics. just tell us if you would, briefly, sum it up what is this vision of the administration when uyou bring that up. >> we've put a lot of thought into this budget to address the challenge of making sure our economy works for middle class families and identified what we think the obstacles and burdens are, including childcare and retirement. we've put in place a series of provisions that we think it will make a difference for middle class families to get ahead. we have an economy on a whole growing at a much better rate than the development of the whole world. but it is not an economy where

there is broad opportunity as there should be. i think that the provisions in this budget provide a first step to solving that. some of the -- the characterizations of this budget have i think been a bit off. it is not about being against one group and for another group. it is about making the system work for everyone. and the truth is, we have distortions in our tax system that allow those with the most wealth and income to avoid paying taxes on the same basis that all of us pay taxes on. let me use an example of stepped-up basis and compare it to the way we pay taxes on ira and 401(k). for anyone that needs to use the assets, you pay income tax when you take it out. if you never need to get access to your savings or accumulated savings, you can pass it on tax-free. that is not right. the system ought to treat all

earning in a similar way. it is not against everyone it is for everyone. >> thank you mr. chairman. >> mr. johnson. >> thank you mr. chairman. you know, welcome mr. secretary. as you know, you are also serving as the managing trustee for social security and i'd like to if we can get a quote up on a screen direct you to it. however, this is what obama had to say when he was first elected. what we have done is kicked this can down the road. we are now at the end of the road and not in a position to kick it any further. we have to signal seriousness in this by making sure some of the hard decisions are made under my watch and not someone else's. that is president obama in january of 2009.

you know we have to signal seriousness and my question to you is, do you agree with what the president said then, yes or no? >> congressman, i think that if you look at the condition of the social security trust fund it is in stronger shape now, a strong economy helps drive that and i think the president has many times said we need to deal with the long-term problems in a bipartisan way but we do have a little bit more time to do that. we've proposed a budget that will build a foundation that will help social security. even our immigration policy for example would have the effect of lengthening the life of the social security trust fund so we think we can improve the conditions of the social security trust fund. >> well i have to disagree. because it falls from $5 trillion to $10.6 trillion while you are in office and that means social security can't pay the

promises it has made. and my next question, do you believe that substantial security finances have continued to deteriorate since president obama took office. >> well, congress, as we all knee, the baby boom would hit retirement age and the baby boom retirement is underway. so if you look at the social security financing, you have to look at the fact it was an entirely predictive term that the terms would get used to pay benefits. >> well then why didn't you make a reel plan to fix it? would you agree that the disability program is in trouble, yes or no? >> well, congressman, disability is a different issue. somebody involved in the 1983 social security reforms, we did a lot to fix the foreseeable shortfall, the problem is that money was spent along the way because of deficits for other purposes. so i don't think it was in the

time of this administration, it was actually before. the disability fund is approaching its exhaustion date. we have proposed a number of reforms in disability. i think there is a broad view that there is going to need to be reallocation of trust fund -- the taxes between the trust funds to deal with this issue in the intermediate term. >> well let's talk about reallocation. you used that word. reallocation is about taking money that would have gone to a retirement and given it to the disability program, is that true or fund? >> reallocation would move revenues from one part of trust fund to another. >> sounds like we're continuing to kick the can down the road. we've got to work today to strengthen and preserve social security. mr. secretary, will the president follow through on the words he said back in 2009 and actually do something on his watch? >> well congressman i think if

you look at the history of the last several years, i think the president is ready to have the conversation on a bipartisan pace is to deal with social security in the long-term. they did not reach the kind of end that led to an agreement. right now we're looking at an economy that would benefit greatly to reach a bipartisan agreement and we do have a bit more time to deal with the long-term issues. i'm not saying they don't need to be addressed but they need to be addressed in a bipartisan atmosphere that is conducive to it. let's make a progress on the things the president was talking about. >> the president -- actually doing something on his watch to fix it. >> immigration would be a great step and we look forward to doing something on that. >> and americans are paying hundreds if not thousands of dollars into social security. mr. chairman thank you for holding this hearing. i look forward to working with

you on this. >> thank you. mr. rangel is recognized. >> i'm going to ask that president obama can do something on his own on this watch. and it is good to look at you and not think of the young man that worked for tip o'neill. and i'm pleased to hear that you and the chairman and most of all of us agree that there is the possibility of trade and tax policy that there is a -- a possibility that we can find some area that we can agree with. now, both of these issues, as important as it is to the country, we need to get votes for these things and it is difficult for some of us to go into the community and say we are for tax reform or for trade

when people talk about what does this mean to me and how does this affect my future and what disposal income will i have will i have pension benefits and can i send my kids to school and can i get a house and pay the rent. it seems we allocate jobs with trade and certainly we can negotiate the trade -- the tax bill so that we can be fair as it relates to what used to be called the middle class but i don't see the jobs in this bill and it is probably difficult to pinpoint exactly who the winners and losers would be in a trade bill. it probably will improve the ability of all of the countries involved to improve the economy, but to find out where are these jobs going to be because if we can do this mr. secretary we get rid of all of this republican and democrat and free

trade business. people want to know if it is good for the country, how is it going to be good for me. it seems to me that if we do have a good trade bill that we will need infrastructure in order to support that trade bill. i don't see how anybody regardless of their party can go to our mayors and our governors and not say infrastructure is a part of trade. the other thing is also education. whatever benefits we get, we have to have a work force, prepared to meet the new economic challenge. if not for the current work force, for those coming into being. now i wish the administration would be able to -- and republicans as well to try to give some of us a package so we're not talking in theory but we are talking about jobs. and if the republican majority can see its way clear in congress to attach education, job training infrastructure, to

a trade package, i can assure you that trade would mean a heck of a lot more to our constituent than just foreigners are dealing with with our president. if we can get that concept that the president accepts it and it is part of the trade agreement, then of course i don't see any objection to giving the president the authority to negotiate a trade agreement, meaning that those things are going to be in it. but i find it very difficult for us to say we're giving the president the authority to negotiate and when the negotiations are complete, all we have is up or down and no input. so i don't know how much time you have to respond but whatever it is, i do believe that trade and tax reform can bring us together for the country, for our party and certainly to improve the image of our congress. >> congress rangel, the basic

reason that we support trade promotion authority and good treaties is because we think it grows the u.s. economy and grows the middle class jobs in this country. you look at the growth in the future, the growth is in emerging economies, it is in the pacific, in areas where other countries are going to be exporting into those markets. we feed to be exporting into those markets too. tpp was designed to be an agreement that would drive standards up. the united states is already more open than most other countries. we already have higher labor standards and environmental standards and other important safeguards. by having an agreement where we make our high standards a mutually agreed set of high standards and by having a world in which we have access to the growing markets, i think it will grow the u.s. employment base and create opportunities for middle class families to have a better future. none of this is a given.

it requires guidelines on the administration to help drive things in the right direction and in the areas i've just described, it will presumably address those issues. it is our job to come back with an agreement that delivers. and we're not going to bring back an agreement that we can't defend is growing the economy and middle class jobs. that is the real reason to pursue them. >> thank you. mr. brady. >> thank you mr. chairman. welcome, mr. secretary. as you know, next month the supreme court is scheduled to hear arguments as to whether the internal revenue service overstepped boundaries over the tax credit subsidies of coverage purchased through the exchanges and the court is expected to announce the decision sometime before the end of june and can you tell me if the irs is doing anything to prepare whether the court could rule against the

irs? >> congress, let me say the affordable care act is working and the tax credits are working. millions of americans now have access to affordable health care coverage. >> but the court is not ruling on that, beyond specifically the irs ruling. >> we believe that we have -- our lawyers have made the arguments, the justice department has made arguments compelling to the court and the thing we have to -- >> mr. secretary i don't want to interrupt and i want to understand. i'm not asking for a prediction on the court ruling but in the possibility that the court will rule for the plaintiffs what planning is the treasure department or the irs doing to deal with that type of ruling? >> there is no question but that an adverse ruling would strip millions of americans of health care coverage due to the loss of the tax credit. >> so you would be -- based on that starting the work now to

prepare for that ruling, correct? >> congressman, i'm saying, the premium tax credits are an essential part of the act and if they were removed there could be serious disruption in many states. >> and to ensure there is not disruptions is the irs planning now to dealing with the disruption. >> we're continuing to implement the law, the law that was written and making sure that all americans have access to this. >> let me ask you this, as secretary today are you guaranteeing that the supreme court will rule for the irs in this case? >> what i'm doing and what we across the administration are doing is implementing the law as it was ruled for the people. >> in effect, are you guaranteeing they are going to rule for the irs and therefore

you have to do no planning? >> i leave it to the justice department to make our legal cases to the court. they have made i think a compelling case. >> but you certainly would not guarantee that today? >> i'm sorry i would not guarantee that. >> would not guarantee the supreme court ruling for the irs? >> i would never presume to speak for the supreme court. >> no. and i agree. because there is a possibility they may rule for the plaintiffs. i guess my question to you is that should that occur republicans are already working to develop a thoughtful plan -- and a thorough plan to offer these millions of americans choices to have affordable high-quality health care. we are doing that work ahead of time. is treasury or the irs doing the same type of work? >> congressman, this issue, as

you know, is currently before the court. i can't comment on the pending litigation. >> i'm not asking about the litigation. >> we are -- our interpretation. >> mr. lew i'm asking about planning in the possibility, as you admitted you can't guarantee the out come so are you planning for that? >> we are confident that our interpretation that americans in every state that are eligible for premium tax as it stands -- >> so you said you can't guarantee the outcome. so as americans work toward a thoughtful plan to address the ruling, will the white house work with us in that eventuality or will you refuse to work with republicans in dealing with that ruling and the millions of americans that could be impocketed? >> congressman the oral

argument hasn't taken place. if there were a ruling that took away the tax credit from the american people, it would be very disruptive. >> right. and in that case will you work with republicans for crafting a solution for those americans so they can have high quality affordable health care. this is simple will you work with us or refuse to work with us. >> i think there is a mistake to think there is a simple solution. it is designed to be based on premium -- [ overlapping speakers ] >> will you work with us or refuse to work with us? yes. >> i'm indicating it would be a serious disruption. we will look at what proposals are made but i'm not going to prejudge what the court does. >> thank you. dr. mcdermott. >> thank you, mr. chairman. >> mr. lew, i applaud the president's efforts to support the middle class.

all through this bill, whether you are talking about sick leave or social security or medicare or student debt the president has made proposals. but my colleague from texas is posing if a next door neighbor takes a bulldozer and knocks down your house, do you have a plan to rebuild your house. and it is about as unreasonable of an idea as i ever heard. the republicans in 5 1/2 years have not proposed any alternative to the aca. in fact, this afternoon at 1:30 they are going to bring a bill out on the floor to repeal it for the 55th time. now, it seems unreasonable to put -- to waste your time planning for something. if they have something they want to bring forward they can lay it on the table in the ways and means committee or in the energy and commerce committee or

something else, but they have never put anything on the table. now i want to talk a little bit about the proposal of the president to close the loophole that gingrich put in the sub-chapter s collection of social security taxes. could you explain to me -- my understanding is that if you have an -- a chapter s corporation, you don't have to pay your employment taxes. so you don't pay for medicare or social security. now, when you get old, you get 65, are you eligible then to go in and get social security and get medicare in a program to which you haven't paid one single dime? >> well, congress, if i can first respond on the point you made about the bulldozer, i've tried to indicate that the degree of disruption would be enormous. i also think it is important for

us to recognize that what we should be working together on is how to make it more affordable and more possible for americans to get health care. and we've always been open to working on that. i think the american people are tired of the debate about repealing the affordable care act and they want to hear more about how to make it work. >> i agree. >> and on the question about eligibility for medicare, there obviously is a significant issue. the proposal that we have in our budget would tax all earnings and professional service sub-chapter s as earnings. they would get social security based on what they paid in so that would address the underlying issue.

>> so these people are not eligible if they did not pay in? >> they pay in but they don't pay in as much as they would. the question here is not whether they are eligible for benefits but whether they are paying in on a fair basis. >> i think it raises $74 billion for the trust fund. >> i believe the issue is more question of whether they are making the payments that are associated with the incomes that they have. >> yes. i'd like to raise a question about student debt. can you give me any reason why students can't renegotiate their loans, if they took a loan out at 9% with a bank, why does it have to stay at 9% for the rest of their life? on my house i've renegotiated my loans three or four times bringing it down to a lesser rate. why can't students do that?

>> congressman we've looked at this issue and worked with congress to come up with proposals with more flexibility on how to manage more flexible debt. it is designed to give favorable access to credit. but the rates are not always at a level that feel competitive with what would be available if there were -- the kind of credit-worthy borrower in the market. i think the challenge is to work through the issues to make sure students know all of the options that they have to repay their debt in a more affordable way, to consolidate their loans, to go through the process of having their payments -- >> did you understand the financial system when you were 20 years old? >> well, the financial system was simpler when i was 20 years old but the answer is probably

not as much as i should have. >> how about mr. reichert? >> secretary welcome. i think most of us are hopeful that the administration is willing to work with us on tax reform and i'm hearing you say that you are. that is good news. from mr. brady's questioning though i took away your lack of an answer to his question as to whether or not you will work with us depending upon the supreme court's decision, that lack of a yes or no answer indicates to me that there is an unwillingness that i'm hoping that doesn't transfer over into tax reform and other issues. i want to focus on the small business pass-through question. and you made some comments that i find interesting. compared to the language in the

budget -- so i just want to get to the bottom of it. hard-working americans deserve a tax code that works for them, not sure. they need to have that consistency and that certainty in the tax code so they know and can plan for their businesses. which gives them the security in having that knowledge and hope for the future and their family and the success of their business. so when you say that you are willing to work with us in the 179 expensing area, can -- can you explain to me why in your budget you did so little in that area for pass-through entities. why didn't you do something a little more bold to begin with if really that is the way you and the president felt about pass-throughs and small businesses.

>> well congressman, i think we've done a number of things in the budget that will help small businesses and pass throughs. >> my question is why didn't you do more. >> well we -- >> just a moment. you agreed with the chairman when you said yes we could do more and we will work with you. my question is why didn't you do the more part first. >> we put forward what we think is a good package. if there is a desire to do more we are open to ideas that would do more. >> i think the challenge is to come one ideas that would work and don't have unintended consequences. >> so the question i asked you are not going to answer. >> well i'll be perfectly candid and i've said this privately to the chairman. this is a complicated area. this is an area where i think it will actually benefit all of us --

>> can i get you do reaffirm that you will work with us. >> yeah i've said that we will work together on this. >> great. so tomorrow as mr. rangel and mr. levin referred to seven bills will be marked up tomorrow in the area of s corporations and making some of those tax extenders permanent. i don't want to talk about the permanency issue. i want to talk about the policy. you said you agreed with the policy. can you give me an example of how these small business measures and legislation could be expanded? because that was your statement a little earlier. you said they should be expanded. can you give me an example of how you might expand s corporation -- >> we've taken up to $1 million, the amount that could be expensed in a single year. for most small businesses than enormous benefit -- >> could you give me an example.

>> i just gave you an example. >> further. you have already said that. give me a little bit more. >> i'm here to present our budget. you are asking me to present things we'll work on in the future. >> i thought you might have some ideas. okay. my last question would be, you know, recently this year we adopted a rules package to perform macroeconomic analysis of major legislation. does treasury from a dynamic model? >> both treasury and jct take account of -- >> does treasury have a dynamic model? do you have one? >> yes. >> okay. thank you. >> good, that was easy. i yield back. >> mr. lewis is recognized. >> thank you mr. chairman. thank you mr. secretary for being here today and thank you for all of your great and good work over the years. mr. secretary, i want you to

make it plain and crystal clear. if the republicans today repeal the affordable care act and later the senate repeal the act, the president saying he's going to veto it. maybe he's changed his mind and will not veto it. maybe just -- >> he has not changed his mind. >> okay. what would happen -- what would happen to the hundreds, thousands and million of people who have the affordable care act now? >> well, congressman lewis, because of the affordable care act we have millions of people, almost 10 million people who have health insurance coverage that they didn't have. and the challenge of providing the kind of security that a family only knows when it has health insurance has taken us

decades to accomplish. we would take a step back to the time when those families do not have that kind of access to health insurance and the kind of security that flows from it. i think it would be a very bad situation. it is why the president would veto a measure that would repeal the affordable care act. >> thank you very much mr. secretary. can you explain what does the president budget do to help more americans prepare and save for their retirement? >> i'm sorry, i couldn't hear your question congressman. >> what is in the budget -- can you explain what is in the budget that would help more americans save and prepare for their retirement? >> mr. lewis, one of the things we've done in our budget is create incentives for employers to cover their workers in 401(k) plans. made it easier for them by giving them tax benefits for the administrative costs of setting

up a plan for matching contributions that employees make. you know, we built that an top of the proposal that we started last year. starting the my ra program where individuals will be able to start with a very safe, easy starter retirement account. we for years now had proposals to go from a system where employees opt into retirement to one where they have to opt out. we know from behavioral economics that that would work to get many, many more people covered. so i think we have a quite robust set of proposals and i think it is something if we could work together on a bipartisan basis would make enormous difference for a generation that is going to need retirement savings for a sound future. >> well are we saving more or saving less? >> as a country our savings rate is improving as our economy has improved. but we need to see middle class workers saving more for their retirement.

if you look at the distribution for retirement savings the average amounts most middle class workers have is not really enough to rely on. you have to strip out of the averages with the very large account due to the averages. and we've tried to put in place the kind of tax incentives to move the process forward. >> thank you. i yield back mr. chairman. >> thank you. >> mr. busani. >> thank you, mr. chairman. welcome, secretary lew. there's been a lot of talk about helping middle class, small businesses, and so forth. i have a real concern about an action treasure took in september 2013 when you issued a regulation penalizing the use of health reimbursement arrangements by employers as a means of financially assisting their employees to purchase health insurance plans on the individual market. why would treasure institute this kind of draconian penalty on small businesses that are struggling, as we've heard

earlier? >> congressman, we have obviously moved through the affordable care act into the system where there is an established way for plans to be put forward, for workers to have access to coverage. and we're working hard to implement it to make sure that it is easy for small businesses to take advantage of and for workers to participate in. >> but there are complications with the -- with this. and the penalty amounts to ten times the fines that would be imposed on larger businesses. in other words, a large business under the employer mandate will be subject to a $3,000 annual fine per employee. but yet if you total up the penalty of a $100 per day per employee for these small businesses, we're talking about 36,500 per employee for small business. it seems to belie the sentiment that you are trying to help small businesses and working

families. >> congressman, our objective and the objective of the affordable care act is to make sure affordable healthcare is available to all. and i believe that the provisions that you are referring to are not consistent with that. i'd be happy to follow-up with you. >> why thank you. this deserves serious attention. i'm hearing from small businesses seeing very high premium increases, up to 40% over last year's premium increases in my district. and yet we have this. so we need to work on this. if i can get back to the budget for a moment. the budget revives the federal unemployment surtax. and in case members don't recall this is a tax created in the 1970s, and it's outlived its purpose in the 80s. and that was to recover the cost of ui extended benefits paid in the 1970s. this tax stuck around for a long time. we finally ended it in 2011 and yet the administration now wants to revive this temporary tax in the budget.

why? what is it going to be used for? >> for a number of years now we have been putting forward proposals to try and make sure that the unemployment system is on sounder financial footing. we've put forward our ideas how to accomplish that. we think it is an important objective and we would look forward to working together in a bipartisan way to know that the unemployment system is in sound financial footing going forward. >> we'll work with you on a that and i hope we can get to some resolution. and with the remaining time i have. you won't be able to answer the question have for you. but it relates to treasury's role in developing the model with regard to our negotiations with china. this has got to be a top priority. i would be very interested in getting a full understanding of what treasuries doing with regard to that development and our negotiations with china. and likewise with india. because the president just announced with prime minister